The US stock market dropped sharply last Friday as violent clashes in Egypt rocked the global financial markets. The Dow Jones Industrial Average (^DJI) slid 1.4 percent to 11,823.70 and the S&P500 fell 1.8 percent to close at 1276.34. Even worse, the NASDAQ composite declined by 2.48 percent to 2,686.89. It was a sharp decline at least for the Dow after a smooth run since December of 2010.
Despite the drop, the ^DJI still maintains a nice 22-month uptrend (image above) and has been consolidating within an ascending channel for 5 months now. Technically, this index will most likely move in its present direction and could once again retest the 12,000.00 level. However, if social unrest in different countries like Egypt continue to jolt the financial markets, reaching the said mark could be delayed. Anyway, a successful move past 12,000.00 could propel the index much higher and in what I see to say 13,000.00. On the down side, if the ^DJI breaks down from the channel, the next support could be the 50 and 100-period moving averages. If these supports fail to keep the index from falling, a visit towards the 22-month uptrend could be its next move. As I see it, the US market is still bullish overall since the index’s uptrend is still intact.
In the forex side, the same political news has caused the EURUSD some havoc. As you can see from its chart above, the deadly uprising in Egypt sparked a breakdown in the pair. As soon as the tension in Egypt escalated, the EURUSD pair had slipped below its channel and its red moving average that have been acting as supports. Presently, the pair has been hovering over the above the 100-period moving average which served as net to halt the euro’s descent. A break of this support could send it down to 1.3540. On the flip side, a rally could push it back towards 1.3750.
In the bigger picture, the EURUSD’s volatility over the past several months appears to be really high. Though, it looks that a downside move is on deck given the resistance at 1.3750. If the political tension in Egypt remains, the EURUSD could extend its losses as investors move their money towards the safety of the US dollar.