FOREX
The US dollar index touched a four-month low late on Thursday as investors priced in the outcomes of this week’s central bank gatherings. The key takeaway for foreign exchange traders was the shift in the Federal Reserve’s stance. Jerome Powell hailed the progress made in the fight against inflation and all but announced the end of the current tightening cycle, while also laying the ground for rate cuts in the order of 75 basis points in 2024. On the other side of the Atlantic, the European Central Bank was less dovish. The ECB also hinted at the end of hiking, lowering its inflation forecast, but insisted on the need to maintain rates at the current high levels for longer. With the Fed moving ahead of its peers in laying the ground for the unwinding of monetary tightening, there may be scope for further dollar weakness in the near to medium term.
Ricardo Evangelista – Senior Analyst, ActivTrades
Source: ActivTrader
EUROPEAN SHARES
Stocks edged slightly higher in Europe for the last trading session of the week, paring some of yesterday's losses in a corrective move as market sentiment remains torn in opposite directions.
While global investors are optimistic about the FOMC meeting's recent dovish signals, the market sentiment towards EU equities is unclear. The ECB has raised uncertainty by hinting it is in no hurry to follow the Fed's dovish stance, as inflation remains high.
This has significantly tempered the bullish pressure in Europe, where benchmarks went back towards support levels shortly after registering new highs.
Even though markets still trade inside their bullish trend that started at the end of October, the rally on EU shares has lost momentum.
While clearly seen through technical indicators, several other key factors have contributed to the trend: the ECB's lingering hawkish stance, the fact that investors probably priced in the dovish switch too early, and an overbought situation on EU shares after a 600-points rally on the STOXX-50 index that may lead investors to take out some profit.
With that in mind, the last macro data before Christmas will likely remain critical for stock traders, while major technical levels should be watched cautiously.
The STOXX-50 index still trades above its 4,520.0pts support level but below its last top at 4,595.0pts. The trading range has widened due to increased market volatility in the last few days, but the consolidation remains in place.
Pierre Veyret – Technical analyst, ActivTrades
Source: ActivTrader
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