The US Stock markets were able to make great gains against the backdrop of high inflation and higher interest rates. However, they were also able to face an unexpected gap in the late stages of the week. This gap, which was formed by the underlying fundamental or technical factors, can be quite a serious threat to the economy.
EUR/USD has failed to successfully break above its 50% Fibonacci retracement
Earlier this week, EUR/USD reached its 50-day Fibonacci retracement level of 1.0165 and failed to break it. This retracement marks the midpoint between the start and end of the move. It acts as both support and resistance depending on the trend.
After the Fibonacci retracement, EUR/USD pushed lower in a flag formation. It is now testing resistance at 0.65333. If it breaks this, it could drop to its first support at 0.645225. It is also near a shooting star pattern formed at the highs. The bulls may rally towards the previous monthly peak at 1.0200.
The market structure suggests a larger projected target of 1.1430. If it does not break below the 1.1470 hurdle, it will move back to the downward-sloping trendline from February 25th highs.
Stock markets have performed remarkably against the backdrop of high inflation and higher rates
The stock market has performed remarkably well over the past few months, with the S&P 500 up by more than 100 basis points since the beginning of the year. However, the financial markets are now in an uncertain stage. The next move could be an asset price downturn, or a more pronounced deterioration of economic conditions.
As for the big picture, it is not too hard to imagine a scenario in which stocks and rates are more complementary than competitive. Higher rates generally correspond to faster economic growth. This will lead to stronger earnings and the like. In the short term, stocks will feel the pinch, but over time, businesses will be able to adapt.
Gaps occur unexpectedly due to underlying fundamental or technical factors
It’s not uncommon to see gaps in the stock market on any given day. While it is unlikely you will see a gap at every session, you will most likely encounter one at least a few times per week. It’s also not unusual to have a gap on a day when there are no upcoming earnings or major reshuffling of positions. On the flip side, a gap in the opposite direction may signal the end of an uptrend. Traders should be aware of this if they hope to capitalize on it.
In fact, the most common gaps in the market are caused by a combination of factors. Generally, they occur when the market is not trading, such as in the hours after the market closes. The best way to avoid them is to buy when the market is hot and sell when it is cold.
GBP/USD is showing weakness around these key levels
The GBP/USD is having a good run right now, and has managed to squeeze past its 200-day moving average. However, the short-term uptrend has failed to hold and it looks like we are in for another tepid month of hikes.
In the world of technical analysis, a solid move through the 1.06 area will be difficult to come by. But, a knee-jerk reaction may be in order. The price has been bolstered by a reopening of trade in China. This has kept the Aussie on the front foot. The yen is also showing some strong legs, and its dollar counterpart has a good chance of making a push for yen gold.
UK economy is in a serious threat
The UK economy is in serious danger of a recession. The latest ONS forecasts indicate that the economy will shrink by 0.3 percent in the second half of this year and by another 0.3 percent in the first three months of 2023.
The UK has already seen a slowdown due to a high inflation rate, energy shortages, a cost of living crisis, and a pandemic. It is also facing global headwinds, including high oil prices, Russian pipeline gas losses, and climate-related disasters.
The UK government has faced intense criticism for the recent tax cuts, which it promised would spur economic growth and reenergize the British economy. This hasn’t panned out as planned, however.