German 40 threatens lower bound of rising wedge as CCI approaches oversold territory. Consolidation builds in a narrow range with a potential hanging man candle on the daily chart limiting the bullish move.
Dax prices have recently been trading sideways, struggling to break in either direction. While prices have maintained strong bullish momentum at the start of the year, key technical levels have come back into play.
With a rising wedge from the 2022 October low showing a strong rebound that drove Dax prices over 30% over the past four months has run into major resistance at the daily high of 15500.
If prices fall below 15296 (support), a break below 15200 could fuel a bearish breakout. Meanwhile, with the recent data solidifying a higher probability for additional rate hikes this year, fundamental factors will likely assist in driving the next move.
WTI crude oil prices sank 4.08% on Tuesday, marking the worst single-day performance in 2 months. As was the case with most financial assets over the past 24 hours, oil was closely tracking the market reaction to testimony from Federal Reserve Chair Jerome Powell before the Senate Banking Committee.
Oil prices can be quite sensitive to interest rate expectations. After all, higher interest rates would serve to slow down the economy to combat high inflation. If that opens the door to slower growth, then that could translate into less demand for WTI. Focusing on the remaining 24 hours, oil prices are eyeing 2 key event risks. The first is weekly DOE oil inventories. Supply is seen rising by 0.119 million barrels. The second item will be JOLTS job openings data. The latter will offer further insight into the state of the labor market amid the data-dependent Fed.
On the daily chart, WTI seems to be trading within the boundaries of a Bearish Rectangle chart formation. The floor seems to be around 72.27 with the ceiling around 82.13. While prices remain within this pattern, the near-term technical picture may remain neutral. But, a downside breakout opens the door to an increasingly bearish outlook.
GBP/USD continues to trade on either side of 1.2000 in fairly uninspiring trade with the US dollar the driver behind any short-term moves. The US dollar has been moving around this week as Fed speakers continue their hawkish narrative, aided by this week’s punchy core PCE reading that came in hotter than expected. On the flip side, the recent CB consumer confidence data (February) missed by a sizeable margin, adding to any dovish market outlook.
The final S&P UK PMI reading released earlier in the session point to renewed consumer confidence. According to Dr. John Glen, chief economist at CIPS, ‘As recessionary fears started to recede, there were expectations of improving business opportunities in the next 12 months resulting in the highest future optimism since March last year’. With the UK finely balanced between recession and expansion, the Bank of England (BoE) may rein back on future rate hikes after this month’s meeting. The BoE is expected to hike by 25 basis points on March 23. Next week there is very little UK economic data of importance and this again leaves cable looking at the US dollar as the driver of price action.
The daily GBP/USD chart looks mixed with a slight downside bias. Cable is being supported at the same time being pressed down on by the 20- and 50-dmas. There seems to be reasonable short-dated support just above 1.1900, an area that has been repeatedly tested in the last month. A break below would leave the January 6 low at 1.1842 vulnerable.
Even though gold prices aimed higher on Wednesday, the yellow metal might find that maintaining its momentum will be difficult. A weaker US Dollar likely helped give XAU/USD the juice it needed to squeeze out a third consecutive daily gain. Gold’s 1.35% gain this week so far is shaping up to be the best since early January.
Fed Funds Futures indicated that markets priced in a peak policy rate of 5.5% in September shortly after the ISM figures. As a result, the 2-year Treasury yield jumped closer to 5%, bringing the rate closer to the 2007 high.
Traders will turn their attention to the next round of US jobless claims data and an economic outlook speech from Federal Reserve Board Member Christopher Waller.
On the daily chart, gold may be readying to resume the near-term downtrend since late January. A bearish Death Cross recently formed between the 20- and 50-day Simple Moving Averages (SMAs). In fact, over the past 24 hours, the 20-day line held as resistance, maintaining the downside focus.
The euro’s rebound against the US dollar on Monday from near-strong support could be a sign that the single currency isn’t ripe to break lower ahead of the key Euro area CPI data due later this week. From a macro perspective, the story by and large so far this month has been surprisingly strong US data, as reflected in the jump in the US Economic Surprise Index to a 10-month high.
Euro area data have been less upbeat – the Economic Surprise Index is still in positive territory but retreated since the beginning of February. This week, preliminary February CPI inflation data from Germany (Wednesday) and the Euro area (Thursday) will be closely watched. Ahead of the data, long-term euro zone expectations rose to a new 10-month high on Monday. So far, headline Euro area inflation is easing, but core inflation remains sticky. Rate futures are pricing in around 150 basis points of ECB rate hikes by September, largely unchanged from early February.
On technical charts, EUR/USD posted a bullish engulfing pattern on the daily candlestick charts on Monday as it nears a fairly strong cushion at the January low of 1.0480, also the price objective of a minor double top (the February 9 and February 14 highs). See “EUR/USD Price Setup: A Bit More Downside Within a Broader Consolidation?”, published February 20.
This support is crucial as any break below could open the way toward the 200-day moving average (now at 1.0330). Importantly, such a break would disrupt the higher-top-higher-bottom pattern since September, that is, a risk to the five-month-long uptrend.
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