Pre-Market: Stocks Under Pressure as Dollar Jumps, Emerging Market Currencies Slump

The risk-off shift that we expected is playing today across the main asset classes, as emerging market currencies continue to signal distress ahead of next week’s crucial Fed meeting. European stock markets quickly are suddenly back near their “Italy-Crisis” lows and the previously leading US benchmarks are also significantly lower today according to futures markets.

Nasdaq 100 Futures, 4-Hour Chart Analysis

The cause of the selloff is nothing new, as one of the main catalysts is still the US monetary tightening that causes financing distress in the most vulnerable countries. Central banks try to fight the trend, with direct intervention and rate hikes, but for now, the results are dismal. As opposed to weakening a country’s currency, which the major powers are doing, intervening to prop a currency is a loser’s game.

Dollar index, 4-Hour Chart Analysis

Argentina’s crisis ended in a huge IMF bailout, and that or something on a similar magnitude might be needed in the case of Brazil and Turkey, as financing their debt from the open market could get impossible barring radical reforms.

BRL (Brazilian Real)/USD, 4-Hour Chart Analysis

The Turkish Lira is edging lower again, and its trading close to its pre-rate-hike levels, which is a very worrying sign, while Brazilian Real hit new lows again today in early trading. European financial stocks are also worrying, as the major banks failed to recover from the steep Italy-induced selloff.

Unicredit, 4-Hour Chart Analysis

The recent global rally has been more and more reliant on the US tech giants, and thus the Nasdaq, but under the hood, the negative divergences deepened. Next week traders could be in for a wild ride, as the Fed’s decision, and the slew of crucial economic releases will surely cause wild swings, and for now, we remain defensive with regards to most of the markets.

Oil Down, Gold Flat amid Dollar Rally

WTI Crude Oil, 4-Hour Chart Analysis

As the world is anxiously watching the G7 meeting in Canada, with all eyes on Trump’s trade rhetoric and the possible escalation of the recent tariff skirmish, the main safe-haven assets, the Japanese Yen and gold are bid as usual. That said, the precious metal is still trading near $1300, and until a move above  $1315 adn the upper boundary of the short-term range, it remains only neutral from a short-term perspective.

Oil is drifting after entering a bounce this week as expected, and the crucial commodity cleared the oversold short-term momentum readings, while running into strong resistance just above $66 per barrel. Even as further correction is possible, given the broad risk-off shift, a test of the recent lows could already be ahead, and the declining short-term trend is clearly intact.

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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.