The Swing Overview - Week 3
The market we are currently watching could be described as nervous, as concerns about whether the global economy will continue to grow keep investors on edge.
Chinese data earlier this week suggested that growth in the world's second largest economy is slowing as industrial production grew 5.3% in August compared to 6.4% in the previous month. Industrial production has been falling since April this year.
Economists are further concerned that the growth of the US economy in 3Q 2021 will be negatively impacted by the spread of the Delta coronavirus.
Thus, the growth in equities was not supported by strong US retail sales data. Although the US retail sales rose by 0.7% in August instead of the expected 0.8% decline, rising US bond yields and a strengthening US dollar prevented equities from appreciating. Consumer price inflation data, which was lower in August than in the previous month, did not bring relief either. Prices rose by 0.3% in August, compared with a 0.5% rise in July.
The fact that the Fed is likely to start tapering its bond purchases this year is probably reflected in the market jitters.
The SP 500 is testing lower trend line
The US indices continue to be in an uptrend and the current correction may be a tempting entry point for investors to buy a dip. However, there has been a slight break of the lower rising trend line in the SP 500 index. The upper trend line along with the lower trend line forms a rising wedge formation. This often appears in uptrends and if the lower trend line is broken, it may signal the end of further growth.
Figure 1: US SP 500 index on the daily chart
However, the price of the SP 500 has also reached the EMA 50 moving average, which has acted as a support in the past.
Horizontal support according to the daily chart is at around 4350, resistance at the historical peak of 4,550.
DAX is in consolidation
On the H4 chart, a triangle formation has formed in the DAX index, which will soon be completed by breaking one of the trend lines.
Figure 2: DAX on the 4H chart
The moving averages of the EMA 50 and SMA 100 suggest that a downward breakout could occur. In that case, the next support would be at the 15,450 level. If this level was broken, then there would be room to fall to 15,050.
The euro continues to weaken against the dollar
The EURUSD is currently moving in a downtrend channel as seen on the 4H timeframe.
Figure 3: EURUSD on H4 and daily chart
On the 4H chart, we can also see that the EMA 50 moving average has fallen below the SMA 100, which currently indicates bearish sentiment. The price could fill the bearish gap (long black candle) and reach the resistance at 1.1800 or the upper trend line of the descending channel, where some traders may consider trades in short direction.
Gold on knees
In times of uncertain global growth, investors tend to invest in less risky assets such as US bonds or in the past it was gold. Currently, however, gold is suffering from a strong US dollar and Thursday's surprisingly strong US retail sales data sent gold into strong red numbers.
Figure 4: Gold on H4 and daily chart
The price fell to 1,745 on Thursday, where it stopped at support. In case of a breakout then a drop to the price of 1,680 can be expected. Resistance is in the band around 1,780.