Nasdaq bears threaten 15K support
The tech-heavy Nasdaq was unable to hold onto the gains made on Monday, joining a global stock market rout. Sentiment has been hurt by weak Chinese data, rising bond yields and valuation concerns, while the lack of fresh bullish catalysts is also discouraging the bulls to buy this latest dip. China’s central bank has cut interest rates but so far this has not helped to offer too much support. Will things change later, or will the selling gather pace?
Looking at the chart, the bulls appear to be in trouble. Many traders’ stops would be resting below Monday’s range. With the index having failed to hold above Monday’s high, it is very likely in my view that the Nasdaq will drop to a new low on the week, and sweep those stops.
In other words, key support around 15K could be taken out today. But watch how the markets close the session to give you an indication of what to expect next.
A decisive move below this 15K may very well trigger follow-up technical selling in the day or days ahead, especially as there are no further obvious levels of support to watch below this level.
Conversely, if we see a sharp, late-day, recovery then this will boost the Nasdaq’s appeal in the short-term outlook.
But overall, the risks do appear to be skewed to the downside from here. However, the bears must be careful not to chase the markets lower too aggressively given the extent of the declines we have already seen on the session, and the fact that longer-term trend is bullish.
China’s yuan lead EM sell-off
The loss of risk appetite is also evident in falling emerging market currencies, led by China’s yuan with the USD/CNH (0.5%) reaching its highest level since November 2022 today. The US dollar continues to find support amid haven flows – albeit the likes of the EUR/USD and GBP/USD were trading slightly higher at the time of writing, with the latter being boosting by surprisingly strong UK wages data.
Still, the fact that copper and crude oil prices have weakened also reinforces the view that China is struggling, where private sector demand remains rather weak, even if air travel has picked up slightly.
So, it was hardly a surprise that the PBOC cut two key wholesale interest rates overnight, following the release of softer-than-expected inflation and credit data last week. And that decision was justified as retail sales, industrial production and fixed asset investment, all undershot expectations by some margin today.
It is not just the yuan. We have seen several other EM currencies weaken, helping to keep the dollar bid, with the greenback supported further by US bond yields remaining high. Market continues to see US dollar as a worthy safe haven asset, especially as it continues to be supported by data – retail sales came in strong today.
By Fawad Razaqzada, market analyst with FOREX.com
Looking at the chart, the bulls appear to be in trouble. Many traders’ stops would be resting below Monday’s range. With the index having failed to hold above Monday’s high, it is very likely in my view that the Nasdaq will drop to a new low on the week, and sweep those stops.
In other words, key support around 15K could be taken out today. But watch how the markets close the session to give you an indication of what to expect next.
A decisive move below this 15K may very well trigger follow-up technical selling in the day or days ahead, especially as there are no further obvious levels of support to watch below this level.
Conversely, if we see a sharp, late-day, recovery then this will boost the Nasdaq’s appeal in the short-term outlook.
But overall, the risks do appear to be skewed to the downside from here. However, the bears must be careful not to chase the markets lower too aggressively given the extent of the declines we have already seen on the session, and the fact that longer-term trend is bullish.
China’s yuan lead EM sell-off
The loss of risk appetite is also evident in falling emerging market currencies, led by China’s yuan with the USD/CNH (0.5%) reaching its highest level since November 2022 today. The US dollar continues to find support amid haven flows – albeit the likes of the EUR/USD and GBP/USD were trading slightly higher at the time of writing, with the latter being boosting by surprisingly strong UK wages data.
Still, the fact that copper and crude oil prices have weakened also reinforces the view that China is struggling, where private sector demand remains rather weak, even if air travel has picked up slightly.
So, it was hardly a surprise that the PBOC cut two key wholesale interest rates overnight, following the release of softer-than-expected inflation and credit data last week. And that decision was justified as retail sales, industrial production and fixed asset investment, all undershot expectations by some margin today.
It is not just the yuan. We have seen several other EM currencies weaken, helping to keep the dollar bid, with the greenback supported further by US bond yields remaining high. Market continues to see US dollar as a worthy safe haven asset, especially as it continues to be supported by data – retail sales came in strong today.
By Fawad Razaqzada, market analyst with FOREX.com
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