- Nasdaq 100 outlook remains bearish amid rising yields
- DAX outlook: Technical analysis point to more losses
- EUR/USD forecast is bearish towards 1.05
- Gold outlook darkened by rising bond yields and US dollar
Welcome to another edition of 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 edition of Technical Tuesday, we will analyse the DAX, Nasdaq, EUR/USD and Gold. So, there is something for everyone!
Nasdaq 100 outlook remains bearish amid rising yields
Markets have struggled in recent weeks amid concerns over rising oil prices and bond yields, subdued economic activity across the global manufacturing sector and still-high inflation in major developed economies. As a result, investors have lost appetite for taking on too much risk. They have been selling stocks and buying dollars. Traders have been happy to sit on the offer and slam asset prices back down each time we see a bit of relief rally. Even gold has fallen this week amid rising bond yields and the dollar.
Unless something changes fundamentally to arrest the bond market sell-off, or the dollar rally, we are expecting more losses to come for the Nasdaq and other risk assets.
The Nasdaq has managed to hold support – at least for the time being – around 14550 to 14715 area (see the shaded region on the chart). If the tech-heavy index breaks below this zone, then more dip-buyers would be left disappointed, who may have to abandon their positions, giving rise to fresh bout of volatility.
DAX outlook: Technical analysis
In line with our previous forecasts, the DAX index has now dropped to the levels where we have been expecting for several weeks now. While a bounce from current levels should not come as a shock, the path of least resistance remains to the downside.
The German benchmark stock index had been flirting with the July low of 15450 for several weeks, so a break down looked almost inevitable, especially in light of the global bond market rout. It finally broke below that level on Monday to hit its lowest level since March, before staging a mild recovery from three later in the day. But former support, now resistance, around 15450 held firm and the DAX has dropped to a fresh 6-month low today. This level is now key. For as long as the bears continue to defend it, the path of least resistance would remain to the downside.
The index has now tested – and bounced – from support around 15265 area. This was the base of the previous bullish breakout at the end of March. While the rebound makes technical sense, there is no reason why it can’t move even lower. Clearly, the short-term trend has turned bearish for the German index, having already broken below its bullish trend line last month, and moving below both the short-term 21- and long-term 200-day moving averages. With the technical bias clearly no longer bullish, we are continuing to favour bearish trade setups over bullish ones.
With that in mind, we will look for resistance levels like 15450 to hold and support levels like 15365 to break down. If the index moves and holds below 15365 then this could pave the way for a potential drop to the next big technical area around the 14675 to 14730 range. The upper end of this range was resistance back in June of last year (the precise high being 14712), and the lower end was resistance in December. The long-term 38.2% Fibonacci retracement level (14730) also comes in around this zone.
So, if the bearish trend continues, the next area we would be looking for a potential bounce would be around the 14675 to 14730 range – around 4% lower from current levels.
EUR/USD outlook: Technical analysis
While this week’s macro calendar is quieter, markets could remain lively, as we have already seen with stock markets resuming their off today. As more and more support levels break down across risk assets, this is likely to trigger follow-up technical selling.
For the EUR/USD, the line in the sand was around 1.0635, the May low. Once this level gave way, we saw further selling pressure come in to drive rates below 1.06 handle for the first time since March.
The EUR/USD closed Monday’s session well below that broken 1.0635 level, leading to a finish below the 1.06 handle. This would have undoubtedly appeased the bears. So, if we now see any short-term strength back into the 1.0600-1.0635 area later in the week, this could well get faded into, keeping the bearish trend alive.
The next downside target is around the 1.05 handle, which is where the lows of January (1.0483) and March (1.0516) were approximately formed.
A higher high is now needed for the EUR/USD bulls. The most recent high prior to the latest breakdown is last week’s high at 1.0737. This is now the line in the sand for many bearish speculators.
Gold outlook: Technical analysis
Unsurprisingly, gold has fallen noticeably so far in the week. This is largely thanks to the bond market sell-off, which has lifted yields and US dollar. In other words, the opportunity cost of holding gold over bonds – which pay a decent nominal, fixed return, unlike the zero-yielding precious metal – has risen. Unless something changes fundamentally, we won’t get too excited by any short-term bullish signals that the metal may create. Instead, we will continue to put more weight to any bearish patterns that might emerge, as they have this week. With the metal back below the 200-day average and a few support levels such as $1930ish, which has already turned into resistance, the path of least resistance is to the downside. A breakdown from the long-term triangle pattern looks more likely than not. So, watch out below. The bears would be eying liquidity resting below recent lows at $1900 and then at $1885 next. Those are our immediate downside targets.
Source for all charts used in this article: TradingView.com
-- Written by Fawad Razaqzada, Market Analyst
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