Pre-Market Analysis And Chartbook: Trade Deal Hope Boost Risk Assets as Pound Surges

Tuesday Market Snapshot

Asset Current Value Daily Change
S&P 500 2,737 0.27%
DAX 30 11,381 0.49%
WTI Crude Oil 59.10 0.41%
GOLD 1,203 0.20%
Bitcoin 6,291 -0.42%
EUR/USD 1.1265 0.42%

After yesterday’s equity selloff and Dollar rally today we are seeing a counter-trend move in most asset classes thanks to the reports regarding some progress in the US-China trade talks. The optimism has been sparked by the planned US visit by the main Chinese negotiator which points to a renewed interest on the Chinese side that withdrew from the talks.

Stocks are slightly higher before the US open, but the short-term uptrend that carried the major indices significantly above the October lows seems to be broken, with especially the Nasdaq being set for a re-test as soon as this week. Currencies and commodities are also very active today, and as volatility is increasing across asset classes, a busy US session is likely.

GBP/USD, 4-Hour Chart Analysis

The Pound continues to be the most volatile major currency, even as the Dollar has been in the center of attention since the Fed meeting, with the looming Brexit deadlines increasing the tension in the market of the GBP. Interestingly, the Euro has been underperforming the Pound lately, due to the Italy related worries, and today the Pound is significantly higher against all of its major peers.

The Pound was also boosted by the British Employment Report, as the healthy wage growth figure outweighed the weaker than expected Unemployment Rate, at least as far as the forex markets are concerned. The GBP/USD pair jumped higher off the key 1.2850 support/resistance level that has been “in play” several times in the last few months, but the broader downtrend remains unharmed by today’s move.

S&P 500 Futures, 4-Hour Chart Analysis

The technical troubles are mounting on Wall Street, with the key benchmarks all turning sharply lower off last week’s highs. The Dow, which has been the strongest index this month also broke its rising trendline and dipped below several short-term support levels, similarly to the slightly weaker S&P 500 and the lagging Nasdaq.

The S&P 500 is now testing the key support zone near 2750, and given the broader bearish setup, we expect the large-cap index to revisit the October low in the coming weeks, with even an accelerating selloff being in the cards. The weak market internals are also pointing to further troubles for stock bulls, and we still wouldn’t buy the dip here.

Emerging Market Weakness Casts a Shadow on Risk Assets

EEM (Emerging Markets ETF), 4-Hour Chart Analysis

While the main risk on currencies is higher today, looking at the weakest links of the October risk-rout, emerging market and European stocks, the picture is not pretty. We looked at the DAX’s wounded chart yesterday, and the most important emerging market ETF also shows signs of distress, with a test of the bear market low being seemingly inevitable in the near future, especially given the broad weakness across the developed markets as well.

Copper Futures, 4-Hour Chart Analysis

Commodities are mixed today amid the Chinese optimism, with the increasing volatility in oil still being the most interesting trend in the segment. The WTI contract fell back below the $60 level after yesterday’s initial bounce, and although it only hit a marginal new low today, and we still expect a larger bounce in the coming days in oil, sellers are still in control of the market.

Gold dipped below $1200 for the first time in a month, as the precious metal failed to reverse last week’s breakdown, threatening with a test of the $1180 support level. Copper avoided a new swing low below the $2.65 level, for now, and the metal is still within its broad consolidation pattern, thanks to the renewed trade-deal optimism, with the broader downtrend clearly being intact.

ChartBook

Major Stock Indices

Nasdaq 100 Futures, 4-Hour Chart Analysis

Dow 30 Futures, 4-Hour Chart Analysis

VIX (US Volatility Index), 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

Forex

EUR/USD, 4-Hour Chart Analysis

USD/JPY, 4-Hour Chart Analysis

EUR/GBP, 4-Hour Chart Analysis

AUD/USD, 4-Hour Chart Analysis

Commodities

WTI Crude Oil, 4-Hour Chart Analysis

Gold Futures, 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.