3 Things You Need to Know About the Market Today: Powell Surprise, Eurozone Slump, Pound Dump & Pump

1, Stocks Fall as Bonds Turn Volatile on Fed Chair’s Comments

Dow 30 Futures, 4-Hour Chart Analysis

Fed Chair Jerome Powell continues to be the most important person for global financial markets, and yesterday, the central banker gave a surprisingly upbeat speech about the US economy, causing a dip in global equity markets and a rally in short-dated Treasury yields. As traders are trying to figure out the next step by the Fed amid the strong international headwinds, we are back to the ‘good news is bad news’ setup on Wall Street, since the relatively strong US economic numbers have been met with selling in stocks due to the Fed’s stance.

While the relatively weak European benchmarks got hit harder yet again today, the major US indices are also lower, and the Dow and the S&P 500 broke below their rising short-term trendlines. Given the overbought momentum readings and the broader downtrends in the global benchmarks, downside risks remain dominant in equity markets. The increased risks of another US government shutdown is also weighing on sentiment, but volatility remains relatively low, and with no major catalysts present, the indices might not be ready to roll over for good yet.

2, Dollar Index Nears One-Month High as Euro Hit by Economic Weakness

Dollar Index, 4-Hour Chart Analysis

While stock markets are likely forming a short-term top, forex markets are very active again, and the Dollar’s painful push higher continues against the major risk-on currencies. While the Yen is firm thanks to the slight bearish shift in investor sentiment, the Euro continues to fall, with yet another round of negative economic surprises coming on from the Eurozone.

Italian Retail Sales and German Industrial Production both missed the consensus estimates by hefty margins, and together with the recent string of dismal forward-looking numbers, the outlook for the Eurozone is not pretty. Also, the European Commission slashed its growth forecast for the Eurozone and especially for Italy, and that report could serve as dovish ammunition to the ECB and Mario Draghi in the coming months.

It’s no surprise that the Euro is headed for a likely test of the weakening support near 1.13, and the broader Dollar index is close to hitting its highest level this year, as it will likely register its sixth green day in a row. We continue to expect the uptrend in the USD to prevail in the coming months, with new lows in the EUR/USD and new multi-year highs in the Dollar index.

3, Pound Dump &Pumps as Bank of England Joins Dovish Party

GBP/USD, 4-Hour Chart Analysis

The Great British Pound is having a very volatile day as expected, as the Bank of England (BOE) predictably joined the ranks of dovish central banks amid the continued Brexit uncertainty and the weakening European economic trends. On another interesting note, the Reserve Bank of India unexpectedly cut its repo rate earlier on today, in the wake of the weakening economic numbers, so the global dovish shift is almost complete.

Going back to the UK, rate hikes are seemingly off the table for 2019, and the BOE would likely resort to an emergency rate cut in the case of a hard-Brexit in our opinion, but after an initial dip, the now-oversold GBP/USD pair pushed higher towards the 1.30 level again after shedding 350 pips compared to its recent swing high near 1.32. Theresa May is headed to Brussels today, to try to renegotiate the draft Brexit plan with the EU, and the Pound could get volatile yet again, depending on the EU’s answer following their pledge that the deal was final.

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Major Stock Indices

S&P 500 Futures, 4-Hour Chart Analysis

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DAX 30 Index CFD, 4-Hour Chart Analysis

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EUR/USD, 4-Hour Chart Analysis

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Author:
Trader and financial analyst, with 10 years of experience in the field. An expert in technical analysis and risk management, but also an avid practitioner of value investment and passive strategies, with a passion towards anything that is connected to the market.

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