Fresh Risk Factors Emerge
The fundamental backdrop for equities has grown more complicated this week. We have seen a broad recovery over the last few weeks in line with the weakening trend in global COVID-19 numbers which is leading many countries to begin easing lock-downs or planning to do so. With attention now turning to the “next phase” of the battle against the virus (as many political leaders are calling it) hopes for a return to more normal economic conditions have been lifting sentiment.
However, at the same time, other risk factors have emerged which are providing a counter-weight to this optimism, namely concerns over US/China relations and US/Iran relations. The US has returned to publicly blaming China for its poor handling of the virus. There have even been accusations, including from the president himself, that China started the virus in a lab and, as such, the US is now threatening to take financial action against China. This is raising concerns over the prospect of a return to the trade war conditions which dogged the global economy over the last two years.
At the same time, there are fears of a potential conflict between the US and Iran as the two countries continue to trade aggressive rhetoric. The US has condemned Iran for a recent military satellite launch and is pushing to have the UN arms embargo n the country extended beyond October. With frequent stand-offs between US and IRGC navy operations in the Gulf there is a fear that the tensions will spill over into conflict, creating a further drag on risk appetite.
DAX (Neutral, Bullish above 11308.6)
From a technical viewpoint. The DAX failed to break back into the bullish channel, retested last week and has since turned lower. However, price is still holding above the 10268.16 level support, keeping the near term bias neutral for now. Bulls will need to see price break back above the 11308.86 yearly S1 to regain upside momentum.
S&P500 (Bearish below 2884.50)
From a technical viewpoint. The S&P failed at the retest of the broke bullish channel and has since fallen below the 2884.50 level. Market is showing signs of interim topping here and while price holds below this level, the S&P is at risk of a further move lower to the yearly S1 at 2685 first.
FTSE (Bullish above 5771.9)
From a technical viewpoint. The FTSE reversed just shy of testing VWAP last week and has fallen back below the rising trend line from year to date lows. However, price is currently trading back above the monthly pivot 5771.9 and while this level holds, a continuation higher remains in store.
NIKKEI (Bullish above 19076.1)
From a technical viewpoint. The NIKKEI has broken down through the rising trend lie from 2020 lows after retesting the yearly S1 at 20434.6. However, while prices holds above the 19076.1 level, further upside remains in view. Below here, however, the monthly S1 at 18280.5 will be the next target.
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