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Dollar and Yen the Runaway Leader on Increasing Risk of Correction in Stocks

Dollar and Yen were the runaway leaders in the forex markets last week. While Fed is not quite likely to announce tapering this week, recent solid data argues that November would finally be the date. Stocks in US and Europe have been losing much upside momentum as central banks are starting to prepare for slowing down stimulus.

Besides there are concerns over re-escalating tension between China and US, with the latter’s close allies of UK and Australia added to the mix. The scale of the impact of China’s Evergrande trouble is also worrying, in the background of slowdown in the economy.

Overall, development in major indexes continue to point to increasing chance of a correction. Though, Yen was somewhat still supported additionally by the powerful Nikkei. On the other hand, Australian and New Zealand Dollars ended the the worst performing ones, together with Swiss Franc.

DOW capped by 55 day EMA, S&P 500 to test it soon

In last week’s report, we’ve noted that DOW’s break of 55 day EMA could be seen as a warnings for the US stock markets. Despite some recovery attempt DOW could stand back above the EMA. Considering bearish divergence condition in daily MACD, risk of a deeper correction continues to increase. For now, as long as 55 day EMA holds, we’d favor at least a take on 33741.16 support for the near term. Firm break there will argue that it’s already in correction to whole up trend from 26143.77. In this case, next target would be 38.2% retracement of 26143.77 to 35631.19 at 32006.99.

S&P 500 is so far still channelling well, supported multiple times by 55 day EMA too. But risk of a correction is also there considering bearish divergence condition in daily MACD. SPX might have a take on 55 day EMA this week. Sustained trading below there, followed by break of 4367.73 support, will align itself with DOW’s selloff if that happens. In that case, we’d probably see SPX heading back to 38.2% retracement of 3233.94 to 4545.85 at 4044.70 before finding a bottom.

FTSE and DAX could also be starting a deep correction

Over the Atlantic, FTSE is not looking better, as it appears to be rejected by 55 day EMA already. In the background, there is also bearish divergence condition in daily MACD. Deeper fall is in favor in the near term as long as 55 day EMA holds, for 6813.02 support. Break there will suggest that it’s at least in corrective to whole rise from 5525.52, and target 38.2% retracement of 5525.52 to 7224.46 at 6575.46.