Pre-Market: Dollar Eyeing Break-Out as China Weighs on Stocks Again

The underlying trends that have been defining conditions in financial markets for months now are still intact. Rising yields, emerging market weakness, and the US Dollar’s strength are the most important properties of the current environment, while US stocks continue to stand strong, defying currency pressures, trade war fears, and slowing global growth.

US earnings have been very strong in the second quarter, and as US growth remained the strongest among the main developed economies, the catalysts behind the relative strength of the US markets still persist even as the central bank fueled bull market carried equities to dangerously high valuations.

Shanghai Composite, 4-Hour Chart Analysis

Today, among the weakest assets, the Shanghai Composite got close to its bear market lows, the Yuan slid towards its 12-month low, while the Turkish Lira continued its plunge to new all-time lows, nearing the 5.20 level in the USD/TRY pair, amid the escalating US-Turkish diplomatic tensions.

NASDAQ, 4-Hour Chart Analysis

Despite that, US stocks are unchanged before the bell, while the main European indices are only slightly in the red, with trading activity being low, in line with the usual summer market conditions. As economic numbers will be few and far between this week, and as the major central bank meetings are all behind us, choppy market conditions could persist, even as the technical setup in the main currencies looks interesting.

Dollar Index (DXY), 4-Hour Chart Analysis

With all eyes still on the Dollar and its painful uptrend that puts pressure on the most vulnerable markets, the current pattern in the Dollar Index is promising with some fireworks for forex traders. The DXY is hovering just below its recent high, following an extended period of consolidation. The EUR/USD pair is edging towards the 1.15 level too, and a break below that could trigger another leg lower in the common currency.

Trade War Still Looms as Commodities Remain Week

The US-Chinese trade war is still dominating headlines, as this time Chinese officials lashed out on the “arrogant” POTUS and his administration, triggering a dip in Asian, especially Chinese assets, as the resumption of the trade talks between the two countries seems more distant again.

Copper, 4-Hour Chart Analysis

While the mounting troubles in the emerging market segment still haven’t really infected developed markets, commodities, especially industrial metals continue to point to a drop in economic activity. With that in mind, despite the current stability, we remain defensive towards risk assets, especially as the most negative period of the year is just ahead, according to seasonality statistics.

While copper is still just above its cycle low, and gold is also suffering amid the Dollar’s rally, crude oil is up by more than 1.5% today, with the WTI contract getting back to the $70 per barrel level on the heels of Friday’s surprise drop in the US rig count.

Featured image from Shutterstock

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.