Analysis

Global equities have a day of recovery

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Hope everyone enjoyed the rollercoaster that was Monday, and Tuesday, at least initially, would be more of the same. Crypto continued to benefit from turmoil in other markets, with BTC getting a sharp spike to $12,325 and ETH flirting with resistance again above $237. 

BTC backed off to $11,700 as it appeared the US day would see a rebound in equities and XAU off its best levels. And there it stayed for much of the day with ETH drifting back down to $227. 

From a technical perspective, the failure of ETH to break the strong resistance around $237 is concerning, as was the speed of the BTC retracement from the highs. Fair to say, things are finely poised.

For FX and equities, it was a wild start in Asia as DJ Futures immediately opened down more than 500 points. This saw USDJPY make a new low down to 105.52 and EURUSD up to 1.1249. But then came a reversal as the Chinese Yuan fixed higher taking USDJPY back above 107 in a short amount of time. While not recovering completely, most Asian stock markets did rally from their lows with the Nikkei only down by 0.65% at the close. European stocks would then take over and showed some signs of recovery with all major bourses showing modest gains. This was enough to take XAU off its 6-year highs down to 1457. 

US equity futures stage a big swing back into the green, with the DJ expected to open up 250 points. So what would the US day bring? Actually, not a whole lot. Equities chopped around but just about managed to hold on to their gains into the close. 

The DJ end proceedings up over 300 points or +1.2%. The S&P and Nasdaq hold similar percentage gains. For FX, USDJPY would take its lead from equities but finished up mid-range at 106.60. 

GBPUSD had several attempts to break above 1.2210 but ended at 1.2160. AUD, NZD and CAD all weakened closing only marginally off their lows and EUR backed off to 1.1200. Was the day just a mild reprieve from the recent carnage or is some sense going to prevail in the current trade impasse? 

Today, I want to look back at FX and to EURUSD. Prior to all the fund with the Fed rate cut and Mr Trump’s elevating of the current trade war with China, EURUSD was under a lot of pressure. Although a dovish ECB failed to see the EURO break support around 1.1100, it ultimately gave way to a low of 1.1027. 

However, we have seen a sharp bounce back to 1.1249 as traders have covered short positions, the USD has come under some pressure and Europe almost gets viewed as a safe haven in the current environment. As you can see from this hourly chart, there is good resistance at 1.1280 with three tops being made their in recent weeks.

Beyond there we have another barrier of resistance 1.1310-20. If the ECB is to make monetary conditions even easier, you do rather wonder if the recent lows will be visited again.

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David Hannigan

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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