We've noted the possibility of a near term rebound in stock markets in last weekly and it did happen, even though it's not for the reason we mentioned. ECB's hint of extra easing sent stocks sharply higher towards the end of the week. Even crude oil staged a rebound to close at 32.25. DJIA had the first weekly rise this year and closed above 16000 handle at 16093.51 after diving to as low as 15450.56. In the currency markets, euro was weak after ECB press conference but it s was overshadowed by yen and swiss franc, which tumbled on receding risk aversion. All commodity currencies closed higher with Canadian dollar strongest as lifted by relatively neutral BoC statement. Dollar and Sterling were relatively mixed.
More regarding ECB and BoC in the reports: ECB Signals Further Easing March, As Inflation Dynamics Deteriorated Significantly and BOC On Hold, Revises Lower Growth And Inflation Forecasts .
The coming week will feature some heavy weight events including FOMC rate decision. Fed is widely expected to keep interest rate unchanged at 0.50%. There have been talks that Fed could hike as many as 3-4 times this year. But such speculations cooled after the financial market turmoil this year. Fed fund futures are now only pricing in 32% chance of a hike in March and 52% in June. Attention will be on the FOMC statement to guide the expectation on the chance of a hike in first half. Meanwhile, US and UK will publish Q4 GDP. RBNZ will also meet this week.
The technical developments in the financial markets suggested that rebound in stocks could extend in near term which might give commodity currencies some support and pressure the yen. However, that could be relatively short lived. A short term bottom should be in place at 15450.56 in DJIA, ahead of 15370.33 key support and 15315.65 long term fibonacci level. At this point, the momentum isn't strong enough to warrant a near term reversal yet. Thus, we'd expect strong resistance from 16593.51 to limit upside and bring at least another test on 15315/70 support zone.
From a longer term angle, considering bearish divergence condition in weekly MACD, we're favoring the case that price actions from 18351.36 are correcting the whole long term up trend from 6496.95. Thus, deeper decline should be seen in medium term to 38.2% retracement of 6469.95 to 18351.36 at 13817.58. Nonetheless, a strong break of 16593.51 resistance would make the price action from 18351.36 and sideway pattern. And in that case, a new high would be seen before the long term up trend reverses.
Same as last week, we'd maintain that China will remain a major factor in deciding the direction in global stock markets. The Shanghai A share index stayed in tight range around the last year's low at 2986.39. We'll reiterate that a near term rebound could be due. And in that case, we might see an attempt to come back to 3500 handle. That would trigger further rebound in global stocks and would be a factor in push DJIA through the above mentioned 16593.51 resistance. However, firm break of 2986.39 will likely trigger accelerated selling to 61.8% projection of 5423.24 to 2986.39 from 3856.74 at 2350.76. And the reactions in global markets could be huge. This will remain a major risk for investors in the coming week(s).
Dollar index strengthened mildly last week but the outlook is unchanged. Recovery from 97.19 is corrective looking and argues that fall from 100.51 is going to resume sooner or later. Such decline will be viewed as the third leg of the consolidation pattern from 100.39. Break of 98.37 support will bring a test on 97.19 first. Break there will confirm this near term bullish case and would possibly target 92.62.
