Source: PaxForex Premium Analytics Portal, Fundamental Insight
The German PPI for October dropped 4.2% monthly and surged 34.5% annualized. Economists predicted an increase of 0.9% and 41.5%. Forex traders can compare this to the German PPI for September, which sky-rocketed 2.3% monthly and 45.8% annualized.
Financial markets slowed the pace of their bear market rally as central bankers cautioned that interest rates would move higher to fight inflation. Traders cheered the slowdown in the US CPI and PPI data for October, which added to short-term bullishness, but many have ignored the warnings from companies about their economic outlook. Even if and when peak inflation is in the rear-view mirror, the prospects for a global recession or a multi-year period of stagflation remain. Consumer surveys show an uptick in inflationary expectations as gasoline prices began to move higher, and central banks communicated that their primary fight is to bring inflation down to 2.00% and combat inflationary expectations, which has a more significant negative economic impact, as it influences consumer and business activity.
Traders should not confuse the expected decrease in interest rate hikes as a sign of bullishness. Supply chain bottlenecks will keep upside pressure on producer prices, and this winter’s flu and Covid-19 season could provide unexpected negative shocks, as news out of China this morning shows. Inflation data may show increased month-over-month volatility as it decreases from its peak, but it could take years to reach normalized levels. Consumers may deliver a poor holiday shopping season as inflation cuts into discretionary spending, and debt continues to grow while financing costs increase. Following a healthy bear market tally that reached the 20%+ mark last week, traders should beware of a return of bearish conditions.
The forecast for the Euro STOXX 50 turned bearish following a 20%+ rally off its 2022 bear market lows. This index has reached a massive horizontal resistance area and is closing in on the psychological resistance level of 4,000. The Tenkan-sen and the Kijun-sen show technical short-term bullishness as they continue to ascend, but bearish fundamental weakness is expected to take control of price action. Traders should monitor the CCI after it has formed a negative divergence in extreme overbought territory followed by a breakdown below 100. A temporary spike above 100 could lead to a lower high, and a renewed reversal may trigger the next leg lower. Can bears regain control over the Euro STOXX 50 and force 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 3,890 to 3,970 zone, PaxForex recommends the following trade set-up:
- Timeframe: D1
- Recommendation: Short Position
- Entry Level: Short Position @ 3.925
- Take Profit Zone: 3.570 – 3,650
- Stop Loss Level: 4.000
Should price action for the Euro STOXX 50 Index breakout above 3,970, PaxForex recommends the following trade set-up:
- Timeframe: D1
- Recommendation: Long Position
- Entry Level: Long Position @ 4.000
- Take Profit Zone: 4.085 – 4.130
- Stop Loss Level: 3.970
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