Global equity market on the run

A look at what is driving markets at the moment

Equity markets around the globe have posted significant performance after March 2020 lows caused by the global lockdown. In some cases, equity markets have recorded a performance of more than 50%. In the chart below, we see clearly that Equity markets have some sort of disconnection with real Economy as many areas in the World are still in quarantine, and the economic activity seems anemic. Specifically, the US stock market has the best performance from all the other Markets.

VIX calms after the Storm

Important to note here is that the VIX Index (Fear factor: Inverse relation with Equity indices: VIX goes up while Equity indices go down) posted a historic high of around 80 and right now is hoovering below 30.

Stretch Valuation? or Future Cashflows......

From Fundamental point of view, the Equity market seems a bit messy as fundamental metrics can be tricky and misleading. From the one hand, we have the lockdown (lack of revenue generation) and from the other hand we have stimulus packages that various Governments have put in place. Nevertheless, the earning season is up and running with many companies reporting their earnings reports, while most of them are easily beating the Analyst Estimate. Important to note here, is that the market valuation might seem a little stretched, however market participants are discounting 2021 and onwards. Also, the supporting monetary policies that a lot of Central Banks have implemented give a breath to the valuations.

S&P 500 holds within bullish channel

S&P 500 has been developing within an ascending channel over the last four months, keeping hopes for a brighter outlook in the short-term. Another bullish signal is that the 50-day SMA has posted a golden cross with the 200-day SMA, indicating that the positive pattern may continue in the medium-term.

The technical indicators give a clear positive direction, as the Stochastic oscillator is hovering in the overbought territory and the RSI is upward sloping above 50-threshold level.

If the index extends gains, resistance could be found at the five-months-high of 3397 psychological level, while if it faces selling pressures, immediate support would be given at 3123 level which is near the 50-SMA. Moreover, if the price manages to surpass below the moving average, the attention could be shifted to the 61.8% Fibonacci of 2933 level.

EURUSD keeps strong uptrend

Looking at EURUSD in the daily chart, the pair had an impressive increase this week, jumping above the 1.1494 barrier and is testing now the 1.1591 high level, which was achieved in January 2019.

A strong positive trend seems to be in place, and this is technically justified by the fact that the ADX indicator is increasingly above the 25-threshold level. Furthermore, the stochastic oscillator is lying in the overbought zone and the MACD keeps increasing momentum above its signal line.

If the bulls stay in control and surpass the obstacle at 1.1591, the next resistance level to watch is the 1.1810 high, which was recorded on September 2018. On the flip side, if selling interest picks up, initial support could come from the fresh 1.1494 level, while moving lower, the door could open for the 1.1367 hurdle near the 20-SMA.

In brief, both, the short- and medium-terms are currently looking bullish, though it should be mentioned that there is a possibility of a pullback in the short-term momentum if the stochastics create a bearish crossover.

AUDUSD posts a pullback after challenging a fresh 1-year high

AUDUSD has jumped this week towards the one-year-high but found an important resistance at the 61.8% Fibonacci retracement level of 0.7132.A pullback from the positive outlook seems to be in place and this is reflected in the flattened Ichimoku lines.

Moreover, both the MACD and the RSI momentum indicators are flattening in positive areas and suggest a short-term pausing of the uptrend. Also, the %K-line of the stochastic oscillator is posting a bearish cross with the %D-line in the overbought zone, supporting the view for a possible downside correction.

If prices continue to bounce higher, above the 61.8% Fibonacci, resistance will come at 0.7391 price level, while a reversal to the downside could find immediate support to the fresh 0.7036, near the Ichimoku lines. Should the price surpass these lines, the 50% Fibonacci could act as resistance for the bears at 0.6822, which is parallel to the Senkou Span A of the cloud.

Summarizing, AUDUSD has been maintaining a neutral to bullish outlook since March 2020 and an advance above the 61.8% Fibonacci of 0.7132 would change the outlook to a strongly bullish one in the short-term.

USDJPY is suffering heavy losses

USDJPY has turned sharply bearish today in the 4-hour chart, dropping to the one-month low, around 106.02 price level. The selling bias is confirmed by all technical indicators. The Stochastic oscillator is pointing south in the oversold area, with the %K-line recording a bearish cross, with the %D-line and the RSI sloping downwards near its 25-mark. Moreover, the Ichimoku analysis displays an overall bearish signal, since the red Tenkan-Sen is below the blue Kijun-Sen line, the current market price is moving below the Kumo (cloud) and the green Chickou Span is lying below the price chart.

Should USDJPY make another move lower, traders could look for support initially at the 106.02 trough, while a drop below this would turn the focus at 104.45 level. Alternatively, if the price heads north, the nearest resistance is provided by the Kijun-Sen line near 106.78, while any new upward attempt, would likely meet the resistance at 107.52 level. A bounce above this region would open the way for the 107.79 barrier and shift the bearish bias to bullish.

Summarizing, a break below 106.02 will reinforce the bearish outlook in the near-term, while the medium-term picture remains neutral.

This article was submitted by Emporium Capital.