Chart of the Day US500

Decision point for US500 

A number of Asian markets are closed for the new year holiday. However, those that are open suggest that ‘risk off’ sentiment is dominating as concerns about the Coronavirus continue to rise. The reported death toll is now up to over 80 with over 2,700 confirmed cases in China. The Chinese authorities have announced an extension of the holiday until 2nd Feb in a further attempt to contain the disease.

In the US, December new home sales are expected to provide further evidence that last year’s fall in interest rates has fuelled a rebound in the sector. Last week saw a larger-than-expected rise in existing home sales following a stellar move up in housing starts. Look for a 1.5% rise in new home sales.

Monetary policy returned to easing mode last year in response to a marked slowdown in global growth, amid weak inflationary pressures. The IMF estimates that the monetary easing added around 0.5% to world growth in 2019. The policy loosening was extensive, with a total of 71 rate cuts by 49 central banks according to the IMF, in what proved the most synchronised easing of monetary policy since the global financial crisis over a decade ago. This IMF believes that without this action by central banks, we would now be looking at a global recession, but this has been avoided.

Thursday’s policy update from Bank of England seems set to be the key event of the week for markets. Despite Friday’s stronger-than-expected UK PMI data for January markets still see it as a close call as to whether the Bank will cut interest rates on Thursday. The probability of a quarter point cut is now put at around 50% down from over 70% a week ago. Ahead of the announcement the UK data calendar is very sparse.

The US central bank will also give a policy update (on Wednesday) but it is expected to leave policy unchanged. Meanwhile, the most significant data updates elsewhere include Q4 GDP in the US and the Eurozone. Finally markets will also be focused on further updates on the impact of the Coronavirus. 

From a technical and trading perspective, the US500 (S&P500) has duly corrected from anticipated resistance levels covered in earlier analysis. The market is now testing pivotal symmetry swing, ascending trendline and the weekly S2  pivot all coalescing around 3250 level, bears will be looking for a closing breach of this level to encourage further downside to test support towards 3200 and the likely stops just below. Bulls will really need to see a key day reversal pattern today or tomorrow from current levels to suggest the correction is complete and setting up a retest of the prior cycle highs.   

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