The recent bounce in stocks is not one that is too convincing and almost everyone seems to hold some belief that any decent rebound at this point screams a ‚bear market rally‘. So, what exactly will it take for the naysayers to go away?

At this point, I would argue that traders and investors have somewhat decently priced in odds of a recession. As much as central banks are closing their ears to stick with raising interest rates, it seems inevitable that we will experience some form of economic slowdown over the next 6-12 months.

The question is, how bad are things going to be and will it last longer than just a few quarters? In other words, a soft landing or a hard landing – particularly for the US economy?

As equities continue to brave the storm clouds of persistently high inflation, central bank tightening and recession risks, it is tough to find comfort for a major turnaround in sentiment. But if a recession is what it takes to put an end to interest rate increases, that might turn out to be a strong tailwind for stocks to really turn the ship in the other direction.

If the pandemic is any lesson, it is that markets love easy money. And while we are not going to see such over-stimulus again from major central banks, a U-turn in the direction to cut interest rates will surely be a welcome development for equities. So, is a recession really bad news for equities? It depends but if we are to experience a rather shallow one – which seems to be the case in point for markets now, I reckon that’s reason enough for investors to start to regain confidence in risk trades.

This article was written by Justin Low at www.forexlive.com.

With key technical levels holding, the dollar is pushing back in trading today and is moving up to fresh highs since the end of last week. EUR/USD is now down 0.6% to 1.0155 as price threatens to fall back below its 200-hour moving average at 1.0161:

A drop below that will see sellers seize near-term control and will put pressure on minor support around 1.0140-55 next. If that gives way, the technical picture will turn more bearish for the euro with a look towards parity again perhaps. That said, it will all come down to the Fed tomorrow for any real conviction for such a move.

Meanwhile, GBP/USD is also trading down to just below 1.2000 and testing its 100-hour moving average at 1.1997 as outlined here.

Commodity currencies are also not spared from the dollar’s wrath with AUD/USD down 0.3% to 0.6935 on the day after the high earlier touched 0.6983 and testing the 50.0 Fib retracement level:

These are all key levels that were highlighted since the end of last week and the dollar is certainly showing that it is standing its ground. I wouldn’t chalk up the moves to any headlines on the day as this looks to be more like positioning plays ahead of the Fed tomorrow.

This article was written by Justin Low at www.forexlive.com.

On the surface, it looks like the EU is finally showing some unity but this proposal has been watered down significantly with member states tweaking it so that there are exemptions and reductions to the gas cuts for certain countries and industries. The proposal is supposedly calling for EU countries to cut gas use by 15% from August through to March next year.

We’ll see about the details but the exemptions and such is pretty much another way of saying that it is every man for himself when it comes to dealing with the situation.

This article was written by Justin Low at www.forexlive.com.

• Prior -5

The reading for the expected retail sales for August is seen down to -14 from -2 in the previous month. That’s the lowest since March 2021 as UK retailers are feeling rather downbeat about the outlook in the month ahead. The cost-of-living crisis continues to deepen and while retail sales balance edged up slightly as per the headline reading, it is hardly comforting when you weigh the report as a whole.

This article was written by Justin Low at www.forexlive.com.