Source: PaxForex Premium Analytics Portal, Fundamental Insight
Equity markets closed the previous session lower but managed the best weekly performance since the bear market began. Earnings season kicked into full gear last week, which was mixed, with overall weaker outlooks. Bargain hunters stepped in to buy what they view depressed price levels, a typical move at the end of the first wave of a bear market. Traders should prepare for two more sell-offs, each recording lower highs, and lower lows, before this bear may go to sleep, completing a cyclical bear market. The past thirteen years of central bank mismanagement may have created a secular bear, which could last years, but it is too early to make such an assessment.
Today’s economic data remains light, dominated by July German IFO data. The German IFO Business Climate Index for July is predicted at 90.1, the German IFO Current Assessment Index at 98.0, and the German IFO Expectations Index at 83.0. Forex traders can compare this to the German IFO Business Climate Index for June, reported at 92.3, the German IFO Current Assessment Index at 99.3, and the German IFO Expectations Index at 85.8. Earnings will dominate price action this week, but traders will also digest more inflation data.
Given the apparent final stages of the bear market rally, traders should prepare for the next aggressive move lower, likely to violate the most recent bear market lows. The overall economic outlook points towards more weakness. Inflation will remain red-hot but could moderate from multi-decade peaks, while central banks will hike interest rates to catch up with inflation. With a growing global debt mountain and rising borrowing costs, equity markets are expected to witness more volatility with an overall downtrend.
The forecast for the Euro STOXX 50 turned bearish after the descending Ichimoku Kinko Hyo Cloud rejected price action. Adding to the bearish outlook are the previous two D1 candlesticks, suggesting an end to the bear market rally. Volatility is likely to remain elevated, with the Kijun-sen and the Tenkan-sen drifting higher as bulls and bears wrestle for control over the next move. Traders should monitor the CCI, which is moving lower in extreme overbought territory. A breakdown below 100 can trigger the next sell-off, extended if this technical indicator slides below zero. Can bears regain momentum and pressure the Euro STOXX 50 into its horizontal support area, challenging bear market lows? 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 3,540 to 3,620 zone, PaxForex recommends the following trade set-up:
- Timeframe: D1
- Recommendation: Short Position
- Entry Level: Short Position @ 3.580
- Take Profit Zone: 3.355 – 3,410
- Stop Loss Level: 3.680
Should price action for the Euro STOXX 50 Index breakout above 3,620, PaxForex recommends the following trade set-up:
- Timeframe: D1
- Recommendation: Long Position
- Entry Level: Long Position @ 3.680
- Take Profit Zone: 3.770 – 3.830
- Stop Loss Level: 3.620
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