The monstrous stock rally continues at full steam, fueled by new tax breaks generated by Trump’s tax reform and better-than-expected China GDP figures.
Europe, the US and China have registered increases, with US indexes peaking after peak. Despite the uncertainty weighing on the markets in the face of conflicts between the US and Iran, Brexit, the trade war (despite the formal signing of Phase 1) the markets seem uninterested and the question for all is: are these stock movements justified by a strong economy and strong domestic individual company indicators, or already complacency, greed and the FOMO effect do not capture the markets.
In the new week we will get it very possible to get an answer to these questions as several of the major central banks will set their interest rates.
Although no changes in rates are expected, the central banks of Japan, Canada and Europe will make statements where they set their expectations for the future path of monetary policy, as well as comment on global growth, health of the global economy and key macro trends within countries.
These comments will be briefly followed, because in plain text they will indicate whether the increase in the indexes is justified.
Another interesting market observation is that despite the strength of the indices and the downturn in the market, gold and silver seem to be holding back, refusing to fall. Safe Haven assets remain a big target for mens managers’ cash flows, and this clearly shows the mood of Wall St – upbeat with optimism. Everyone enjoys the record bullish trend, but they have one in mind and have directed some of their finances to hedging instruments in order to protect themselves. But what exactly are they protecting themselves from? Is there a correction – how deep will it be? Will it give us new investment opportunities or will it launch a long-term downward movement?
There are many variables that play a role in breaking down this topic. One of them – corporate reports – is in full swing. Banking Week passed, with all showing impressive results.
We will be watching the outcome this week, with some of the largest and leading companies publishing their reports for the last quarter of 2019. Just a few of them to find out what they are talking about include: UBS, Netflix and IBM on Tuesday, Johnson & Johnson and Texas Instruments on Wednesday, Comcast, P&G and Intel on Thursday and American Express on Friday.
The results of these huge corporations will determine the short-term movement of the indices and will play the role of a barometer in making investment decisions.
The economic calendar remains relatively empty (excluding central bank statements), so we remain focused on Washington and Downing Street news.
After clearing (at least it seems) of much of the problems between the US and China and easing the tensions in the Middle East, price action signals and technical analysis are back in fashion.
EUR / USD fell below internal support, with the main downtrend remaining in place. During the new week, I expect the trend to continue, finding a good target for sellers of about 1,103 (if there was a break above the diagonal of 1,105 before). The price at the moment of writing is a few pips below the broken head of the broken hed, so I expect a 30-40 pips decrease in the new week (originally mentioned goal – 1.103), then return the price for the test of the broken heel and resume the downward movement. The technical purpose of the head is 1.10, which is a psychological zone that will serve the role of supporting and short-term slowing of momentum.
Trader Aleksandar Kumanov