Charts Of The Day: Equities under pressure as inflation fears intensify

Market Analysis / 4 Min Read
Milan Cutkovic / 11 May 2021

Highlights:

  • Equity markets under pressure as inflation fears intensified; Tech stocks get hit hard, with the NASDAQ closing more than 2 percent lower
  • Buoyed by supply uncertainty, coffee prices have been marching higher in the past few weeks but a sharp increase has the commodity struggling to gather momentum for the next leg higher
  • British Pound remains in demand as UK political risks abated and traders focus on the strong economic recovery instead; GBP/JPY is marching higher, already trading at the highest level since 2018

USTECH

Equity markets came under pressure today as inflation fears intensified. Technology stocks were hit hard, with the NASDAQ closing more than 2 percent lower on the day. The tech sector is losing its appeal with an uptick in inflation, as cyclical stocks become more attractive to investors.

USTECH broke below the 13,392 support level, which confirmed the false breakout on Friday. The next major support zone lies between 13,000 and 13,022 points. A clear break below the psychological support level at 13,000 points could trigger further momentum selling and pave the way for a deeper correction. To the topside, resistance can be expected at 13,593 and 13,824 points.

US30

The broader stock market did not perform as badly as the USTECH index. US30 came slightly under pressure, but support at 34,714 points remains intact and bulls still have the upper hand at the moment. Should the wild price swings in the tech sector continue, the US30 might struggle to pick up momentum for the next leg higher. Traders are keeping a close eye on the 34,714 level, followed by support at 34,270 points. The Daily RSI is hinting at slightly overbought conditions, which means a minor pullback could actually end up being healthy. 

Coffee

Coffee prices have been marching higher in the past few weeks, buoyed by supply uncertainty in some of the top producing countries and sustained strength in broad commodities. However, following a sharp increase, Coffee is now struggling to gather momentum for the next leg higher. Traders are closely watching the $147.56 support level, as a break below it could pave the way for a deeper correction which could possibly push Coffee towards the late-April low at $139.50. Imminent support is also seen at the rising trendline from the April low.

EUR/GBP

The British Pound remains in demand as UK political risks abated, and traders are focusing on the strong economic recovery instead. The country´s reopening process is underway and a successful vaccination campaign is giving hope that the UK is slowly marching towards some kind of normality. Traders looking to bet on a rising Pound are currently finding EUR/GBP and GBP/JPY quite interesting.

EUR/GBP is currently testing a significant support level at 0.8590. A clear break below this level could signal that a correction towards 0.8470 support is imminent. To the topside, traders looking to sell on a rally will be keeping a close eye on the former support level at 0.86240, followed by the April high at 0.8720. 

GBP/JPY

Meanwhile, GBP/JPY is marching higher, already trading at the highest level since 2018. The RSI is signaling overbought conditions on the hourly charts, which suggests we might see a short-term pullback before the rally resumes. Imminent support is noted at 153.40. A break below this level would pave the way for a correction towards 152.40, where buyers are likely to return in greater numbers.

The information is not to be construed as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product, or instrument; or to participate in any trading strategy. Readers should seek their own advice. Reproduction or redistribution of this information is not permitted.

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