Last week the euro fell from a five-week high against the dollar as fears of weakening inflation and a slowdown in corporate lending have raised questions about the momentum of economic expansion. The economic sentiment indicator in the ZE fell to 112.6 in March from 114.2 in February. The pessimistic results of economic sentiment coupled with data that the growth of lending and the supply of currency in the Euro Zone slowed led the pair to depreciate below 1.2400. Supporting the fall, there was also the US GDP in the fourth quarter of 2017, which was above expectations (2.9% vs 2.7%).
On a technical basis, Eur / Usd broke the downtrend since mid-February but ended up showing a huge vulnerability above 1.2400 and subsequently returning to the short-term downtrend. The pair has been consolidating between the retraction lines of fibonacci 0% and 38.2%. If the pair falls bellow the level 1.2240 – 1.2200, there may be a confirmation of a more defined short-term downtrend.
The resistance zone of 1937 points, at the index SP500 was broken today. This level coincides with the Fibo Level of 61.8% from the previous correction. This can confirm the bullish trend of the recent months.
The barrier of 1,950 points is a very important resistance level and was also broken today, i.e., half an hour to the closing of the European session.
The markets recovered from yesterday’s retracement, with gains in Caterpillar Inc. and 3M Co. which exceeded analysts’ estimates. The information released today about the PMI (Purchasing Managers Index) signaled a stronger European economic growth.
Caterpillar, the largest maker of construction equipment, rose 5.1% after raising its profit forecast for the full year with an increase in sales of construction machinery in North America. 3M rose 5.7%. Tractor Supply Co. rose 15%, the most significant rise in the SP500 index.
The presentation of good results by relevant companies and better macro data, helped to feed the confidence of investors.
SP 500 Daily chart:
Today, the Asian markets ended with sharp gains, highlighting the Nikkei with gains of 4%.
As factors that contributed to this were, the rise of Wall Street, the news that the state pension fund will increase their exposure to equities to 25% of its assets and the decline of the Yen against the Dollar and Euro.
The recovery of European markets started to rise strongly from Friday, it’s potential momentum is hard to anticipate, should be volatile and susceptible to shocks. In this initial phase, the most cyclical stocks will be distinguished, including the oil companies which have suffered very significant losses due to the sharp drop in the price of crude.
The earnings season will gain a greater intensity in Europe this week. The results of European companies are an important issue but at this stage, it will be the behavior of American markets, the main catalyst of the indices of the Old Continent. The quarterly accounts of European companies should show their dependence on external markets, so it will be important to monitor what their CEO will mention regarding the devaluation of the Euro that could enhance the competitiveness of their products.
As in Wednesday, yesterday provided relevant evidence about the short-term outlook of American Stock Market. After an indefinite beginning, American stocks were subject to strong sales, however, the SP 500 managed to regain all the lost ground, ending virtually unchanged. Yesterday’s session offers many positive signs. The first is that, investors were not frightened by the initial selling pressure. The second is that this pressure has been losing momentum to the extent that the minimum was higher than the last Wednesday. The third is the stocks most sensitive to economic factors have been the most resilient to selling pressure . Thus, the probability of a technical recovery gains higher weight.
Rumors emerge that inflation remains controlled and is not excluded that the Fed resume the acquisition of debt instruments. These rumors not only fend off fears of an early increase in interest rates as they open the possibility of the FED to inject more liquidity into the economy.
Once again the American stock market closed lower yesterday but the session was particularly interesting and may have given clues about what may happen in the coming days. The session yesterday had several features in common with what is called a day of capitulation. A day of capitulation, which usually occurs after a prolonged decline in the markets, is characterized by a negative start and that is further aggravated by a spiral of sales, with high volume. This spiral of sales is due to the fact that tolerance to loss of most investors is exhausted. These investors after suffering sharp losses in the previous days, decide, emotionally, sell their portfolios at any price. Thus sales of some investors cause sales of others. When this movement leads to extreme prices, many hedge funds, who held positions vendors in the market, start to buy them.
SP 500 Hourly chart:
The decline in recent sessions leave some nervousness in the air, given the possibility to be tested the important support zone that represents the minimum of August. For the particular case of DAX30, the breaking down of this support may create an inversion, with bearish implications (Please notice the illustrated ‘head and shoulders’).
This does not necessarily mean we have to watch to a ‘crash’, but it is certain that from that moment onward the price action would present Lower Highs and Lower Lows, which are not witnessed for a few months.
The charts tell us that the long-term trend remains bullish, even with the break of the mentioned support.
Dax30 daily chart:
Yesterday the North American indexes ended the session almost unchanged, rebounding from losses earlier in the session, a movement that seems to have been purely technical, since some titles were already oversold. In the European market, the situation was quite different, with the major indexes declining more than 2%, as investors react negatively to ECB President Mario Draghi’s speach, on concern the European Central Bank asset-buying plan won’t be enough to revive growth.
As investors assess the strength of the U.S. economy, analysts are predicting a return to gains of more than 200,000 in monthly nonfarm payrolls.
SP500 Hourly Chart: