Forex Analysis and Chartbook: Euro Plunges as Markets Turn Choppy Ahead of G20 Summit
Friday Market Snapshot
|Asset||Current Value||Daily Change|
|WTI Crude Oil||50.62||-1.25%|
Traditional financial markets turned as choppy as it was expected ahead of the event that could shape the coming months in most assets classes. The G20 summit and the Trump-Xi meeting, in particular, will likely have a profound effect on stocks, currencies, and bonds alike, and with the outcome being almost unpredictable it’s no surprise that a lot of traders took a step back before the event.
Global stocks are little changed despite a very weak European session that also saw a notable drop in the Euro, although we are seeing a slight bearish bias on Wall Street as well. Currencies and commodities are also little changed, with even the still volatile crude oil staying in yesterday’s range.
EUR/USD, 4-Hour Chart Analysis
The Euro’s weakness is the most interesting intraday trend of the day, as the common currency all but gave back the gains it accumulated following Fed Chair Jerome Powell’s dovish speech two days ago. The EUR/USD pair is now back near the 1.13 level, and the broader Dollar Index is also getting closer to its recent 16-month high, as the Greenback is also up against the Yen, the second largest constituent of the index.
Barring a deal between the US and China, which would likely lead to a surge in risk assets, the broad trend in the Dollar is expected to continue, but an agreement would likely only lead to a correction too, as in our view, the bullish fundamentals are still clearly on the reserve currency’s side.
S&P 500 Futures, 4-Hour Chart Analysis
The major US indices are slightly below yesterday’s levels, although they recovered well from the overnight dip that was caused by the weakness in Europe. Trading activity is very light ahead of the all-important summit, with the benchmarks all trading at or near key resistance levels, holding on to most of their weekly gains.
Treasuries are also stable today, although credit markets continue to show signs of distress in the high-yield segment, even as yields are near their multi-month high, especially on the long-end of the curve. All in all, only US equities show the impact of Powell’s speech, as the Dollar weakness evaporated and yields are near their pre-speech levels.
Stock Volatility Remains Elevated, Confirming Broad Risk-Off Shift
VIX (US Volatility Index), 4-Hour Chart Analysis
We noted the possible regime change in the US Volatility Index (VIX) back in October, and following two months of hectic trading, the signs still point to a new era in risk assets, with the VIX holding up near the widely-watched 20 level.
While the VIX could head south in December, in the illiquid holiday market, we expect the regime change to be persistent, even in the case of a larger scale risk rally following a possible trade deal between the US and China. With that in mind, all advances should still be treated as selling opportunities in stocks, and the VIX will likely not return to its pre-correction levels for a long time.
WTI Crude Oil, 4-Hour Chart Analysis
Besides stocks and the Dollar, oil will likely see the most activity next week, since following the G20 meeting, which in itself could cause wild swings in the price of the crucial commodity, the OPEC will also hold a meeting on Thursday.
The WTI contract dipped below the $50 per barrel level once again today before another sharp rally attempt, but it is still clearly within the steep declining trend that has been intact since early October. Should Saudi Arabia and Russia agree on a supply cut ahead of the OPEC meeting, oil could finally break the trendline and enter a stronger correction, even as fundamentals remain weak for the Black Gold.
Major Stock Indices
Nasdaq 100 Futures, 4-Hour Chart Analysis
Dow 30 Futures, 4-Hour Chart Analysis
DAX 30 Index CFD, 4-Hour Chart Analysis
FTSE 100 Index CFD, 4-Hour Chart Analysis
EuroStoxx50 Index CFD, 4-Hour Chart Analysis
Nikkei 225 Futures, 4-Hour Chart Analysis
Shanghai Composite Index CFD, 4-Hour Chart Analysis
EEM (Emerging Markets ETF), 4-Hour Chart Analysis
USD/JPY, 4-Hour Chart Analysis
GBP/USD, 4-Hour Chart Analysis
EUR/GBP, 4-Hour Chart Analysis
AUD/USD, 4-Hour Chart Analysis
Gold Futures, 4-Hour Chart Analysis
Copper Futures, 4-Hour Chart Analysis
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