The US-China trade war rages on as do the protests in Hong Kong. With that comes uncertainty for equities as well as a boost for XAU. Crypto remains largely sidelined, although topside resistance is a concern for major coins as the momentum from the recent rally fades.

Monday is largely a non-event for crypto as other asset markets attract greater interest. BTC and ETH spend the day hovering around $11,400 and $212 respectively. 

The first major move of the week sees equities do a dramatic U-turn. European stocks had started the day in positive territory but a 100+ point rally in the Dax was soon erased. US equity futures turned from green to red, the DJ futures indicating a 150-point drop for the open. Hong Kong Airport announces it is closing for the rest of the day due to ongoing protests and the markets are clearly rattled. 

The biggest movers in FX see AUDUSD down to 0.6750, USDJPY down to 105.05 and GBP squeeze higher to 1.2105. EUR has one brief sell-off to 1.1165, but is soon trading back to 1.1220 as overall market sentiment takes over. 

Risk-off is in full force and with that XAU rallies off support around $1,488 up to $1,505 prior to the US day beginning. The US day would see the DJ drop by 160 points at the open only for that loss to double by day’s end as both politicians and traders express deepening concern about the situation in Hong Kong. 

Yields decline across the board as the US 10Y drops to 1.65%. Morgan Stanley put out a piece suggesting US rates could return to 0 by the end of 2020 on the back of another three 25bp cuts in 2019. 

Bank of America raised the chance of a recession in the next 12 months to 1 in 3. Doom and gloom are upon us! Watch out below. By day’s end, all the major US indices were down more than 1.2%. 

Probably yesterday’s biggest surprise from a technical perspective was GBP’s unwillingness to test support at 1.1985 and in fact squeeze to 1.2106. The market was probably over-positioned causing the squeeze higher. 

But overall neither the fundamental or technical pictures have changed. Today, I want to look quickly at the Dow Jones Industrial Average. The DJ has been on quite a move since the beginning of the year, with May’s sell-off being reversed in July. August, however, has been a picture of turmoil leading to a sharp reversal. 

As you will see from the hourly chart, we’ve been in a rising channel since the beginning of 2019. The bottom of that channel now sits around 25,370. Still, 500+ points away from the day’s close, but a level to keep a close eye on. 

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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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