3 Things You Need to Know About the Market Today: German Weakness, Dollar Rally, Trump’s Speech
1, German Economy Sends Another Warning Sign
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German Factory Orders came in well below expected today, declining by -1.3% on a monthly basis, while on a yearly comparison we are seeing the deepest downturn since the sovereign debt crisis 6 years ago. The effects of the Chinese slowdown are clearly hurting the European powerhouse, and it’s no surprise that despite the sharp dovish shift by the Fed, the Euro hasn’t been able to gain significant ground on the Dollar, while European equities are also clearly lagging their US peers.
The DAX hit a marginal 7-week high yesterday, and the German index is now challenging an important declining trendline, but given its relative weakness, we wouldn’t enter the market here, and the broader downtrend will most likely continue in the weeks, as the counter-trend move runs out of steam. For now, the short-term uptrend is clearly intact, but the grinding low momentum advance could quickly reverse, and the key support zone near 11,000 could soon be in danger again.
2, AUD/USD Plunges as Dollar Rally Continues
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The Aussie has been hitting marginal new highs against the USD amid the still ongoing risk-on rally, but today, on the fifth day of the Dollar’s rebound, the pair plunged below its rising short-term trendline and two key support levels as well.
A dovish comment RBA governor Lowe triggered the decline, as the Central Bank could quickly shift towards rate cuts, should the job market and the broader economy weaken. The Aussie erased the post-rate-decision rally on the comments and now it might get back to the crucial 0.70 level following the correction that came on the heels of the New-Year flash-crash.
The US Dollar has been rallying against a broader basket of currencies despite the Fed’s dovish stance, and should investor sentiment turn negative again, the reserve currency could resume its long-term uptrend, since the global central banks are seemingly all joining the dovish camp due to the economic slowdown and the recent turmoil in financial markets.
3, US Stocks Remain Firm following Trump’s Speech as General Motors Beats
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While some analysts expected the declaration of a national emergency to fund the President’s Wall, yesterday’s State of the Union speech didn’t change the background of the budget debate. Mr. Trump reiterated that he won’t budge on the issue of the Wall, which increases the odds of another government shutdown in the near future.
The President urged bipartisanship in key issues such as drug prices, infrastructure, while praising the criminal justice reform. He remained harsh on the issue of illegal immigrants, and the hopes that he would offer something in exchange for the funding of the Wall were not met. So, while speech was not particularly aggressive, the odds of a rough two years of legislative deadlock remain high, and the campaign for the 2020 elections is already clearly underway.
US stocks opened virtually unchanged despite the European worries, with the major indices trading close to their recovery highs, and the better-than-expected quarterly report by General Motors (GM) boosted the broader market, as the bulk of the earnings season is already behind us.
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