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In the overnight session, Asian stocks moved higher with the two main markets closing in green, with the Hang Seng up 0.51%, and the Nikkei up by 1.77% after significant gaps at the open. The main Chinese equity market closed higher by 0.31%.
Equities in the European session hit new highs as the German DAX touched the 5869.22 top, before prices slid lower to the 5805.90 session low and closed off by 0.4%.
Global equity indices, currencies, and commodities have been trading significantly higher over the last few months and are currently facing some very important resistance levels, at price point levels where a turning point should not be a surprise if earnings season fails to produce anything other than sterling numbers.
“The German DAX is trading close to a significant Fibonacci resistance area, that includes the lows from March and July of 2008, from where some major corrections in valuation may technically follow”, said Grega Horvat, Snr. Currency Strategist at TheLFB.
German Dax Charting
“The equity futures/Usd correlation has been strong recently, and therefore traders may want to keep an eye on the main component of the dollar index. Eur/Usd is approaching the 1.50 level, which is also very important from a technical view, that matches the moves that the Dax is making.”
“The dollar index is in the 74.70 - 75.00 support area with an ending diagonal pattern. An ending diagonal is pattern that occurs in the wave 5 or wave C position of an Elliott Wave technique and signals for a coming turning point. This is on of the most recognizable and powerful patterns that can be found,” Horvat added.
While the Euro is facing 1.50, the Dax and S&P futures are running into resistance, and the dollar index is holding support at the 75.0 region, gold traders may see a bounce lower from the $1070-80 resistance area.
Technically speaking, everything in place for some major changes to possibly follow through if equity market lose steam going into October options expiry on Friday, and as Mutual Funds look to wrap their year up on 31st October. Trend changes and turning points and may be ahead of us, if this group of chart outlooks follows through.
As traders absorb earnings season moves the volatility may increase, and there is very little doubt that fundamentals will drive direction. If it a short reversal to equity support the dollar will find buyers, oil may reverse to $72.50, and gold may look to test $1025.
Forex traders will look to the euro for a momentum lead on the dollar index, and now will have the backing of the ECB, after Jean Claude Trichet twice in the last week called on the U.S. administration to back the strong-dollar policy that is talked of by those controlling the flow of U.S. debt.
“It is extremely important that the U.S. authorities, including the Treasury, the Secretary of the Treasury and the chairman of the Fed, would pursue policies that take into account the fact that a strong dollar is in the interest of the U.S.,” Trichet said at an event in Frankfurt today. “Excess volatility is an enemy from the standpoint of the stability and prosperity of the global economy.”