Forex Analysis And Chartbook: Stocks Attempt Rally as Italian Worries Ease

Monday Market Snapshot

Asset Current Value Daily Change
S&P 500 2,672 1.15%
DAX 30 11,354 1.45%
WTI Crude Oil 51.68 2.56%
GOLD 1,222 -0.07%
Bitcoin 3,723 -5.52%
EUR/USD 1.1339 0.03%

Risk assets staged a relief rally today before the US open, as Europe provided some minor positive catalysts, which, together with the good early Black Friday’s sales reports were enough to cause a bullish shift in investor sentiment. While the major global indices are not out of the woods, even regarding the short-term technicals, given the oversold momentum readings and the positive seasonality, we could see a larger bounce in equities in the coming weeks.

EUR/USD, 4-Hour Chart Analysis

Currency traders are not buying the rally in stocks for now, as despite an early rally in risk-on currencies, and a pullback in the Dollar, the most important pairs are little changed, with only the Yen’s weakness confirming the risk-on shift.

The EUR/USD is back to unchanged after nearing the 1.14 level in early trading, and the Euro’s weakness is a warning sign that the just the fact that the EU and Italy got closer to an agreement regarding the Italian budget won’t solve the structural issues.

While Italian bonds rallied today, together with local banks, the country’s financial system is in very bad shape, and capital flight already began, which will make it very hard for Italy to meet the EU’s budget criteria in the coming years. We expect the long-term weakness in the Euro to persist, even as the last month of the year could see a rebound in the most-traded pair.

S&P 500 Futures, 4-Hour Chart Analysis

The major US benchmarks jumped by almost 2% after the bell, and although they are far below their monthly highs, for now, they are all above their correction lows from October, with even the recently weak Nasdaq climbing back above that support/resistance level today in early trading.

The S&P 500, which held up above its prior last week recovered above 2650 thanks to today’s bounce, but the short-term picture is still bearish, with the declining trend clearly being intact, and the broader risk shift remains dominant both in the US and globally. Barring a rally above 2700, traders shouldn’t enter even in short-term long positions in US equities.

Pound Fails to Show Strength After EU Decision

GBP/USD, 4-Hour Chart Analysis

The GBP/USD pair continues to be very weak, especially given the rally in risk assets, and the expected approval of the Brexit draft plan by the EU member nations. The more important hurdle ahead of the plan will come in the British parliament, and for now, the market seems to be betting on a negative outcome, which could lead to a dip below the August low near 1.2650 in the pair.

AUD/USD, 4-Hour Chart Analysis

The Dollar recovered off its early lows today ahead of the week’s much-awaited G20 meeting and the Fed meeting minutes, and the Greenback’s resilience was apparent in the Dollar index as well, which edged closer to its recent 16-month high.

The AUD/USD, which broke its short-term rising trend last week has been weaker than the other major risk-on currencies today, due in part to the relative weakness in Chinese assets. All eyes remain on the 0.72 level in the pair, as a move below that support could set up the test of the 0.7165 level, with a likely dip to the multi-year low just above 0.70 as well.

ChartBook

Major Stock Indices

Nasdaq 100 Futures, 4-Hour Chart Analysis

Dow 30 Futures, 4-Hour Chart Analysis

VIX (US Volatility Index), 4-Hour Chart Analysis

DAX 30 Index CFD, 4-Hour Chart Analysis

FTSE 100 Index CFD, 4-Hour Chart Analysis

EuroStoxx50 Index CFD, 4-Hour Chart Analysis

Nikkei 225 Futures, 4-Hour Chart Analysis

Shanghai Composite Index CFD, 4-Hour Chart Analysis

EEM (Emerging Markets ETF), 4-Hour Chart Analysis

Forex

USD/JPY, 4-Hour Chart Analysis

EUR/GBP, 4-Hour Chart Analysis

Commodities

WTI Crude Oil, 4-Hour Chart Analysis

Gold Futures, 4-Hour Chart Analysis

Copper Futures, 4-Hour Chart Analysis

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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.