Equities Bounce On Dovish Central Bank Guidance
Benchmark global equities indiceshave seen double digits losses in percentage terms over the last week oftrading. The explosion in investor uncertainty linked to COVID-19 has knocked sentimentfirmly lower. However, over the last few sessions we have seen some smallupside gains as investors respond to recent central bank commentary.
On Friday, the Chairman of the FederalReserve, Jerome Powell, unexpectedly issued a short-statement which notifiedthe market that “The fundamentals of the U.S.economy remain strong. However, the coronavirus poses evolving risks toeconomic activity. The Federal Reserve is closely monitoring developments andtheir implications for the economic outlook. We will use our tools and act asappropriate to support the economy.”
The message fromthe Fed has been taken as a strong sign of forthcoming easing, with moneymarket pricing now reflecting a March rate cut as a near certainty. Followingthat release, the Bank of Japan issued a statement of its own yesterday advisinginvestors that it “will closely monitor future developments, and will strive toprovide ample liquidity and ensure stability in financial markets throughappropriate market operations and asset purchases.” As with the Fed, theBOJ’s message has been taken as forward guidance for forthcoming easing, whichhas helped Asia equities rebound so far this week also.
Along with thesemessages of support from central banks, The IMF and the world bank have announcedthis week that they are ready to extend “emergency financing” in a bid to help centralbanks protect domestic economies against the damage caused by the outbreak. Investorswill now be monitoring markets to see if the recovery can gain further tractionor if we see a return to down-side this week.
Technical View
DAX (Bearish below 12360.30)
From a technical viewpoint. The DAX has found support at a test of the 11860 level lows. While this holds, focus will be on a further recovery towards the yearly pivot at 12360.30. A failure to trade back above the pivot however will put the attention on a further test of the 11860 low ahead of the 11251.48 2019 lows and the yearly S1.
S&P500 (Bearish below 3070)
From a technical viewpoint. The heavy losses in the S&P last week saw price cascading down below the yearly pivot at 2977.75, though price has since recovered above the level. Price is now close to retesting the broken monthly pivot at 3070 which will be key to determining the path of near-term price action.
FTSE (Bearish below 6860)
From a technical viewpoint. The sell-off in the FTSE saw price breaking down below the 2018 lows of 6543.4 before recovering back above the level this week. The main hurdle for the recovery now will be the cluster of resistance around the yearly S1 / Monthly pivot at 6860 – 6870.
Nikkei (Bearish below 22301.5)
From a technical viewpoint. The Nikkei found support at a test of the yearly S1 at 20437.4 though for now, remains below the bearish trend line and the yearly pivot at 22301.5. With longer-term VWAP negative now, the risk of a further move lower is elevated and bulls will need to see price back above the yearly pivot to alleviate bearish risks.
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Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
Past performance is not indicative of future results.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 75% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
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Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!