Equities Heading Higher Amidst USD Soft-Patch

Benchmark global equities indices are continuing to rack up gains this week. The European open on Tuesday has seen strong moves across the board, mostly. The NIKKEI and FTSE have both been firmly higher with the S&P and DAX higher also, but much more lightly bid.

Markets have been bolstered recently by comments from Fed chairman Powell last week who warned over the risk of recession linked to higher inflation and tighter monetary conditions. Powell’s comments were interpreted as suggesting better likelihood of the Fed undershooting its planned rate hikes this year as the downturn sets in. While seemingly counterintuitive, given the risks for the economy, asset markets have rebounded on this news, initially at least. With markets now dialling back their tightening projections over the back end of the year, equities have been well-bid.

Looking ahead this week, focus will be on Powell’s comments due at the Sintra Forum tomorrow. If Powell is seen doubling down on his warning last week, this will no doubt exacerbate the current moves, pushing USD lower and allowing equities to move higher still. However, if Powell is seen back-pedalling on his warning or striking a more optimistic tone, this will likely dilute the current upside in equities, allowing USD to trade higher.

Technical Views

DAX

For now, the DAX continues to trade lower within the bear channel once again. Price is sitting back above the 13067.45 level however and with both MACD and RSI turning higher, risks of an upside break are growing. 13672.31 will be the next upside target for bulls.

S&P 500

The rally off the recent lows in the S&P has seen the market trading back above the broken bear channel low. Price is now testing the 3910 level resistance and, with both MACD and RSI bullish here, we might yet see further upside with 4153.50 the marker to watch if we do. To the downside, 3613.50 will be the key support to note if we turn lower again.

FTSE

The rally off the recent 6990.4 lows in the FTSE has seen the market breaking swiftly higher with price now back above 7213.9 and retesting the underside of the broken bull channel at 7362.6. While price holds below the channel, further downside remains the broader focus. However, if price can get back above this level, focus will shift to a test of 7558.7 next.

NIKKEI

The Nikkei has moved sharply off the lows over the last week trading up from the 25595.3 level support to just shy of retesting the falling wedge top around the 27422.9 level. With both MACD and RSI turning higher, focus is on an upside break of the level, putting 28356.6 in focus next.