It all comes down to Higher-Lows to maintain this current trend
The last couple of trading days have been catastrophic for bullish traders, as the major indices and currency pairs have retraced severely after touching major resistance levels. U.S stocks experienced further selling pressure yesterday as a combination of profit taking and economic data forced the indices down to lower levels.
This time round it was housing data that battered trader’s confidence as the results showed that sales of new homes slid by 3.6%. The news was completely opposite to what analysts were expecting and dropped to 402k in September. Furthermore MBA Mortgage Applications showed a decrease of -12.3%. Even though durable goods showed a positive result during pre-market hours, coming out as expected, the data was quickly brushed aside throughout the start of the session.
From a technical point of view, one can see on the chart that investor’s sentiment has flip-sided over the last couple of trading days. Even though support levels are failing to hold, the major indices are still trading above their prior lows. The form of a higher low on the indices would confirm that the current trend is still intact.
Volatility Explodes Higher, Investors flee to the Dollar for Safe Haven
The recent change in sentiment has caused volatility to spike as investors have been quick to rush out of riskier assets and cash-in on recent gains. The VIX, an index known to measure market volatility has increased by approximately 25% over the last couple of trading days. During yesterday’s session the VIX jumped by a whopping 12.4%, due to broad selling and investor’s preference to head back into the U.S Dollar.
From under 75 points the Dollar index has bounced higher over the last couple of trading days and has even broken out of its major trend line resistance. Even though the chart patterns are showing possible signs of a start of a new trend, one must note that overall fundamentals are still pointing towards further Dollar weakness as the U.S economy is slowly crawling out of its dire straits. Will the current bounce turn out to be a fake out?
Dollar index
Surprisingly enough, the currency pair which has been presenting relative strength over the last couple of trading days, has been the GBP/USD. Other pairs such as the EUR/USD and the AUD/USD have dropped due to recent opinions that those pairs have climbed to far too fast. The GBP/USD managed to hold on to its current levels after dropping on Monday and has even presented mild gains. One must note that even though this pair is showing resilience, continued selling pressure across the board could also have an effect on this pair, eventually sending it to lower levels.
By taking a glance at the following comparison chart one can see that while the Euro has severely declined over the last couple of trading days the Pound has managed to hold its ground.
Market Data to Watch Out For
Today’s trading session should be a rocky one, as a wave of economic data is scheduled to be released. Starting in Europe, Germany will release its unemployment rate, which is expected to show a jump to 8.3%. Even though other low priority data will be released throughout the day, eyes will jump to the U.S data, as the GDP result is scheduled to come out. Even though, according to analysts the number is expected to show an increase, recent declines in consumer spending and confidence, could show a different figure and dissapoint.
Market Analysis provided by eToro
Disclaimer: Trading in the Foreign Exchange market might carry potential rewards, but also potential risks. You must be aware of the risks and are willing to accept them in order to trade in the foreign exchange market. Don’t trade with money you can’t afford to lose.
