Technical Tuesday: Russell and USD/JPY

In this edition, we are getting technical on the small cap Russell 2000 index and the USD/JPY.

Charts (2)

Welcome to Technical Tuesday, a weekly report where we highlight some of the most interesting markets that will hopefully appease technical analysts and traders alike.

In this shortened version of our Technical Tuesday report, we are getting technical on the small cap Russell 2000 index and the USD/JPY.

USD/JPY drops as US PMIs remain below contraction threshold again

 

Today, we had more evidence of a slowing US economy as the preliminary PMI data remained below the 50.0 level again, even if the headline numbers managed to beat expectations ever so slightly.

The S&P Global US Manufacturing PMI came in at 46.8 vs. 46.2 prior to register its 7th monthly print below 50, while the Services PMI scored a hattrick of sub-50 prints (46.6 vs. 44.7 prior). Companies once again highlighted subdued customer demand, with the impact of high inflation hurting customer spending.

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, said:

“The US economy has started 2023 on a disappointingly soft note, with business activity contracting sharply again in January. Although moderating compared to December, the rate of decline is among the steepest seen since the global financial crisis, reflecting falling activity across both manufacturing and services.

As a result of the weakness in US data, the USD/JPY has dropped sharply off its earlier highs, to test the key 130 handle. A closing break below 130.00 would signal the resumption of the downward trend.

Meanwhile, if the dollar stages a surprise comeback later, it will still need to close above the bearish trend line to invalidate its recent bearish bias. So, the USD/JPY is definitely the key FX pair to watch this week.

230124 usdjpy

Russell trying to break key resistance

 

The major US indices have bounced off their earlier lows, as the weakness in data means the Fed would be more inclined to stop its hiking cycle sooner. Traders were also unwilling to bet against the market ahead of the big tech earnings. Microsoft reports its results after the closing bell today along with Texas Instruments. Tomorrow after the close Tesla will report its results.

So, despite more signs emerging that the US is potentially heading into a recession, the markets continue to rise. You would think this would be bad news for small-cap, domestically focused stocks. Yet despite concerns over a looming recession, the Russell has enjoyed a decent recovery so far in 2021, rising more than 6% to outperform the S&P’s 4% rise.

So, given that the bad news continues to be shrugged off, will the Russell manage to break THIS important resistance band starting around 1890?

Russell

If it fails to break the above resistance zone, it will still need to create a bearish reversal to encourage the bears to step in. For example, by dropping below key support 1830.

 

How to trade with City Index

You can trade with City Index by following these four easy steps:

  1. Open an account, or log in if you’re already a customer 

    Open an account in the UK
    Open an account in Australia
    Open an account in Singapore

  2. Search for the company you want to trade in our award-winning platform 
  3. Choose your position and size, and your stop and limit levels 
  4. Place the trade

 

 

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Open an Account