European Open – A Testing Day For Stocks

Indices Near Major Support

The week got off to a promising start but its all been downhill from there and stock markets are on course to spend another day in the red on Friday, with some indices potentially testing major support levels.

The obvious exception here is the Nasdaq which continues to defy gravity thanks to the ever-growing popularity of the tech sector. While equity markets were a sea of red yesterday, the Nasdaq refused to be dragged down and instead managed its third winning session of the week to once again hit a new record. It’s now up almost 60% from its March lows and more than 10% from its pre-pandemic peak.

The FTSE 100 is one of those that has had a more difficult week and the Chancellor’s Summer Statement on Wednesday did little to change that. The index is on course for a fourth consecutive day in the red and one that could see 6,000 put under considerable pressure. The level has been well supported on previous attempts over the last month but the rebound has been less convincing each time. A close below here today could spell bad news for the index.

Broadly speakly, stock markets just appear to be going through a consolidation phase in the run up to earnings season which kicks off properly next week. A major break to the downside in many of these indices – with the Dow and S&P 500 maybe seeing similar tests at 25,000 and 3,000, respecitively – could be a little premature as we prepare for the dash of reality that corporates will deliver in the coming weeks. A reality that seems lost on investors.

Oil in consolidation

Oil is another that enjoying a summer break. It was an impressive recovery back to $40 but it’s been relatively uneventful since then. The $40 mark seems to be a widely accepted fair price for now, with WTI seeing resistance around $42 and support in the high 30’s. Similarly, Brent is seeing nice support around the $40 mark and resistance around $44. The fact that we’re seeing rising support may indicate that the path higher is still looking more plausible but many downside risks still remain, including second waves and a messy end to an otherwise successful coordinated production cut.

Gold trying to hang on above $1,800

Gold is struggling to hang onto gains above $1,800, despite peaking around $1,817 on Wednesday. It’s held above since then but as we head into the end of the week, it’s coming under a little pressure and $1,800 is now being tested from the upside. A weekly close above $1,800 could be very technically significant for the yellow metal. A close below may be a red flag after a decent run for gold over the last month.

Economic Calendar

For a look at all of today’s economic events, check out our economic calendar.

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Former Craig

Former Craig

Former Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.