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The Swing overview - Week 44

Stock indices have experienced another rising week. The US NASDAQ reached a new all-time high and the SP 500 tested last week's all-time high at the end of the week. The US labor market data was again positive and continues to confirm the improving trend. Also, the fact that Chinese developer Evergrande, which is facing bankruptcy, made another interest payment on its bonds contributed to risk-on sentiment.  
 

Data from the US economy

The initial jobless claims fell by 3,000 to 281,000 in the week ended October 23, below economists' expectations of 290,000. This data indicates high demand for labor and it is the fourth consecutive decline.
The Consumer Confidence Index for October came in at 113.8 (up from 109.8 in September). The rise in the index confirms that consumers are willing to spend, which is positive for the US economy.
New home sales are also up with 800,000 new homes sold in September. ¨
GDP in Q3 2021 grew by 2.0% on a year-on-year basis, which is below analysts' expectations of 2.7% growth and the lowest since September 2020.

Next week there is the Fed meeting and the GDP report suggests that the Fed will continue to downplay the probability of raising rates.

 

ECB monetary policy indicated inflation concerns

As expected, the European Central Bank left interest rates and asset purchases unchanged on Thursday. On inflation, ECB Governor Christine Lagarde acknowledged that the decline in inflation will occur a bit later than the central bank expected because the demand for energy and some other products is higher than supply. She also added that the medium-term outlook remains intact.

Market participants, therefore, believe that the central bank has become more worried about inflation. "In our view, the ECB is clearly retreating from its fully convinced view that inflation is transitory," ING said.
In the wake of the news, the euro appreciated strongly, reaching its highest level in a month.

 

The US stocks strengthened

The SP 500 index continues to be in an uptrend and tested the previous all-time high at the end of the last week.

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Figure 1: The US SP 500 index on 4H and D1 chart
 

According to the daily chart, the nearest support is in the area around 4,550. Resistance is then around the all-time-high at 4,600.
A new all-time high was formed on the NASDAQ index last week.


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Figure 2: The US 100 index on H4 and D1 chart
 

The new all-time high is at 15,800, which is the current resistance. The nearest support according to the H4 chart is the area around 15,500 and then 15,300. The moving averages EMA 50 and SMA 100 on both timeframes confirm the current uptrend.

 

The DAX index

The DAX is behind the US indexes so far although it also strengthened last week and approached the resistance around 15,800. On the daily chart, the DAX is again above the SMA 100 moving average, which is a bullish signal.


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Figure 3: The DAX on H4 and daily chart
 

The nearest support is around 15,600, which is the previously broken resistance, and at the same time on the H4 chart, there is the moving average EMA 50. The next significant support is at 15,400.
 

A correction on the USDJPY

The Japanese Yen weakened significantly against the US Dollar during October and the USDJPY pair reached its highest level in three years. But a correction on the USDJPY occurred last week. However, the pair is still in an uptrend and the interest rate differential between the US and Japanese bonds should push the pair higher.
 

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Figure 4: The USDJPY on daily and 4H chart
 

The nearest resistance according to the H4 chart is around 114.3. Support is in the range between 113.0 - 113.2.
 

The euro strengthened against the dollar

The euro strengthened significantly after the ECB monetary policy announcement and reached resistance, which according to the daily chart is near the EMA 50 moving average. The daily chart shows that the EURUSD pair is still in a downtrend and thus the current correction could be an interesting opportunity for speculation on the decline. 

 
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Figure 5: The EURUSD on H4 and daily chart
 

The nearest strong resistance is in the area between 1.1680 - 1.1700. Support can be considered as 1.1620 and then 1.1570-1.1580. Very strong support is at 1.1525.

 

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