Stock Markets Remain Stable Amid Rising Economic Concerns

Trade Wars and Interest Rates Keep S&P 500 in a Holding Pattern

Hello Traders! It has been a few weeks since our last Elliott wave blog update.

Since early December, stock prices have not made significant advances, with the S&P 500 still in a period of consolidation. Initially, this was due to portfolio adjustments and profit-taking at the end of 2024. Recently, limited upward movement has continued as the Federal Reserve has chosen to maintain interest rates. Additionally, new concerns regarding tariffs and trade wars are surfacing. From an Elliott wave standpoint, this consolidation appears to be a corrective phase within the ongoing uptrend.

During times of uncertainty—common throughout Trump’s presidency—markets often trend sideways. It’s worth noting that while consolidations eventually break, the strong recovery seen in the S&P 500 since October 2022 suggests the trend remains positive. This phase of market action is identified as wave 4, which hints at potential upward movement in the coming weeks. If more weakness occurs, important support is expected near the 5685 level. The bullish outlook for a breakout into a fifth wave could gain momentum if U.S. yields remain stable or decrease alongside the USD in the upcoming weeks.

Dollar Index Signals Potential Shift in Market Direction

Examining the Dollar Index, it appears wave C of the three-part rally from the 2023 low is nearing completion. A significant reversal seems imminent, especially if the price drops below critical swing support levels at 107 and 106.50.

Japanese Yen Gains Attention as Potential Investment

As the U.S. dollar faces potential challenges and Treasuries appear to rise, traders may want to consider the Japanese Yen. The Bank of Japan may be contemplating further rate hikes this year. The price movements suggest a bearish trend; following a sharp decline from January highs, the current sideways movement may signal a correction downwards.

In the USDJPY pairing, I anticipate further weakening, possibly targeting the 152.50 area, which aligns with the 61.8% retracement level. If the pair moves higher initially, traders should watch for resistance at 156 and then at 156.70.

Grega Horvat

Forex Analytix