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Daily Analysis: Markets Paralyzed as Fed-Meeting Looms

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Tuesday Market Recap

Asset Current Value Daily Change
S&P 500 2443 0.11%
DAX 12561 0.05%
WTI Crude Oil 49.87 -0.93%
GOLD 1312.00 0.11%
Bitcoin 4015 0.95%
EUR/USD 1.1993 0.33%

Global stock markets are having a very quiet session before tomorrow’s crucial Federal Reserve meeting that will likely stir up the current trends. Interestingly the Volatility Index (VIX) is edging higher, as institutional players are placing hedges before the unusually uncertain meeting. Short-dated Treasuries are pricing in a hawkish shift by the Fed, and with the expected announcement of the reduction of the central bank’s balance sheet, a lot of things might cause surprises. We also expect a more hawkish Fed following the shift by the BOC and the BOE recently, with a possible spike in the Dollar following the announcement.

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DXY, Daily Chart Analysis

Forex markets were also calmer than in recent days, with only the Aussie and the New Zealand Dollar rallying substantially after the RBA’s meeting minutes and a bullish HPI-release from Australia.  The Euro also ticked higher as the German ZEW index came in much better than expected, but the major pairs are close to unchanged as trading volumes lightened ahead of the week’s main event. Donald Trump gave a controversial speech in the UN, stating that North Korea might need to be destroyed, but investors ignored the President’s words, as safe haven assets remained stable. Gold and the Japanese Yen are hovering near their multi-week lows, as sentiment continued to be positive towards risk assets.

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Gold, 4-Hour Chart Analysis

Cryptocurrencies

The segment calmed down considerably after last week’s storm, as the majors settled down following the post-crash surge. BTC is hovering around the $4000 support/resistance level, and altcoins are following the dominant coin closely, with correlations still being elevated. That fact points to the continuation of the correction, although the overbought readings of the previous rally have already been cleared during the steep sell-off. Dash, NEO, and IOTA are showing relative strength, while Ethereum Classic is the most notable laggard so far this week.

BTC/USD, 4-Hour Chart Analysis

Technical Picture

The Nasdaq is still in a short-term consolidation pattern just below the long-standing 6000 resistance level and the all-time highs just above it. The major tech stocks were pushed lower by the rising yields before the Fed meeting, but we still expect a break-out to new highs in the coming days, given the short-term strength in US equities. Strong support is found near 5900 and around 5750, where the rising long-term trendline is also found.

NASDAQ 100 Futures, 4-Hour Chart Analysis

Key Economic Releases on Tuesday

Time, CET Country Release Actual Expected Previous
3:30 AUSTRALIA Monetary Metting Minutes
11:00 GERMANY ZEW Economic Sentiment 17.0 12.3 10.0
14:30 CANADA Manufacturing Sales -2.6% -1.4% -1.8%
14:30 US Building Permits 1.30 mill 1.22 mill 1.23 mill

Key Economic Releases on Wednesday

Time, CET Country Release Expected Previous
10:30 UK Retail Sales 0.2% 0.3%
16:00 US Existing Home Sales 5.46 mill 5.44 mill
16:30 UK Crude Oil Inventories 5.9 mill
20:00 US FOMC Rate 1.25% 1.25%
20:00 US FOMC Statement
20:30 US FOMC Press Conference

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Analysis

Daily Analysis: Oil Extends Rally as Nasdaq Leads Stocks Higher

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Friday Market Recap

Asset Current Value Daily Change
S&P 500 2749 1.38%
DAX 12,483 0.18%
WTI Crude Oil 63.58 1.29%
GOLD 1330.00 -0.16%
Bitcoin 10,14 -0.09%
EUR/USD 1.2295 -0.28%

US equities built up some bullish momentum towards the end of the week, ignoring the technical damage that the volatility-crash caused, and the major US indices rallied into the close today, squeezing the shorts. The Nasdaq, which led the rally as we expected, took out the key 6850 level in late trading and added another percent to, incredibly enough, finish only a hundred point of the all-time high.

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NASDAQ 100 Futures, 4-Hour Chart Analysis

Should the tech benchmark retest the high next week, it will be amid very strong negative divergences, but hey, those divergences have been building for months now. The rally in equities was boosted by the dip in Treasury yields, especially at the long end of the curve, while Amazon continued ot lead the charge, closing right at the historic $1500 per share level.

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Russell 2000 (Small Cap) Index, 4-Hour Chart Analysis

The advance in the Dow and the S&P 500 is much less convincing and with small caps also lagging the tech-behemoth juggernaut, we remain skeptical regarding the sustainability of the move. That said, if the broader indices stay above the key levels, we will be trading the long side in equities, even as from an investment standpoint, valuations are still way above acceptable.

Forex Markets and Commodities

The lackluster performance of European and Asian stocks adds to the negative divergences, especially as the Euro stopped appreciating against the Greenback, and that should be helping stocks of the old continent. Of course, the DAX and the EuroStoxx 50 could play catch-up next week, barring another surge in the common currency.

EUR/USD, 4-Hour Chart Analysis

The most-traded forex pair remains in a short-term downtrend, as it failed to recapture the previously broken rising trendline, and the commodity related risk-on currencies also remained under pressure. The Canadian Dollar did bounce back off yesterday’s 8-week lows, boosted by the much hihger than expected inflation release and the jump in the price of crude oil.

USD/CAD, 4-Hour Chart Analysis

Oil benefited from the positive shift in sentiment, while the Syrian situation, which took a backseat in the headlines, still supports the rally. The Japanese Yen and gold were stable amid the risk-rally and that adds to our suspicions regarding the upside potential form these levels.

Cryptocurrencies

The segment started out the day with a strong bounce that carried the major coins higher by around 10%, but given the recent steep short-term pullback, even that wasn’t enough to turn the tide, and the day ended with an (almost usual) sell-off after the US close. Despite the recent volatility, the overall picture is still encouraging, with most of the majors being safely above the crash lows, likely in a new bullish cycle that has the potential to last for several more weeks or even months.

While new all-time highs are it guaranteed following the 60-70% declines among the largest coins, but even without those, plenty of upside potential is left for investors. With that in mind, investors should hold on to their coins and even add to their holdings on the short-term dips like the current one.

ETH/USD, 4-Hour Chart Analysis

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Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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Analysis

Technical Analysis: Majors Stage Rally but Strong Levels Still Ahead

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The cryptocurrency segment has recovered from a broad correction today in early trading, with the most valuable coins all turning into green during the session, despite the bearish start to the overnight session. With bottom-to-top gains of up to 15%, the rally helped in easing the worries of bulls, especially in the case of the relatively weaker coins.

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Bitcoin and most of the largest altcoins remained stable during the selloff, and BTC recaptured the $10,000 level quickly after trading as low as $9600 overnight. The initial rally topped out near $10,400, and the coin is trading back near the $10,000 level, as the bullish momentum faded away somewhat.

BTC/USD, 4-Hour Chart Analysis

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That said, we expect the uptrend to continue even if the correction could still carry Bitcoin lower. Further strong support is found between $9000 and $9200, while targets are ahead at $11,300, $13,000, and $14,250.

ETH/USD, 4-Hour Chart Analysis

Ethereum showed strength during the bounce again after yesterday, together with the early leaders of the rally, and although the coin dipped below the $845 level in the second half of the session, the signs remain positive for bulls. Support levels are now found at $780, $740, $625 and $575, while resistance is ahead near $910 and $1000.

(more…)

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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Analysis

Pre-Market: Stocks Refuse to Fall Even as China Takes Over Key Insurer

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Although it should have been a very quiet week in China, thanks to the New Year celebrations, the recent surge in volatility and the plunge in equities didn’t pass without consequences in the key market. Just shortly after effectively shutting down the Chinese version of the Volatility Index (VIX) (presumably to calm the markets…), one of the main actors of the monstrous financial web, Anbang, of the country had to be taken over to avoid a systemic event and stop the “creative” financial engineering that involved criminal activity (the shadow of 2008).

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China will likely need many more duck-tapes like this one if it wants to stop the largest credit bubble in human history to collapse, but for now, the solution could work. Equity futures edged higher since yesterday’s volatile close, and as the major US indices are holding up well, not far off last Friday’s highs, our bearish short-term view might have to be revised.

Nasdaq 100 Futures, 4-Hour Chart Analysis

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As we discussed before, the long-term uptrend is intact, and we expect at least a re-test of the highs even if we are in a large-scale top formation, but we thought that the technical damage caused by the crash three weeks ago would require more healing.

We are not turning bullish just yet, but today’s session could finally decide if we the BTFD-crowd is strong enough to turn the tide after the choppy drift lower this week. We are still focusing on the Nasdaq, as the broader market seems to be following the lead of the tech benchmark, and a move 6850 (in the Nasdaq 100 futures, and still the 2735 level in the S&P) would be a very positive sign for bulls.

DAX Index, 4-Hour Chart Analysis

The German DAX index is also showing some tentative short-term relative strength although it remains almost 10% below its all-time high, and it remains a strong negative divergence to be monitored.

Forex Markets Quiet

EUR/USD, 4-Hour Chart Analysis

The main pairs are trading in a choppy narrow range today after the strong move in the Yen and the drop in the USD yesterday. US Treasury Yields are edging lower today, helping the calm in equities and currencies, but on a bearish note, commodity currencies failed to rebound so far, and they were providing good signals since the crash. Day-traders should note that the Canadian Dollar will likely be very active again, with the Canadian CPI report coming out pre-market.

To sum the outlook up, we are still leaning on the risk-off side here regarding the short-term outlook, but we wouldn’t bet the farm on that, as there are mixed signals before the weekend.

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Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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