With no game-changing events happening yesterday, most stock indices continued drifting north, perhaps aided by the fact that diplomats from Russia and Ukraine will hold new peace talks today in Turkey. That said, we also saw some concerns arising over the performance of the US economy in a few years, which was evident by the flattening and inversion of the 3yr-30yr part of the US Treasury yield curve.
Global Stock Indices Continue to Climb Higher, NASDAQ Leads
The US dollar traded higher against most of the other major currencies on Monday and during the Asian session Tuesday. It gained the most versus NZD, AUD, and GBP, in that order, while it underperformed only against EUR. The greenback was found virtually unchanged against CHF.
The relative strength of the US dollar and the safe-haven franc suggests that markets may have traded in a risk-off fashion yesterday and today in Asia. However, the strength of the risk-linked Aussie and Kiwi points otherwise.
Indeed, turning our gaze to the equity world, we see that major EU and US indices traded in the green, with the only exception being UK’s FTSE 100. Appetite stayed supported during the Asian session today as well.
Among the stock indices under our radar, only China’s Shanghai Composite lost some ground. Maybe that’s because several Chinese cities entered new lockdowns due to the acceleration in the COVID-19 spreading.
With no dramatic events to change the course of the markets, most equity indices continued to respect their latest path of least resistance, which is to the upside. What may have helped investors to add to their risk exposures may have been the fact that diplomats from Russia and Ukraine will hold new peace talks today in Turkey.
Although officials played down the chances of a significant breakthrough, the fact that we have a new round of talks allows a glimpse of hope that some progress could be made, no matter how small. Our view remains the same as last week.
Despite the war still going on in Ukraine and most major central banks beginning their tightening cycles, we still believe that equities could continue trading higher for a while more. And this is for the same reasons we mentioned last week.
We observed that the setbacks in negative headlines are minor than the advances we get when there is hope. At the same time, the increasing expectations over a more aggressive rate path by the Fed seem to have not affected the attractiveness of major growth stocks.
In our view, this means that, barring any other nation getting involved militarily in the war, the conflict at a two-nations level may have been already priced in, something which may also be true regarding an aggressive tightening path by the Fed.
However, we are still far from calling for a long-lasting recovery. We prefer to focus on the short-term picture for now. After all, the war is still raging, and the chances of escalating to something worse are not zero.
Although the US yield curve remains very steep up until the 2yr yield, the 3yr – 30yr part has flattened, with some smaller parts being inverted for the first time since early 2006. This suggests that market participants believe that the Fed’s tightening plans will put the brakes on economic growth in a few years.
NASDAQ 100 – Technical Outlook
The NASDAQ cash index traded higher again yesterday, breaking above the 14845 barrier, marked by Friday’s high. The move confirmed a forthcoming higher high and, combined with the fact that the index continues to trade above the prior downside resistance line drawn from the high of Feb. 2, should keep the short-term picture positive.
At the time of writing, the price is approaching the 15060 barrier, marked by the highs of Feb. 9 and 10, where a break could allow the advance to extend towards the 15275 level, marked by the high of Feb. 2, or the 15365 zone, defined by the high of Jan. 20.
If the bulls are not willing to stop there either, we may see them climbing towards the 15650 territory, defined as a resistance by the peaks of Jan. 16 and 17. We will start examining the case of a decent correction lower upon a break below 14660, marked by yesterday’s low.
This could encourage the bears to push towards the 14450 zone, marked by the low of Mar. 23, where another break could carry extensions towards the low of Mar. 21, at 14185. If that barrier doesn’t hold, then its break may set the stage for the 13975 territory, marked by the low of Mar. 18.
EUR/USD – Technical Outlook
EUR/USD traded higher yesterday after it hit support at 1.0945. However, the recovery stayed limited below the downside resistance line drawn from the high of Feb. 10, which keeps the chances for another round of selling well on the table.
To get confident over a new leg south, we would like to see a clear and decisive dip below 1.0900, support marked by the low of Mar. 14. This could initially pave the way towards the 1.0807 level, marked by the low of Mar. 7, or the 1.0775 barrier, marked by the low on May 14, 2020. Another break, below 1.0775, could see scope for more bearish implications, perhaps opening the path towards the low of Mar. 22, 2020, at 1.0635.
On the upside, we would like to see a clear break above 1.1040 before examining the case of a bullish reversal. This may signal the break above the aforementioned downside line and may initially target the high of Mar. 17, at around 1.1145.
A break higher could invite more bulls into the game, leading the action towards the 1.1235 zone, marked by the high of Mar. 1, or towards the 1.1290 zone, which acted as strong support between Feb. 14 and 22.
As for Today’s Events
Like yesterday, the calendar is very light, with the only releases worth mentioning being Germany’s retail sales for February, the US Conference Board consumer confidence index for March, and the JOLTs Job Openings for February.