Pre-Market: Trade War Fears Halt Rally Again after Gary Cohn’s Resignation

US stocks suffered a huge blow yesterday after hours, as the most trusted (by financial markets that is) member of Donald Trump’s administration, economic advisor Gary Cohn resigned. The move followed reported clashes between the President and Mr. Cohn on the issue of trade tariffs among other things. As markets were already jittery thanks to fears regarding a full-on trade war, the surprising news was not what the doctor ordered for bulls.

The protectionist moves by the administration could intensify following the departure of the ex-Goldman advisor, and that could weigh heavily on equities and other risk assets in the coming weeks, especially given the already shaky technical setup.

S&P 500 Futures, 4-Hour Chart Analysis

Despite the resignation’s undoubted negative impact on sentiment, there are clearly positive signs regarding the short-term picture, as some of the negative divergences that we have been monitoring eased. With that in mind, at least until Friday’s much-awaited US employment report, we expect choppy trading with no clear direction in stocks, while a re-test of the correction lows remains the most likely scenario for the next couple of weeks.

DAX Index, 4-Hour Chart Analysis

Back to the said divergences, Europe and Asia held up relatively well amid the US worries, and after a lengthy period of weakness, even the strength of the Yen and the Euro couldn’t hurt the Nikkei, the DAX, and the EuroStoxx 50 indices, while US small caps are also relatively strong today.

On another positive note, the ADP employment report was better than expected, and that bodes well for bulls before Jobs Friday.

Canadian Dollar in Focus Again before BOC Decision

For now, US Treasury yields remain stable, despite the hectic trading in equities and the worrying news flow, and forex markets are relatively calm thanks to that, with the Japanese Yen’s overnight strength fading away somewhat amid the bounce in stocks futures.

The same could be said to gold, as safe haven flows haven’t been strong enough to hold the precious metal above $1330, as risk assets have been drifting slightly higher ever since the initial drop after Cohn’s announcement.

USD/CAD, 4-Hour Chart Analysis

As for today’s US session, the Bank of Canada will decide on its benchmark rate soon, and we would be shocked if the central bank raised in the face of the recent trade worries and the mixed economic numbers, even as the weakness of the Canadian Dollar would leave ground for a hike.

Looking at the stretched chart of the currency’s USD pair, a counter-trend move seems to be the most likely scenario, while a surprisingly dovish BOC statement could propel the USD/CAD above 1.30

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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.