The Swing Overview – Week 47
The stock indices have reached new all-time highs despite accelerating inflation around the world. However, despite threats of monetary tightening by central banks, the overall global economy is doing well, which is positive news for the indices. The biggest risk is slowing growth in China, which is putting brakes on global sentiment.
The EURUSD currency pair saw a sharp weakening in the past week and the Canadian dollar was also under pressure, reaching an interesting resistance where a reversal could occur. Detailed coverage about it is in our article.
Inflation in the world recorded another rise
In the Eurozone, inflation reached 4.1 on an annualized basis for the month of October. In Canada, inflation rose by 4.7%, and in the UK inflation rose by 4.2%, the most since January 2012. It is expected that the UK central bank could move to raise interest rates at its next meeting, which should be positive for the British pound that is recovering from a sharp fall.
Data from the US economy
The initial jobless claims for the week ending November 13 came in at 268k, slightly lower than the previous week's figure, which was revised upwards to 269k. Still, this is the fifth consecutive decline in jobless claims, showing that the US labor market recovery is gaining momentum.
Retail sales rose by 1.7% in October (up from 0.8% in September), confirming that consumption in the US economy is also strengthening. The number of new building permits also rose in October.
This good economic data give support to the Fed's eventual consideration of a tighter stance against rising inflation, as FOMC Vice Chairman John Williams has indicated.
The good economic situation continues to support the rise in US Treasury yields and has had a positive effect on the US dollar, which was strengthening over the past week. The USD index surpassed the 96.0 level, the highest level since July 2020.
Figure 1: US 10-year bond yield and USD index on the H4 chart
China puts the brakes on global sentiment
The shares of China's Alibaba plunged more than 10% after its second-quarter results missed expectations due to slowing consumption, rising competition, and regulatory measures.
Analysts said the decline reflects slowing growth in China this year and the outlook for economic growth next year is weaker than at the start of the year. This is due to Beijing's extensive regulatory policies in many sectors over several months and problems in the real estate sector, which is struggling with a debt burden. The Chinese economy is thus holding back global sentiment. However, it has not had any significant impact on US stock indices so far.
The US stocks continued to strengthen
After a slight correction last week, the SP 500 index has set a new all-time high, which stands at 4,722. The consumer segment contributed to the rise, rising 1.5%, as positive results from retailers Macy's and Kohl's were added to positive news from Walmart earlier this week.
Macy's rose 21.1%, its biggest one-day percentage gain in a decade, after raising its annual profit outlook and hinting at plans for a potential spin-off of its e-commerce division.
Figure 2: The US SP 500 index on 4H and D1 chart
In terms of technical analysis, the index is at the upper boundary of a rising channel, which in the past has acted as a kind of resistance at which stocks have tended to make slight corrections.
Supports, on the other hand, can be found on the H4 and daily charts. The closest support then remains at around 4,650, which the price reached last week. Very strong support is around 4,550, which has formed on the daily chart.
German DAX index
The DAX is also in an uptrend and has been gaining virtually most of the last week, reaching a new all-time high, which is now 16,292. Rising markets like this are quite risky for short speculations. It is preferable to wait for a correction and then speculate on a continuation of the current uptrend.
Figure 3: The DAX on H4 and daily chart
The nearest support is 16,030. The next significant support is at the area around 15,780, where the previous resistance has become the current support.
The EUR/USD has broken below 1.1300
The EUR/USD currency pair is in a strong downtrend and broke the downtrend line last week. The EURUSD pair then recorded a new low for the year at 1.1260. Here the price stopped and a bullish pin bar was formed.
Figure 4: The EURUSD on H4 and daily chart
In case of an upward move, the first resistance level would be the psychological level of 1.1400. Breaking above it would then open the way to the next resistance, which is at 1.1500.
The Canadian dollar under pressure
The decline in the Canadian dollar was influenced by oil, which corrected downwards, and softer-than-expected inflation data in Canada. However, headline inflation still accelerated to 4.7%, keeping pressure on the BoC to continue to normalise policy after ending QE last month.
The BoC has pushed back plans for a first rate hike to Q2 2022, but current risks are skewed in favor of an even earlier rate hike next year. Therefore, the sell-off in the Canadian dollar should be short-lived.
Figure 5: The USDCAD on H4 and daily chart
The Canadian dollar reached the price of 1.2650, which was rejected and the USDCAD returned below 1.26. This created a bearish pin bar on the daily chart. The 1.25 level and then 1.2480 can be considered as the nearest support.