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Analysis: Going Nuclear

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Unpredictable doesn’t even begin to describe the actions of US President Donald Trump.

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Just a few days ago he was preparing the ground to back the Assad regime, now he’s bombing them.

Certainly, chemical weapons are horrible and it’s good to see someone taking a stance against them but the use of chem-warfare in this bloody conflict is certainly not new. So what really caused Trump to flip?

The bigger questions are still ahead of us though. How will Russia react? Putin has been backing Assad since the beginning. And the bigger question, how will US policy be going forward? Is this a one time deal to punish the regime, or is he now going to fight Putin to dethrone Assad?

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Or…. was this whole thing just a charade to steer the conversation with Chinese President Xi Jinping, who is currently being hosted at Trump’s golf resort in Florida?

Too many questions for one morning. All will be answered soon enough. In the meantime, let’s take a look at the market reactions and what’s coming next.

-Mati

Today’s Highlights

  • Safe Haven reaction to Syria
  • Going Nuclear!
  • BIG Jobs Report Today

Please note: All data, figures & graphs are valid as of April 7th. All trading carries risk. Only risk capital you can afford to lose.

Market Overview

The drastic and sudden change of policy by the Trump administration on the war in Syria caused a bit of a stir in the financial markets.

DJ Trump has just poured a barrel of gasoline on an already raging fire. A war that seemed to finally be coming to an end is suddenly looking like it can spread.

As can be expected, the reaction has been a sweeping flight to safety.

You can see the moment of impact most clearly in the price of Gold. As the conflict is in the Middle East, the price of Crude also spiked.

Stock markets around the globe are down today except for the Nikkei 225 and the Australian ASX 200, which are slightly up.

The Japanese Yen also surged as the number one safety play at the moment.

Bitcoin was not heavily affected. After seeing $1200 this morning, we’re now seeing a bit of a pullback.

Going Nuclear

No, we’re not talking about actual nuclear warfare. Though the events of this morning have made that option slightly more possible.

I’d like to downshift here and talk about internal politics in the USA.

As we know, there’s an empty seat on the benches of the United States Supreme Court. Obama wanted to fill it with a guy named Merrick Garland, but the Republican party blocked the nomination, hoping that a republican win in the White House would offer a more conservative candidate.

Well, they got what they wanted. Donald Trump has nominated Neil Gorsuch but of course the Democrats are still sore that their candidate didn’t get in so they’re doing everything they can to block him.

Republicans will now drop the bomb. The Nuclear Option is a procedure for the senate to override the current system that requires 60 votes to confirm the new Justice and they’ll be able to confirm him with just 51 votes.

This option is certainly not as drastic as it’s name and has very little negative consequences. It simply highlights the refusal of the two parties in the US Government’s ability to work together as a team.

Neil is definitely not the most controversial judge in history, but it should be noted that the guy he’s set to replace, Justice Antonin Scalia, passed the senate with a unanimousa vote in 1986.

Jobs Day!!

Usually, this would be the headline but Emperor Trump decides the headlines these days.

The NFP report is usually the biggest economic number to impact the financial markets every month. Today is no different.

Analysts are expecting to hear that more than 174 Thousand jobs were added to the US economy in March. Anything less, even a slight miss, would be seen as a large disappointment to the already fragile markets.

Also, keep a close eye on the Average Hourly Earnings in today’s report. A sudden growth in this number would be viewed as confirmation that the US economy is indeed on track and that current market prices are justified.

What else?

Lots of data coming out of the UK at 9:30 AM London time. Followed by a speech from BoE Governor Mark Carney who will be next door to our UK office today at Thompson Reuters in Canary Wharf.

Also, keep a close eye on the USDZAR, which is still cringing from South African President Zuma’s snap cabinet shuffle. Any update or headlines on the deteriorating situation could send the Rand much weaker.

As always, I look forward to hearing your questions, comments, and feedback on this report. Wishing you an amazing weekend!

This content is for information and educational purposes only and should not be considered investment advice or an investment recommendation.

Past performance is not an indication of future results. All trading carries risk. Only risk capital you’re prepared to lose.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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Analysis

Daily Analysis: Oil Extends Rally as Nasdaq Leads Stocks Higher

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Friday Market Recap

Asset Current Value Daily Change
S&P 500 2749 1.38%
DAX 12,483 0.18%
WTI Crude Oil 63.58 1.29%
GOLD 1330.00 -0.16%
Bitcoin 10,14 -0.09%
EUR/USD 1.2295 -0.28%

US equities built up some bullish momentum towards the end of the week, ignoring the technical damage that the volatility-crash caused, and the major US indices rallied into the close today, squeezing the shorts. The Nasdaq, which led the rally as we expected, took out the key 6850 level in late trading and added another percent to, incredibly enough, finish only a hundred point of the all-time high.

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NASDAQ 100 Futures, 4-Hour Chart Analysis

Should the tech benchmark retest the high next week, it will be amid very strong negative divergences, but hey, those divergences have been building for months now. The rally in equities was boosted by the dip in Treasury yields, especially at the long end of the curve, while Amazon continued ot lead the charge, closing right at the historic $1500 per share level.

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Russell 2000 (Small Cap) Index, 4-Hour Chart Analysis

The advance in the Dow and the S&P 500 is much less convincing and with small caps also lagging the tech-behemoth juggernaut, we remain skeptical regarding the sustainability of the move. That said, if the broader indices stay above the key levels, we will be trading the long side in equities, even as from an investment standpoint, valuations are still way above acceptable.

Forex Markets and Commodities

The lackluster performance of European and Asian stocks adds to the negative divergences, especially as the Euro stopped appreciating against the Greenback, and that should be helping stocks of the old continent. Of course, the DAX and the EuroStoxx 50 could play catch-up next week, barring another surge in the common currency.

EUR/USD, 4-Hour Chart Analysis

The most-traded forex pair remains in a short-term downtrend, as it failed to recapture the previously broken rising trendline, and the commodity related risk-on currencies also remained under pressure. The Canadian Dollar did bounce back off yesterday’s 8-week lows, boosted by the much hihger than expected inflation release and the jump in the price of crude oil.

USD/CAD, 4-Hour Chart Analysis

Oil benefited from the positive shift in sentiment, while the Syrian situation, which took a backseat in the headlines, still supports the rally. The Japanese Yen and gold were stable amid the risk-rally and that adds to our suspicions regarding the upside potential form these levels.

Cryptocurrencies

The segment started out the day with a strong bounce that carried the major coins higher by around 10%, but given the recent steep short-term pullback, even that wasn’t enough to turn the tide, and the day ended with an (almost usual) sell-off after the US close. Despite the recent volatility, the overall picture is still encouraging, with most of the majors being safely above the crash lows, likely in a new bullish cycle that has the potential to last for several more weeks or even months.

While new all-time highs are it guaranteed following the 60-70% declines among the largest coins, but even without those, plenty of upside potential is left for investors. With that in mind, investors should hold on to their coins and even add to their holdings on the short-term dips like the current one.

ETH/USD, 4-Hour Chart Analysis

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Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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Analysis

Technical Analysis: Majors Stage Rally but Strong Levels Still Ahead

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The cryptocurrency segment has recovered from a broad correction today in early trading, with the most valuable coins all turning into green during the session, despite the bearish start to the overnight session. With bottom-to-top gains of up to 15%, the rally helped in easing the worries of bulls, especially in the case of the relatively weaker coins.

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Bitcoin and most of the largest altcoins remained stable during the selloff, and BTC recaptured the $10,000 level quickly after trading as low as $9600 overnight. The initial rally topped out near $10,400, and the coin is trading back near the $10,000 level, as the bullish momentum faded away somewhat.

BTC/USD, 4-Hour Chart Analysis

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That said, we expect the uptrend to continue even if the correction could still carry Bitcoin lower. Further strong support is found between $9000 and $9200, while targets are ahead at $11,300, $13,000, and $14,250.

ETH/USD, 4-Hour Chart Analysis

Ethereum showed strength during the bounce again after yesterday, together with the early leaders of the rally, and although the coin dipped below the $845 level in the second half of the session, the signs remain positive for bulls. Support levels are now found at $780, $740, $625 and $575, while resistance is ahead near $910 and $1000.

(more…)

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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Analysis

Pre-Market: Stocks Refuse to Fall Even as China Takes Over Key Insurer

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Although it should have been a very quiet week in China, thanks to the New Year celebrations, the recent surge in volatility and the plunge in equities didn’t pass without consequences in the key market. Just shortly after effectively shutting down the Chinese version of the Volatility Index (VIX) (presumably to calm the markets…), one of the main actors of the monstrous financial web, Anbang, of the country had to be taken over to avoid a systemic event and stop the “creative” financial engineering that involved criminal activity (the shadow of 2008).

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China will likely need many more duck-tapes like this one if it wants to stop the largest credit bubble in human history to collapse, but for now, the solution could work. Equity futures edged higher since yesterday’s volatile close, and as the major US indices are holding up well, not far off last Friday’s highs, our bearish short-term view might have to be revised.

Nasdaq 100 Futures, 4-Hour Chart Analysis

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As we discussed before, the long-term uptrend is intact, and we expect at least a re-test of the highs even if we are in a large-scale top formation, but we thought that the technical damage caused by the crash three weeks ago would require more healing.

We are not turning bullish just yet, but today’s session could finally decide if we the BTFD-crowd is strong enough to turn the tide after the choppy drift lower this week. We are still focusing on the Nasdaq, as the broader market seems to be following the lead of the tech benchmark, and a move 6850 (in the Nasdaq 100 futures, and still the 2735 level in the S&P) would be a very positive sign for bulls.

DAX Index, 4-Hour Chart Analysis

The German DAX index is also showing some tentative short-term relative strength although it remains almost 10% below its all-time high, and it remains a strong negative divergence to be monitored.

Forex Markets Quiet

EUR/USD, 4-Hour Chart Analysis

The main pairs are trading in a choppy narrow range today after the strong move in the Yen and the drop in the USD yesterday. US Treasury Yields are edging lower today, helping the calm in equities and currencies, but on a bearish note, commodity currencies failed to rebound so far, and they were providing good signals since the crash. Day-traders should note that the Canadian Dollar will likely be very active again, with the Canadian CPI report coming out pre-market.

To sum the outlook up, we are still leaning on the risk-off side here regarding the short-term outlook, but we wouldn’t bet the farm on that, as there are mixed signals before the weekend.

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Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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