Indices on a Teeter-Totter: Friday’s Bullish Day under the Microscope

By Tomasz Wisniewski|

Published: August 21 2023, 05:14 GMT+0

Indices on a Teeter-Totter: Friday’s Bullish Day under the Microscope

It’s the start of a new trading week, and as is often the case, our economic calendar looks somewhat sparse today, mirroring the quietude we usually observe on Mondays. Even Tuesday won’t be packed with action, as it’s also going to be relatively empty on the data front. That being said, it seems the market will be holding its breath in anticipation of the key data set to roll out between Wednesday and Friday.

But before we dissect what this week has in store, let’s take a step back and reflect on how the markets wrapped up the previous week. Notably, the dominant topic of discussion is the corrective phase being observed on the indices. After an optimistic display on Friday, the nagging question on every trader’s mind is whether this is the heralding of a new upward trajectory or just a mere take-profit action. Remember, the indices had been on a downward sprint from Tuesday through Thursday. My inclination, and perhaps that of many seasoned traders, is to perceive Friday’s move as more of a profit-taking phase rather than a genuine shift in sentiment or trend. It’s prudent to approach such bullish days with caution, especially when they follow a string of losses.

Drawing specific attention to the DAX, there’s an evident bearish outlook, particularly after the breach of the 15,700-point support. Its American counterpart, the S&P 500, is similarly enmeshed in bearish clutches, setting a somewhat gloomy stage for the major indices.

Shifting our gaze to the currency market, the onset of the week is characterized by the Euro flexing its muscles, while the New Zealand dollar and the Japanese yen appear a tad wobbly. However, let’s not get ahead of ourselves – the movements are relatively muted for now. The USDCHF pairing is drawing particular attention following its breakout from the midterm downtrend line last week. Likewise, the currencies from the antipodes – the New Zealand dollar and the Australian dollar – are under the microscope given their dismal performance last week.

Lastly, let’s not neglect the commodities sector, which is kicking off the week with an energetic stride. Both precious metals and oil are scaling higher, with the latter seemingly eager to retest its recent resistance levels – specifically, $83 for WTI and $88 for Brent crude. It remains to be seen whether this zest will lead to a significant retest of those resistance thresholds.