From last week: “The Nikkei found support just above a critical shelf of support which could be tested this week. If support here is broken, there is substantial room for further weakness, possibly back to the December low.” The Nikkei broke support as expected with a big down day on Friday.
Weakness is evident throughout the global stock markets. The S&P 500 broke the next level of support, and the 40 level on the RSI, but remains in a long-term uptrend. It’s the same story for the Nasdaq 100 and the Dax.
The metals markets are becoming interesting. Gold is potentially decoupling from the dollar as both are rallying together. Similarly, the rally in Gold is in the opposite direction to Copper, which could complete a change of long-term trend to down this week. Silver remains in a long-term downtrend but may test resistance this week.
The currencies have seen mixed trading this week with the dollar index rallying to test the local top before reversing, printing an evening star reversal pattern on the daily chart. This could lead to a test of support in the week ahead. However, the long-term trend continues to favour the dollar against most of the majors.
The dollar declined sharply against the Japanese Yen on Friday as the long-term downtrend resumed on heavy volume.
Interest rate futures
From last week: “As we have been writing for months, the trend globally is towards lower interest rates, not higher. US interest rate futures posted their highest levels in 18 months this past week. UK Long Gilts made their highest print since October 2016 as events of the past week drastically increase the changes of Brexit happening.”
Our comments in last week’s update, which follow on from what we have been writing for months, were right on target as interest rate futures continue to rally, as yields fall. The fed funds rate is now pricing in two rate cuts this year, which is the opposite to what the Fed has been saying for quite a while. Look for interest rate cuts in the US before the end of the year.