Daily Analysis: Europe Leads Stock-Plunge as Trump Targets China

Thursday Market Recap

Asset Current Value Daily Change
S&P 500 2653 -2.33%
DAX 12,100 -1.70%
WTI Crude Oil 64.31 -1.32%
GOLD 1327.00 -0.31%
Bitcoin 8,724 -4.28%
EUR/USD 1.2314 -0.28%

An ugly overnight session was followed a sharp sell-off after the opening bell on Wall Street, as the major US indices dropped by more than 2.5% from the Wednesday post-Fed highs, continuing the dominant short-term bearish trend. The benchmarks got close to their monthly lows before a usual snap-back rally ensued.

Despite the intraday bounce, the technical damage of the correction remained significant, and selling resumed shortly, pushing the market to new lows before the close, with the Dow shedding more than 700 points. We still expect at least a test of the February lows in case of the majority of the market, so investors should still be defensive here, even as the short-term picture looks slightly oversold.

Dow, 4-Hour Chart Analysis

This week’s equity decline has been broad in nature, with no clear positive divergences among the US indices, and with Utilities outperforming the market by a hefty margin, which is another clear sign of risk aversion.

EuroStoxx 50, 4-Hour Chart Analysis

European and Asian stocks have been weak throughout the post-crash rally, and they continue to trade near, or in some cases already below the February lows, so the bearish leadership is still there, and the Nasdaq’s impressive strength faded away too.

Financials Under Pressure as Funding Conditions Worsen

Besides the Facebook scandal, trade war fears are still in the center of attention after the release Trump’s Chinese tariffs plan, which targets an amount of $60 billion, and the announcement didn’t help the already bleak sentiment.

Euro 600 Banking Index, Daily Chart Analysis

Financial stocks, especially in Europe are also suspiciously weak, as interbank rates have been shooting higher in recently, weighing on corporate bonds in the segment, and the nervousness now spread to equities too, driving several major banks to new multi-month lows.

Currencies Settle Down after Busy Period

Following heavy trading around the Fed and BOE meetings, forex markets were relatively calm during the US session, as the action was concentrated in stocks. The Dollar held on to its pre-market gains against its largest peers, while got slightly higher compared to risk-on currencies.

USD/JPY, 4-Hour Chart Analysis

The Yen remained the only major in the green against the USD, as the safe-haven currency got bid throughout the day, even as the USD/JPY pair finished slightly off its 30-month low that it got close to intraday.

Gold couldn’t benefit from the risk-off sentiment, as the Greenback’s strength weighed on precious metals, while crude oil also pulled back after yesterday’s strong rally, with the WTI contract trading below $65 per barrel again.

Cryptocurrencies

BTC/USD, 4-Hour Chart Analysis

The major coins had a bearish session, pulling back from yesterday’s rally highs, as the negatively diverging altcoins and the sharp global sell-off put pressure on the whole segment. While no crucial support levels have been violated so far, the short-term momentum indicators are signaling a correction in most of the coins,  even as the long-term picture remains favorable for purchases.

Bitcoin is trading between the $8400 support and the $9000-9200 zone, after the strong rally in the beginning of the week, and with the largest coin still being among the relatively strongest majors, it would be very bullish for the segment if BTC could form a higher swing low in the coming days, establishing a new short-term uptrend.

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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.