analytics

Markets at the crossroads: what to look for in February

By February 6, 2019 No Comments
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Google’s quarterly report has completed the active phase of the corporate reporting season in the United States. The largest companies, whose good financial results could have a positive impact on the market, have already reported. Due to the generally good results of companies and neutral macroeconomic statistics, indices managed to win back a significant part of losses. The first month of the year was for the US stock indices, which added from 7% to 9%, the most successful over the past three decades. Economists from the Fed have added optimism by a promise not to raise interest rates before the economy will give clear signals of steady growth.
The main question for investors, what’s next?

Stock market

The most likely response of traders to the uncertainty will be a taking profit, so a correction is quite likely will happen in the next 2 weeks. Before correction bulls could raise the market to 2,800 points. If their forces are already over 200 MA (2740 points), we can see 2620 before the middle of the month.

The depth of correction and the speed of the subsequent recovery of the markets will largely depend on macroeconomic statistics and important political decisions, such as resolving the trade conflict between the United States and China, and the political crisis in the United States. It is possible that the so-called shutdown may be resumed because the parties have not found any points of contact on the issue of building a wall on the border with Mexico.

Forex

The main events in the GBP/USD will be developing around the “soap opera” called Brexit. The British authorities do not lose the hope to agree with the EU on softer rules for crossing the border with Ireland. Britain is increasing chances to prolong its presence after Mar 29, it could cause a sharp jump of GBP. However, the “hard Brexit” option cannot be ruled out yet. For the pound and British stocks, such a scenario would mean a tight drawdown.

Global support in the pair GBP/USD is at 1.283, resistance – 1.32. Going beyond these boundaries will determine further movement in the pair.

In the key pair EUR-USD, the situation will depend on statements by the monetary authorities and relevant macroeconomic statistics. The US Fed has soothed the markets – there will not be a credit rate increase in the near future, which will put pressure on the dollar in the medium term.
However, things are not so simple. The market is deeply concerned that the eurozone economy is approaching another recession or at least stagnation. If statistics confirm fears, the ECB’s monetary tightening can be forgotten, which is very negative for the euro. Encouraging statistics can be a good driver for both the euro and the raw materials market.

The main support and resistance are about 1.128 and 1.15. Practically in this narrow framework, the pair has been trading since mid-November. A long stage of accumulation and distribution may portend a big trend, so investors should be ready.