5 Things To Watch Next Week + ChartBook

The Trade Truce Deadline is Here

Shanghai Composite Index CFD, 4-Hour Chart Analysis

The three-month-long truce between the US and China will end next week, and in theory, tariffs on Chinese products worth hundreds of billions of dollars would be implemented in March. While we think that that’s highly unlikely, the exact way of avoiding it is still not clear. Last week, rumors surfaced the two sides are already close to formal agreement, and although we don’t know anything about the details, market participants would likely be happy with anything other than an escalation.

That said, while President Trump will likely declare victory following an agreement, it’s hard to imagine that China will just stop with the practices that the Trump administration and the Western elite in general condemned. The other possible outcome for next week is that the deadline will be postponed, since, given the recent extended round of talks and the gestures that we observed, it would be a huge surprise if the additional tariffs would actually be introduced.

Looking at the performance of the main Chinese markets since the end of the New Year holiday, we see bullish trends, with the Shanghai Composite getting close to the 2800 level, hitting its highest mark in 4 months, and with the Chinese Yuan also being close to its recent highs against the USD.  Despite the rally of this month, Chinese equities are still in a deep bear market, and as the rally on Wall Street is also maturing, a sell-the-news event could be ahead next week.

Major Cryptos in for a Volatile Week

ETH/USD, 4-Hour Chart Analysis

The top cryptocurrencies had a tumultuous weekend, as on Saturday, we saw the resumption of the recent counter-trend rally, while today, the market sold off sharply in a concerted fashion. With the still clearly declining long-term trends in the segment in mind, bulls should remain defensive after today’s plunge even as the leaders of the rally are still holding on to a large chunk of their gains.

Tracking the leaders of the move, and Litecoin, Ethereum, and EOS in particular could help in navigating through next week, with the most rising short-term trendlines in those coins being at the center of attention. Ethereum, which still holds the title of the second largest coin regarding market capitalization, could be the most important digital currency of the week, and a move below $130 would confirm the end of the short-term advance, while a recovery above $150 could give back the hope for bulls.

US Small-Caps Shine but European Stocks Still Lag Behind

DAX 30 Index CFD, 4-Hour Chart Analysis

The duality in global stock markets is still striking, as although the major US indices recovered a big part of the deep year-end sell-off, the already-mentioned Chinese benchmarks and the main European markets continue to severely lag behind. In the US, the Russell 2000, the main small-cap index has been showing the way to the broader market for months now, and the benchmark continued to perform well this week.

On the other hand, while European stocks also gained ground in recent weeks, they are still in bearish technical setups. The German DAX, which has been under pressure due to the horrible economic data from the Eurozone, managed to reach the strong 11,500 resistance this week, and there is good chance that that level will provide too strong for the relatively weak benchmark.

So while investors should keep a close eye on US small caps next week, the divergence between the leaders and the laggards could start to ease, and odds favor a global risk-off shift amid the apparent slowdown in manufacturing and trade activity.

Fed Chair Jerome Powell Testifies in Washington

EUR/USD, 4-Hour Chart Analysis

Jerome Powell will be the star of the week, as the Fed Chair will testify in the House and the Senate on the Fed’s monetary policies, and we will especially be curious of his opinion on the recent set of economic numbers in light of the Central Bank’s dovish shift.

The shift has been one of the key catalysts of the risk rally in the past two months, but as the US benchmarks have been very strong lately, while the US economy held its ground relatively well amid the global slowdown, it will be hard to justify the easy stance of the Fed.

The dollar which got under pressure for a brief period due to the Fed’s shift, has been testing its highs against a basket of currencies in recent weeks, and although a break-out in the reserve currency, which would translate to a key break-down in the EUR/USD, still didn’t happen, the long-term uptrend in the USD is clearly intact. A slightly more-hawkish-than-expected Powell might very well be the trigger of a larger-scale move, but in any case, forex markets are likely in for an eventful week.

Super Friday for Economic Releases

As for economic numbers, the US will provide the most important releases, although we will have a few key European indicators coming out in the second half of the week. The US CB Consumer Confidence Index will be out on Tuesday, together with the Case-Shiller Housing Price Index, US Pending Home Sales and the Canadian CPI report are scheduled for Wednesday, and Chinese Manufacturing and Non-Manufacturing PMIs, the German CPI, the Chicago PMI, and the US Advance GDP print will be released on Thursday.

The last day of the week will be the busiest, as the Chinese Caixin Manufacturing PMI, the British Manufacturing PMI, the Fed-favorite Core PCE Price Index, the ISM manufacturing PMI, US Personal Income, and the Canadian GDP print will all be released on Friday, so will get a lot of new data regarding the health of the global economy.

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Author:
Trader and financial analyst, with 10 years of experience in the field. An expert in technical analysis and risk management, but also an avid practitioner of value investment and passive strategies, with a passion towards anything that is connected to the market.