Ugly Reversal Day on Wall Street

Equity traders experienced quite a rollercoaster ride today, as things got volatile across the globe. The Asian session saw another drop in China accompanied by a devaluing Yuan, which could very well be another step in the trade war chess game between the two mega-powers. While equities staged a rebound during the European session, following an alleged step back by the US administration regarding the proposed investment restrictions, the US session still ended in tears for bulls.

S&P 500 Futures, 4-Hour Chart Analysis

The major US indices dropped by around 2% intraday, getting close to their 3-week lows, and the previously leading Russell 2000 and Nasdaq were weaker than the Dow and the S&P 500, with the tech benchmark falling back below the January high yet again. The selloff was once again triggered by trade war related comments, as this time White House advisor Larry Kudlow stated that the US won’t cave in.

Nasdaq, 4-Hour Chart Analysis

While the US-Chinese relations are really getting tested here, and the widening of the trade skirmish could have a deeper economic impact, as in the case of Chinese stocks, in the US this battle is more a tragger than a cause of the current move. The Fed’s rate hike cycle and the generally tightening monetary conditions are likely behind the rising global volatility, the emerging market worries, and the weakness in Asia and the US as well.

Dollar Getting Close to Recent Highs

EUR/USD, 4-Hour Chart Analysis

The Dollar’s rally that we pointed out yesterday continued in earnest today, as the global pain trade I still “on” against emerging market currencies, while the Greenback is also flexing its muscles compared to the Euro and the Yen as well. With risk-off flows also favoring the USD in late trading, the EUR/USD will likely test the 1.15 level, and the longer-term 1.1450 level could also be in play soon.

USD/CAD, 4-Hour Chart Analysis

Risk-on currencies are under pressure across the board, with even the recently strongly overbought USD/CAD pair only managing a volatile consolidation after the key breakout, and the subsequent surge that we have been monitoring.

Commodities had another active day, as gold edged closer to the $1250 level again as the Dollar rallied, while the rally in crude oil that started after the OPEC meeting continued until a sharp late-day pullback. The WTI contract had the wildest swings, as US inventories declined severely for another week thanks mostly to short-term output worries.

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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.