Tuesday was a big day for global equity markets as the bounce back from Friday’s mauling continued.

Wednesday began with a similar emphasis with help from some positive headlines on the treatment of the coronavirus. The WHO later tried to dampen expectations about a potential cure, but the tone was set.

Add to that President Trumps State of the Union speech and markets were happy to continue with a positive bias. Or maybe the debacle of vote counting at the Democratic Party caucuses in Iowa was enough to put a smile on investors faces.

Regardless of the catalyst Asian equities would start the ball rolling with the Nikkei and Shanghai Indexes both up over 1%. Europe would take over where the DAX enjoyed gains of almost 1.5%. What coronavirus I hear you say….?

FX could be best categorised as a day for USD strength with EURUSD dropping below 1.1000 and testing the support between 1.0980 and 1.0990.

GBPUSD also moved lower but only after a squeeze higher on better-than-expected Services PMI data. A high of 1.3070 soon became a low of 1.2957 before recovering to 1.3000. As usual, GBP never does things the easy way.

USDJPY meanwhile would steadily rally to close at its highs around 109.84 having started the day nearer 109.40. US equities followed on from Europe although a sharp sell-off in Tesla shares had the Nasdaq lagging the DJ and S&P.

In the end, the DJ would close up 483 points or 1.68%. The S&P would make a new high ending the day up 1.13%. The Nasdaq closed higher by just shy of 0.5% despite Tesla’s reversal of Tuesday’s spectacular gains.

XAU was the only real ‘head-scratcher’ of the day. With equities higher along with the USD, you might have expected the yellow metal to have continued its path lower.

But several attempts to trade under 1,550 were repelled and ended the day around 1,557. The volatility over the past week has been quite something, common sense has at times been absent.

Seems like only a few days ago we were testing EURUSD support under 1.1000.

Oh wait, it was only a few days ago. The squeeze to 1.1095 might have had many thinking it would be a while before we retested 1.1000. But not so.

In fact, the speed at which we have returned does rather have me thinking we will get a ‘proper’ test this time.

So back to the hourly EURUSD chart just to remind ourselves of the setup. 1.0990 held last time. 1.0994 held Wed.

But it’s what us older traders would refer to as a ‘dead cat bounce’. I would suggest 1.0980 is the real level to watch here but you get the picture. US NFP data on Friday after extremely strong ADP data…..could get interesting.

But as always, plenty of ways to play it.


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David Hannigan
Author

A graduate of the Cass Business School, Dave's career began with Credit Suisse as an Equity Options Trader on the London Stock Exchange, before moving into the world of FX with Chemical Bank and Citibank. 1994 saw him join National Australia Bank, first as a Senior Dealer, then Senior Vice President and Chief Dealer.

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