Development of coronavirus pandemic was the main driver in rather dull markets last week. Just when it looked like risk-off was back on second wave of infections, markets were saved by news from Gilead Sciences regarding the test results on redmesivir. NASDAQ has extended its record run, helping treasury yields and other stock index rebounded on Friday.
The picture in the currency markets were relatively mixed. Sterling ended as the strongest one, followed by New Zealand dollar and then Yen. Canadian Dollar was the weakest, followed by Dollar and then Aussie. Price actions in most dollar and Yen pairs are corrective looking. Some more time is still needed for the markets to sort out a clear direction.
S&P 500 ended higher on late rebound, NASDAQ extended record run
Despite some jitters, S&P 500 still ended the week slightly higher at 3185.04, after late rally. There is no change in the outlook of SPX. Price actions from 3233.13 short term top are seen as developing into a sideway consolidation pattern, with one more falling leg on the card. Hence, we don’t expect a firm break of 3233.13 any time soon. Instead, sustained break of 55 day EMA (now at 3037.41) will start the third leg of the consolidation pattern. Deeper fall would be seen to 38.2% retracement of 2191.86 to 3233.13 at 2835.36.
NASDAQ extended its record run last week to close at 10617.44. 100% projection of 6190.17 to 9383.37 from 6631.42 was taken out rather decisively. There is no sign of topping yet. Further rise should be seen as long 9663.61 support holds even in case of a pull back. Next medium term target will be 138.2% projection at 11673.23.
10-year yield recovered after dipping to 0.573
10-year yield dipped to as low as 0.573 last week but also followed the market to rebound on Friday, closing at 0.633. At this point, it still looks like 0.543 would provide strong support. There is indeed prospect of further rebound in TNX if risk rally could gather momentum. In any case, as long as 0.543 support holds, it unlikely to see massive risk-off sentiments yet.
China SSE to take on key resistance zone at 3500 after strong rally
On the other side of the planet, Chinese stocks extended recent powerful rally. The Shanghai SSE closed strongly at 3383.32. It’s now close to key cluster resistance zone including 100% projection of 2440.9 to 3288.4 from 2646.8 at 3494.35 and 38.2% retracement of 5178.19 to 2440.90 at 3486.54. We’d expect some strong resistance around this level to limit upside, at least on first attempt.
However, sustained break of 3500 handle could be a strong sign of a medium term up trend in force. So far, the global markets have paid little attention to the rally in Chinese stocks. We’ll see if they’d follow should SSE breaks 3500 firmly.
Dollar index range bound, down side breakout still expected
As for the Dollar index, there was new developments. It’s bounded inside sideway pattern from 95.71. Considering the corrective price actions, even in case of another rise, upside would likely be limited by 55 day EMA (now at 97.83). Fall from 102.99 would likely have a test on 94.65 support before making a bottom for sustainable rebound.
USD/CAD dipped to as low as 1.3490 last week but recovered since then. Near term bullishness is retained after defending 1.3485 support. Initial bias stays mildly on the upside for 1.3715 resistance first. Break will resume the rebound form 1.3315 to 38.2% retracement of 1.4667 to 1.3315 at 1.3831. On the downside, however, break of 1.3485 will argue that the rebound has completed and turn bias back to the downside for retesting 1.3315 low.
In the bigger picture, the rise from 1.2061 (2017 low) could have completed at 1.4667 after failing 1.4689 (2016 high). Fall from 1.4667 could be the third leg of the corrective pattern from 1.4689. Deeper fall is expected to 61.8% retracement at 1.3056 and possibly below. This will now remain the favored case as long as 1.3855 support turned resistance holds. However, sustained break of 1.3855 will turn focus back to 1.4689 key resistance.
In the longer term picture, the bullish case of resuming the up trend from 0.9506 (2007 low) is delayed. Consolidation from 1.4689 is extending for another medium term fall. As long as 1.2061 support holds, such up trend should still resume through 1.4689 at a later stage.