Pre-Market Analysis And Chartbook: Fed-Optimism Sparks Bounce in Risk Assets as Dollar Falls

Wednesday Market Snapshot

Asset Current Value Daily Change
S&P 500 2,656 0.73%
DAX 30 11,222 1.39%
WTI Crude Oil 54.72 2.49%
GOLD 1,227 0.42%
Bitcoin 4,456 2.39%
EUR/USD 1.1402 0.29%

Yesterday, risk assets had an ugly Wall Street session, with a lot of stocks hitting new multi-month or even multi-year lows, as bulls were running for the exits amid the sharp risk-off shift. The tide has turned today in Asian and European trading on reports that the Fed could halt hiking rates as soon as March, due to the rising global economic risks.

Nasdaq 100 Futures, 4-Hour Chart Analysis

The Nasdaq hit its lowest levels since April yesterday as the weakness in Apple (AAPL), which was caused primarily by the iPhone production cut and the string of analyst downgrades, infected the tech sector which has already been leading the way lower during the current bearish swing.

The benchmark bounced back towards its October low today in pre-market trading but its chart remains wounded, and as the majority of stocks established broader downtrends in the sector and globally, technical headwinds are now very strong, which add to the acute valuation worries.

2 Year US Yield, 4-Hour Chart Analysis

Interestingly, US Treasury yields, which have been drifting lower for over a week, have risen today despite the dovish reports on the Fed’s policies, as safe-haven flows partly reversed amid the global bounce in risk assets. That said, yields remain well below their recent multi-year highs, and that could stabilize the nervous markets somewhat, even if the quantitative tightening, which is likely the main reason behind the broad bearish shift continues in the US.

On a negative note, credit markets are starting to show signs of distress, with credit spreads widening in Europe and the US alike, and as we noted in October when credit markets remained stable, this is an important warning sign for bulls.

Dollar at Decision Point

EUR/USD, 4-Hour Chart Analysis

In economic news, the US Durable Goods report stole the show today, and it missed expectations across the board. The headline figure fell by -4.4%, way more than expected and the more reliable core measure came in at 0.1% missing the consensus estimate of 0.4%. New jobless claims came in higher-than-expected as well, and negative surprises put further pressure on the Dollar, although risk-assets barely budged.

The EUR/USD pair is now trading at a very important juncture following its recent bounce, with the 1.1440 level still being in the center of attention. A sustained move above that would confirm a new short-term uptrend, but since the long-term downtrend is still in no danger, odds still favor a re-test of the lows near 1.12 and any bullish bets should be considered as short-term trades.

AUD/USD, 4-Hour Chart Analysis

The Australian Dollar, which has been performing relatively well in recent weeks thanks to the stability in China and the relative strength of the Australian economy, pulled back amid the broad risk-off shift this week, breaking the rising short-term trendline in the process. Today, the currency bounced back hard due to the meager recovery in the price of oil and the rally in risk assets, and now it is on a make-or-break level compared to the USD.

The long-term trend remains bearish in the Aussie, and today’s setup might prove to be a great opportunity to enter that trend, with a relatively tight stop loss near the recent swing high. On the other hand, a less likely recovery above 0.73 could mean that the short-term trend will continue, with a possible target of 0.7450.

ChartBook

Major Stock Indices

S&P 500 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

GBP/USD, 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.

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