The trading month ends in just over a week and the dynamics of the markets appear to be highly directional.
We have often talked in recent months how the stock market could have seen an upside start to 2023, but the scenario foresees a further stock market crash due to the lack of liquidity in the long-term macroeconomic scenario, and from a recessionary scenario necessary to bring down inflation which is still very high in Europe and the UK.
In this context we therefore have stock markets that have seen some increases of a certain size since the end of the year, especially in Europe where the Dax has returned to the areas of maximum sales in the first part of 2022, while the Nasdaq still remains slightly compressed on the lows, albeit in the recovery phase.
The short-term dynamics between US stock markets and European markets are very different, with European stocks clearly stronger on the upside compared to Americans who, on the other hand, still find themselves at lows and with a dollar that has seen a strong depreciation in recent months against the main Forex majors. Let’s see together the technical situation before the monthly closing next Tuesday.
Few data and markets on period highs
Unlike the past weeks, this week we find few relevant data, at least not as important as those seen in the past week. The most important information mainly concern the American continent with the release of interest rates in Canada, data relating to the American labor and housing markets. In this context, we find a currency market which is at very interesting levels in the long term with EurUsd close to the 1.09 area, GbpUsd which has returned to retest area 1.24 and with UsdJpy below area 130, all at levels of possible short-term reversal, bearish for the first two changes and bullish for UsdJpy.
A short-term rise of the dollar could be healthy for the currency market, which has seen very strong dollar drops in recent months, with incredible levels that would have compromised the long-term macroeconomic balance of Western economies , with EurUsd at its historic lows and with GbpUsd which has not seen the lows of September for about 40 years.
The rises against the dollar recorded by exchange rates in such a short time are in orders greater than 10% for EurUsd and UsdJpy while for GbpUsd we are approaching a performance of 20%. These numbers are exaggerated when compared to the time it took for the market to record these performances. Equities make history in their own right with the Dax which has recorded a performance of around 28% since October 2022, the Ftse Mib has even returned near 30% from the lows of October, while in the US we have a Nasdaq which from the lows of October registers a timid +10%, while S&P500 +13%.
As we can see, even if the US is much weaker than in Europe, the stock markets are really strong on the upside while Forex has unloaded many dollars on the market in favor of currencies that are still with interest rates lower than the dollar, such as the euro and the pound. In this context, Japan is the only economy that has rising inflation, a likely problem in the near future.
What to expect this week
All markets are at extreme levels, both Forex and the stock market. Observing the very short-term dynamics, there are chances of seeing even substantial retracements, but it is very difficult to talk about a sharp reversal from these levels.
The dynamic between now and the next few weeks could tend towards a phase of lateralisation towards the maximum, to then be able to drop very sharply over the next few months, when the market will end up with economies with interest rates at the maximum and with inflation that will have to come down due to a recessionary scenario induced by central banks.
Most likely, we will see the controlled recession of the economy, hoping for a collapse in inflation that does as little damage as possible to the labor market.
Original article published on Money.it Italy 2023-01-23 13:28:22. Original title: Mercati, giornate decisive per il Forex e per l’azionario
