Money Market Mentor – 24th Jan 2023

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Welcome to our weekly market snapshot, where we give you a quick taste of the discussions we’ve been having with our members at our regular Monday night webinars. This week, we will be discussing our thoughts on major indexes, as well as a general forex market update.

We’re mulling over the Nasdaq and FX markets this week, but our first port of call is the S&P 500.

Last time round my bias was towards long, provided we remained above 3,946 and 33,750 on the S&P 500 and Dow respectively. While both indices briefly slipped below these levels last week there was no follow through on shorts, and this week our focus is again on long.

Nasdaq nirvana

A week can be a long time in the markets. Many investors who had previously been charting a conservative, value-led course have clearly now found their courage and are choosing riskier growth picks. This is reflected in the outperformance of the Nasdaq relative to the Dow, and represents a shot in the arm for stock market health.

It’s notable that some recently unloved sectors such as communications are breaking out. With the financial sector and real estate showing signs of going on a tear too, we could get some strong confirmations this week. Healthcare and energy are still looking robust, and as we enter a buoyant time of year for energy, stocks like Marathon Oil (MRO) are high on my watchlist.

The 12,000 barrier is significant for the Nasdaq — break through it and we’re looking good for a strong pre-election pattern this year. However before we get bullish confirmations, the S&P also needs to clear 4,100. The signs are positive but I will be wary of failed breakouts.

Currency caution

When it comes to FX, my focus will remain on potential GBP and Euro shorts as I don’t like many of the charts. Should indices continue to be strong, however, I’m prepared to be a buyer as I would expect the risk-on sentiment to spill over into the currency markets. AUD, NZD and CAD are the most likely beneficiaries in this scenario.

It’s worth flagging that many FX majors will be above their monthly R2 levels if current trends continue, a condition under which I don’t typically trade. If they do break higher, I would still prefer to be long individual currency pairs.

Further weakness and a breakout below 101.30 looks most likely for USDX but this will take it below its monthly S2, which confirms over-extension for me. My USD shorts will be limited as a result.
I’ve set alerts in the event EUR/USD breaks below 1.0780, but current equity price action suggests that’s unlikely. As with the USDX, a further break higher in EUR will take price above 1.1000, exceeding its monthly R2 and meaning I will steer clear for the time being. With GBP/USD, I shall be shorting below 1.2300.

I hope that’s given you plenty of food for thought. For a much deeper dive, don’t miss our weekly webinar and member newsletter. Find out more about our forex courses, or contact our expert trading team to learn more.

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