Source: PaxForex Premium Analytics Portal, Fundamental Insight
Financial markets, especially the tech sector, could face downside pressures as the woes in the banking sector continue. UBS agreed to buy its smaller cross-town rival Credit Suisse for CHF3.0 billion late Sunday evening attempting to prevent a systematic crisis. Credit Suisse, with over CHF530 billion in assets, was twice the size of Lehman Brothers. Unlike the US regional bank collapse of Silicon Valley Bank and Signature Bank, Credit Suisse was at the core of global finance. The fallout of its collapse and rescue will take weeks and months to ripple through the financial system.
The Credit Suisse fire sale to UBS marks the second consecutive weekend a bank or multiple banks failed. First Republic in the US could be next, despite credit lines and capital infusions, and many more regional banks could follow. Some believe the US Federal Reserve will pause its interest rate hiking campaign this month to assess the damage, but inflation remains well above its target. A pause this month and continuation for most of 2023 will make no difference to troubled banks, while a pause could allow inflation to gather steam.
The tech sector, which relies heavily on capital, could struggle more than other sectors, and the NASDAQ100 trails its counterparts in the recent sell-off. More counter-productive financial regulation, as proposed by US Senator Warren and other Democrats, may threaten the future growth of the banking system, which may embrace funding to companies and cool economic activity and innovation. It makes a long period of stagflation more likely. It will deprive tech companies of the retail dollars necessary to grow their firms to receive funding from banks and investors. The vicious downward spiral can force tech valuation down to levels not seen since the 2008 global financial crisis.
The forecast for the NASDAQ100 remains bearish after this equity index spiked into its horizontal resistance area, which previously rejected an advance. Adding to downside pressures is the Ichimoku Kinko Hyo Cloud after the Senkou Span A began to drift lower with the Senkou Span B flat, causing a gradual narrowing of the Ichimoku Kinko Hyo Cloud. The Kijun-sen and the Tenkan-sen flatlined, confirming the lack of short-term upside momentum, which could cause volatility to rise this week. Traders should also monitor the CCI in extreme overbought territory after recording a lower high. A breakdown below 100 could trigger a massive correction, aided by a move below zero, as this technical indicator has plenty of downside potential. Will bears overpower bulls and force the NASDAQ100 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 NASDAQ100 Index remain inside the or breakdown below the 12,350 to 12,600 zone, PaxForex recommends the following trade set-up:
- Timeframe: D1
- Recommendation: Short Position
- Entry Level: Short Position @ 12.475
- Take Profit Zone: 11.465 – 11.675
- Stop Loss Level: 12.885
Should price action for the NASDAQ100 Index breakout above 12,600, PaxForex recommends the following trade set-up:
- Timeframe: D1
- Recommendation: Long Position
- Entry Level: Long Position @ 12.885
- Take Profit Zone: 13.000 – 13.335
- Stop Loss Level: 12.600
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