Source: PaxForex Premium Analytics Portal, Fundamental Insight
Traders could start the week with a quieter trading session due to a US holiday. The absence of professional and institutional traders could spark a retail-led bear market rally. The broad-based bear market is healthy and well-positioned to dominate over the following months, but bear market rallies and bull traps will dot the way, fueling the bear market to new multi-year lows. US policymakers continue believing they can avoid a recession, failing to admit policy mistakes dating back to 2009.
The Peoples Bank of China kept interest rates unchanged at 3.70%, a move expected by markets. Unlike many G-20 counterparts, the PBOC maintained an interest rate environment that did not destroy savings accounts and fixed-income investments. It now has the flexibility to deal with a global recession. The US Federal Reserve will likely hike interest rates by another 75 basis points next month, taking rates to 2.50%, potentially followed by smaller increases until rates reach 3.75% to 4.00%. The Fed also began quantitative tightening to reduce its $9T+ balance sheet, while the US economy continues to weaken. The US is likely to face stagflation following a recession.
The Eurozone struggles with a similar issue but also deals with the fallout from the first land war in Europe since World War II, plus a pending energy crisis. The European Central Bank will increase interest rates in July but remains well behind the curve amid policy mistakes copied from the US Fed and the Bank of Japan. Traders also grapple with the ongoing collapse of the cryptocurrency market. Bitcoin plunged below $20,000 and Ethereum below $1,000 before stabilizing. More downside is likely to follow. The next few sessions could see equity markets setting up a bull trap, and adventurous traders can attempt to catch the move higher while keeping tight stop losses.
The forecast for the Euro STOXX 50 is cautiously bullish for the short-term, as this equity index is ripe for a bear market rally into upward drifting Senkou Span A of its flat Ichimoku Kinko Hyo Cloud before resuming its downtrend. Volatility is likely to increase with the Kijun-sen flat but the Tenkan-sen moving lower. Traders should monitor the CCI in extreme oversold territory nearing a breakout, which could add to temporary upside pressure amid a strong bear market. Can bulls push the Euro STOXX 50 into its horizontal resistance area before bears regain control of price action? 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 breakout above the 3,400 to 3,480 zone, PaxForex recommends the following trade set-up:
- Timeframe: D1
- Recommendation: Long Position
- Entry Level: Long Position @ 3.440
- Take Profit Zone: 3.625 – 3,685
- Stop Loss Level: 3.110
Should price action for the Euro STOXX 50 Index breakdown below 3,400, PaxForex recommends the following trade set-up:
- Timeframe: D1
- Recommendation: Short Position
- Entry Level: Short Position @ 3.110
- Take Profit Zone: 2.890 – 2.950
- Stop Loss Level: 3.400
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