Source: PaxForex Premium Analytics Portal, Fundamental Insight
Traders will start the new trading week with an economic calendar empty of market-moving events. The Asian trading session started with major economies on holidays due to holidays. China began its Chinese New Year celebration, Japan celebrated its National Day, Singapore and Hong Kong markets were closed for the Chinese New Year, and South Korea celebrated the Korean New Year. Brazil has its annual carnival and is closed for today’s trading session. Traders are likely to focus on earnings and the Middle East conflict, which keeps driving oil, gold, and silver higher.
Inflationary pressures have grown, but markets have adopted an extremely bullish attitude with a preference for cheering 2023 data and ignoring underlying trends with amplifications for future price action. All-time highs have added to the bullish euphoria, which fuels stubborn bullishness. It also creates an opportunity for bears to force a profit-taking sell-off. Many economic reports for 2024 came in better than feared, but price components have increased. Many companies are likely to pass increased costs on to consumers faster against a backdrop of decreasing revenues and profitability.
Adding to growing issues are rising debt levels, pushing consumers to the edge of their ability to support the economy. The resilient consumer was the hero of 2023, helping fuel economic activity and avoiding a predicted recession. It may have borrowed economic activity from 2024, delaying a recession rather than avoiding it, as central banks are unlikely to deliver the interest rate cuts markets have hoped for. It could spark a massive sell-off in equity markets, which are 20%+ overvalued.
The forecast for the Euro STOXX 50 turned cautiously bearish after this equity index lost its upside momentum. The Tenkan-sen and the Kijun-sen have flatlined, suggesting bulls have exhausted their run in the short term. Volatility could rise with the ascending Ichimoku Kinko Hyo Cloud rising but narrowing, making it vulnerable to a bearish crossover, which could spark a reversal. Traders should also monitor the CCI in extreme overbought territory, as a negative divergence has formed over the past three weeks. A renewed breakdown below 100 may provide the catalyst for a profit-taking sell-off, and this technical indicator has plenty of downside potential. Can bears regain control over the Euro STOXX 50 and drive price action into its horizontal support area? Subscribe to the PaxForex Daily Fundamental Analysis and earn over 5,000 pips per month.
Should price action for the Euro STOXX 50 Index remain inside the or breakdown below the 4,700 to 4,740 zone, PaxForex recommends the following trade set-up:
- Timeframe: D1
- Recommendation: Short Position
- Entry Level: Short Position @ 4.720
- Take Profit Zone: 4.545 – 4,595
- Stop Loss Level: 4.765
Should price action for the Euro STOXX 50 Index breakout above 4,740, PaxForex recommends the following trade set-up:
- Timeframe: D1
- Recommendation: Long Position
- Entry Level: Long Position @ 4.765
- Take Profit Zone: 4.790 – 4.815
- Stop Loss Level: 4.740
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