USD Gains, EU Equities Slide, but Wall Street Rebounds

JFD Brokers
7 min readOct 22, 2021

European shares traded lower yesterday, but sentiment improved during the US session, perhaps as initial jobless claims for last week and existing home sales for September came in better than expected. Today, the preliminary PMIs for October may come under the spotlight, as they will provide a first picture on how major economies have performed during the month so far.

PMIs to Reveal a First Glimpse on October Economic Performance

The US dollar traded higher against most of the other major currencies on Thursday and during the Asian morning Friday. It gained the most versus AUD, NZD, and CAD in that order, while it lost some ground only versus CHF and JPY.

The strengthening of the US dollar and the other safe havens, yen and franc, combined with the weakening of the risk-linked Aussie, Kiwi and Loonie, suggest that markets traded in a risk-off fashion yesterday and today in Asia. However, turning our gaze to the equity world, we see that this was the case only during the European session. Later in the US, the Dow Jones traded virtually unchanged, and both the S&P 500 and Nasdaq gained, with the improved appetite rolling somewhat into the Asian session today.

European stocks pulled back from a six-week high yesterday, perhaps with investors still feeling the heat of Evergrande’s decision to abandon plans to sell a USD 2.6bn stake in one of its key units. What may have also dented sentiment in Europe may be the fact that, although SAP reported better than expected earnings, its Chief Financial Officer Luka Mucic said in a separate call with analysts that the group’s forecasts for 2022 profits were flat or slightly lower. Having said all that though, market participants appeared willing to buy again during the US session, despite IBM missing its market estimates for quarterly revenue. Perhaps they maintained confidence to the US economy due to data showing that initial jobless claims hit a 19-month low last week, and that existing home sales surged to an 8-month high in September.

Speaking about economic data, today, the spotlight is likely to fall to the preliminary PMIs for October, from the Eurozone, the UK, and the US. This will be the first sign on how major economies have been performing during this month. In the Euro area, both the manufacturing and services indices are expected to have declined somewhat, something that will take the composite one down to 55.4 from 56.4. This could confirm that the latest energy shortages have left their mark on the Euro-area economy, and may weigh somewhat on the euro. However, due to investors already being aware of the matter, a small decline may not come as a surprise and thus, we don’t expect a major impact. After all, a composite index above 50 still points to expansion. We believe that a miss of estimates may be needed to trigger some panic-selling. For now, we prefer to exploit some further euro-weakness against currencies the central banks of which have already starter raising interest rates, or they are expected to do so fairly soon. Such currencies are the Kiwi and the British pound.

Now, as for the UK prints, no forecasts are available, while in the US, expectations are for only fractional changes, which if materialize, we don’t expect to have a major impact on the greenback, as they may barely alter expectations around the Fed’s course of action. As of now, market participants remain convinced that the Committee will begin its tapering process in November, while, according to the Fed funds futures, they expect a 25bps hike to be delivered in October 2022.

Euro Stoxx 50 — Technical Outlook

The Euro Stoxx 50 cash index traded lower yesterday, but hit support at 4137 and today, it edged slightly higher. Overall, the index remains above the prior downside resistance line taken from the high of September 16th, as well as above the short-term upside one drawn from the low of October 6th. In our view, these technical indicators keep the short-term outlook positive.

We believe that today’s recovery may continue for a while more, perhaps towards the peak of October 15th, at 4188, or the high of September 23rd, at 4205. If participants are willing to climb higher, then, we could see them targeting the 4250 area, which stopped the index from drifting higher on September 1st and 6th. Another break, above 4250 would take Euro Stoxx into territories last seen in early 2008, with the next potential resistance zone being at around 4300.

On the downside, we would like to see a dip back below 4100, a support marked by the inside swing high of October 8th, before we assume that the bears are back in full control. The price will already be below both the aforementioned diagonal lines, and thus, the dip below 4100 may encourage declines towards the 4040 barrier, marked by the low of October 13th, or towards the 4017 zone, marked by the low of the day before. Another break, below 4017, could set the stage for declines towards the low of October 6th, at 3963.

EUR/GBP — Technical Outlook

EUR/GBP traded in a consolidative manner yesterday and today in Asia, staying slightly above the key support zone of 0.8420, which has been preventing the pair from dropping further since last Friday. Overall, the price structure suggests a downtrend that’s been in place since September 29th, but in order to get confident on its continuation, we would like to see a break below 0.8420 first.

Such a dip will confirm a forthcoming lower low and may initially target the 0.8385 zone, marked as a support by the low of January 24th, 2020. If that barrier is not able to halt the slide, its break may carry larger bearish implications, perhaps paving the way towards the 0.8335 territory, marked by the low of February 25th.

In order to start examining the bullish case, we would like to see a recovery back above 0.8472, a barrier which provided strong support between October 7th and 13th. This would confirm a forthcoming higher high on the 4-hour chart and may pave the way towards the 0.8503 and 0.8526 levels. If the bulls are not willing to stop at neither zone, the extensions towards 0.8545, and then towards 0.8573, could be possible. Those two latter levels are marked by the highs of October 5th and 4th respectively.

As for the Rest of Today’s Events

During the Asian session, we already got Japan’s National CPIs for September, while during the early European morning, the UK retail sales for the month were out. Both Japan’s headline and core rates rebounded within the positive territory, but they remain well below the BoJ’s objective of 2% and thus, policymakers are unlikely to be tempted to start thinking about monetary policy normalization anytime soon. In the UK, both headline and core sales slid by more than expected.

As for the speakers, we have two on today’s agenda and those are Fed Chair Jerome Powell and San Francisco Fed President Mary Daly.


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