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Market Overview

Swimming Against the Stream

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Tomorrow is a big day for European markets and for the Euro. The ECB has been walking a tight rope of monetary policy and has reached the end of the line.

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We can expect the Euro to be extremely volatile over the next few days as Mario Draghi is expected to come to a decision. Will they start to reduce their extensive QE program and raise rates? Or will they keep the loose money flowing for longer?

After that, we’ll have a very important Fed meeting on September 20th where the United States faces a similar decision. The US is already much further down the path of monetary normalization but as we’ll discover below not everybody is very happy with that.

Then, September is in for a big finale as we once again reach the US debt ceiling. Over the past few years, investors have become accustomed to the bickering between the Democrats and Republicans and government shutdowns are not infrequent.

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With Donald Trump in the White House already threatening the US economy with a shutdown, the markets may start bracing for this option fairly soon.

@MatiGreenspan
eToro, Senior Market Analyst

 

Please note: All data, figures, and graphs are valid as of September 6th. All trading carries risk. Only risk capital you can afford to lose.

Market Overview

It seems that extreme politics may finally be catching up with the financial markets. Wall Street returning from their long weekend did in fact play a bit of catch up with the rest of the markets and sold a bit on the North Korean escalation.

The Dow Jones fell a bit more than 1% yesterday and the declines in Europe were about 1% since the start of the week. Asian equities are all over the place with some up and some down since the big nuclear test on Sunday.

So there isn’t any sort of global panic sell off as Kim Jong Un may have liked. It’s more of an orderly adjustment to risk as the possibility of a nuclear strike becomes less obscure.

Valuations in the stock markets are still very close to their all time highs in most major countries and even though volatility has ticked up, it’s still lower than it was three weeks ago.

Here’s a graph of the VIX volatility index since the Brexit Referendum (red circle) and Donald Trump’s election night (green circle).

The black circle is the all time lowest level for this index since it was created in 1990. Notice any trend?

Getting Loony

Bank of Canada tonight for those of you who like trading the Loony. Having been to Canada recently I can tell you that things felt very cheap there. Even though the Canadian Dollar is currently at 23% discount to the USD but the purchasing power seems to be about equal.

My travel recommendations aside, the weaker price of crude oil has had a devastating impact on the Canadia economy and many jobs were indeed lost. At this point the markets seem to have already priced this in and by the graph below we can see that the worst (yellow circle) may be behind us.

Now the question is does the price go back into the current range or fall back to normal levels last seen in 2013?

The answer to that question may very well come from the BoC and what they decide to do with their interest rates.

Turncoat

In fact, one of the members of the US Federal reserve went on record last night stating that the Fed may be at fault for the weak US economy at the moment.

It’s not very common for a big banker to swim against the stream but that’s what Niel Kashkari President of the Minneapolis Federal Reserve did by stating that the rate hikes that Yellen has been doing over the past year and a half were in fact premature and may have done some “real harm.”

At this point, many economists fully expect the Fed to take drastic action on September 20th to start the gradual process of selling off $4.5 Trillion worth of bonds and other assets that they’ve bought since the financial crisis. Will this be premature as well?

What ICO Lockdown?

Crypto markets have already fully recovered from the news that China will halt all ICO activity in the country. They’re not quite at their all time highs, but they weren’t when the news broke either.

A well known professor of economics at Yale University, who I’ve taken classes with before and really respect, named Robert Schiller has recently come out against the current valuations of Bitcoin and saying that this is the classic example of a bubble.

Well, he’s not the first to call it as such and though there are many skeptics to the digitalization and decentralization of modern money, I didn’t notice anybody shorting Bitcoin during the recent pullback.

Of course, Schiller’s point is not lost. All cryptos are still highly experimental and as with any good experiment results may vary based on location and timing. For example, Japan at the moment working hard to get bitcoin excepted in more and more physical locations and Australia about to make bitcoin easily tradable for AUDs.

Looking at the chart it’s easy to see that we’re still in an extremely strong bullish trend. A strong break of the all time high of $5000 would no doubt bring in fresh interest and fresh investors. On the other hand, if we do see a reversal the next major support line isn’t until $3000.

Wishing you an amazing day ahead!!

This content is provided for information and educational purposes only and should not be considered to be investment advice or recommendation.
The outlook presented is a personal opinion of the analyst and does not represent an official position of eToro.

Past performance is not an indication of future results. All trading involves risk; only risk capital you are prepared to lose.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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Analysis

Daily Analysis: No Questions Answered

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Thursday Market Recap

Asset Current Value Daily Change
S&P 500 2718 0.97%
DAX 12,468 0.31%
WTI Crude Oil 62.61 2.02%
GOLD 1332.00 0.52%
Bitcoin 9780 -8.00%
EUR/USD 1.2324 0.26%

It was a strange day indeed in equity markets, with mixed signals popping up across the board after yesterday’s crazy quasi-FED day. An ugly overnight session, followed by a strong pre-market rally, an early-day pump, and a late-day dump. That is the summary of the day, but under the surface, there is a real struggle between market forces, with still an edge for bears in the battle for control.

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NASDAQ 100 Futures, 4-Hour Chart Analysis

It seems that the Nasdaq is still the key, as the relative strength of the tech benchmark is the most reliable gauge of the market direction, at least regarding the intraday trends. That said, at the end of the day, the Nasdaq closed in the red 4 times in a row, at least as far as the normal trading day is concerned, and still, the major indices are trading not far off last Friday’s top, despite the downward drift.

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Forex Markets and Commodities

Adding to the confusion, the Dollar corrected lower after a positive period, and with Treasury yields trading all over the place, investors were left scratching their heads yet again. The Japanese Yen was the clear winner of the day among currencies, as the primary safe-haven got bid heavily during the Asian session, and it remained throughout the up-and-downs of the day, despite the strong bounce in stocks and risk-on currencies.

USD/JPY, 4-Hour Chart Analysis

The EUR/USD pair had a very active and volatile session, but the common currency remained above the lows from two weeks ago, while also halting below yesterday’s highs, so all-in-all, no technical conclusion to draw. As in stocks, the next clear directional day will be crucial, as the tug of war is getting tenser and tenser.

EUR/USD, 4-Hour Chart Analysis

The Canadian Dollar plummeted during the day, thanks to the dismal Retail Sales figures, but it finished well off its lows, boosted by the stock recovery and the jump in the price of crude oil. The Black Gold was pushed higher by the surprisingly bullish US inventory data, and the WTI contract closed back above $62.50 per barrel.

USD/CAD, 4-Hour Chart Analysis

Gold continued to follow the Euro, finishing the day slightly higher, but the precious metal showed notable relative strength during the Asian session, and that could be the precursor of a move to new rally highs, should the bearish scenario play out in equities.

Cryptocurrencies

The segment had another bearish session, and the bleeding continued after the US session, with BTC leading the way lower this time around after a long period of relative strength. A crucial test might be ahead of the most valuable coin, as the $9000-$9200 support zone would be a perfect target for the current correction, to keep the uptrend going. That said, that zone is still almost 50% above the prior low, leaving plenty of room for the coin to bottom out.

BTC/USDT, 4-Hour Chart Analysis

With all of the major altcoins also sporting significant losses, bulls would like to see more of the early relative strength that some coins have been showing, to establish a leadership that can guide the segment out of the plunge. For now, the crash lows are way below the current levels, and the bullish long-term scenario remains intact.

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Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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Analysis

Pre-Market: Bulls Try to Fight Back after Ugly Overnight Session

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Following the steep late-day downturn on Wednesday, which followed the not-to-hawkish FED meeting minutes, Asian markets and US equity futures continued lower with a vengeance. The very active overnight trading is another sign of the regime change in traditional financial markets that we have been monitoring for the last two weeks, ever since the “Black Monday of 2018”.

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Dow Futures, 4-Hour Chart Analysis

EUR/USD Changing Behavior

The European session brought about an oversold bounce that stabilized markets from stocks to currencies. The EUR/USD pair that has started acting “normally” considering its relationship with US Treasury yields lately, is headed south once again, trading only 0.5% above its recent correction lows after clearly breaking below the rising trendline.

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EUR/USD, 4-Hour Chart Analysis

The bull-trap that we identified a few days ago was the start of the current leg lower, and if the regime change will be persistent, the most traded forex pair could be back to the role of the “risk-on/risk-off” indicator that has been the privilege of commodity currencies in the last couple of weeks.

USD/JPY, 4-Hour Chart Analysis

The Japanese Yen is showing notable strength after its overbought dip, and the primary safe-haven currency could be in for more gains, should the risk-selloff continue. The Yen also gained ground on the common European currency, following the dovish ECB meeting accounts and the misses in the German IFO business climate indicator and the British GDP, which all question the European growth-monetary tightening narrative.

Canadian Dollar in for a Wild Ride

USD/CAD, 4-Hour Chart Analysis

With the Canadian retail sales report and the US crude oil inventory data coming out soon, forex traders should expect sizeable moves in the recently weak currency, while the USD should also be very active during the US stock market session.

All eyes are on Treasury yields again, with the slight correction today helping the bounce in stocks and other risk assets. The Nasdaq could be the motor of a stronger rally on Wall Street, but we wouldn’t bet the house on that, as the short-term technical setup remains bearish, and a re-test of the correction lows is still the most likely scenario for the coming weeks.

Featured image from Shutterstock

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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Market Overview

Play that Funky Market

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There’s only one way to explain what’s happening in the markets right now.

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It’s FUNK!

@MatiGreenspan
eToro, Senior Market Analyst

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Today’s Highlights

  • More Market Funk
  • No way but Right?
  • More Crypto Vol

Please note: All data, figures & graphs are valid as of February 22nd. All trading carries risk. Only risk capital you can afford to lose.

Traditional Markets Funk

Everything was going fine on Wall Street, they came back from lunch in a buying mood, but somehow things started to turn sour. By about an hour before the close things started to get downright ugly and by now we’re more than 500 points off the peak of that yellow circle and we’re now 3.82% from the all-time high.

Once again, the movement began in the bond markets, with the yields on the 10 Year spiking to a new high of 2.94% by the end of the day.

And of course, volatility can be seen with the VXX shooting up into the close.

Italian Splinters

It’s been five days since Italy stopped publishing opinion polls ahead of the national elections on March 4th in order to stop them having an influence on polling day itself.

That said, as we learned in Brexit and the Trump elections, polls can’t always predict what’s going to happen and in Italy, even less so. And this one is set to be even more interesting than usual.

Nevertheless, some analysts have come to the conclusion that the only party with an actual shot of winning an outright majority is Forza Italia, led by Silvio (I can’t believe I’m even writing this) Berlusconi.

This is still anyone’s game though, and even though there are 945 seats across two Houses of Parliament, alliances are so fractured that candidates are now battling for every single voter.

For the markets it’s still not clear what the effects might be, but as Europe’s 4th largest economy, and with the EU’s 1st largest economy still in a political deadlock, I’m looking squarely at the Euro.

In this chart, we can see the effect that a decisive election had on the EURUSD on April 23rd (yellow circle). Notice the large gap up that seemingly took the market from flat to flying in a single weekend when it became clear that Marine Le Pen had no chance of victory.

Crypto Volatility Continues

When Wal-mart’s stock dropped 10% on Tuesday it was a really big deal but when Bitcoin dropped an equal percentage on Wednesday, somehow it just doesn’t seem all that significant.

On that thought, here’s a meme I made yesterday. 🙂

That’s just the level of volatility that we’ve come to expect from this market. So please be aware that when I say cryptos are volatile, what I mean is they’re extremely volatile.

One thing that I keep noticing in the crypto-market is that when things are going up, we can expect to see different levels of returns in different coins and general divergence. However, when things are going down the correlation gets stronger and everything falls together.
You should be able to see that in this chart pretty clearly…

As always, let me know if you have any questions or if you need anything further.

Have a groovy day!!

This content is provided for information and educational purposes only and should not be considered to be investment advice or recommendation. The outlook presented is a personal opinion of the analyst and does not represent an official position of eToro. Past performance is not an indication of future results. All trading involves risk; only risk capital you are prepared to lose. Cryptocurrencies can widely fluctuate in prices and are not appropriate for all investors. Trading cryptocurrencies is not supervised by any EU regulatory framework.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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