As last week came to a close, all eyes were on Fed Chairman Powell’s speech at the Jackson Hole Symposium. 

Prior to that, the USD had gained strength with EURUSD down to 1.1052, AUDUSD down to 0.6745 and USDJPY up to 106.73. GBPUSD dipped to 1.2195, but held the breakout level of 1.2180, and was back at 1.2235 by the US open. 

Crypto was virtually unchanged from the end of Thursday. Global equities were generally higher, and the DJ futures pointed to a rally of around 80 points. Then comes the headline that China i retaliating in the ongoing trade war by adding tariffs to another $75 billion of US goods, including cars. The DJ futures do an immediate reversal and slip into the red by 150 points. Let the fun begin.

Before the all-important speech, we do have Canadian Retail Sales data to look at. The core number comes in significantly better than expected at +0.9% as opposed to a drop of 0.1% which the market was expecting. 

However, with all else going the reaction is muted with USDCAD dipping from 1.3335 to 1.3320. Back to clock-watching for Mr. Powell. And cometh the hour Powell pledges to sustain the economic expansion and states there is no rule book for a trade war. The markets like it, the DJ briefly climbs back to flat and the USD gets sold with EUR back up to 1.1085. 

Forget the earlier Chinese tariffs, the Fed will save the day! Even crypto likes it with BTC up to $10,400 and ETH to $196. But wait –  the DJ drops over 100 points back to where it was before he started speaking. But no, back up we go. Then we get the Tweet: ‘Who is our bigger enemy, Jay Powell or Chairman Xi?’ 

In addition, President Trump ‘orders’ US firms to look for alternative markets to China. He then goes on to say he will make an unexpected announcement, noting a very strong dollar and a very weak Fed. Stocks immediately tank as does the USD with EURUSD shooting up to 1.1126 and USD/JPY down to 105.60. 

As the afternoon progresses, it becomes obvious there will be no formal statement from President Trump before he heads to the G7 summit in France. But the markets are in a state of shock with the DJ closing lower by 623 points. The Nasdaq is lower by 239 points or 3%. EUR closes at 1.1140, USDJPY at 105.40 and GBP 1.2250. What a day!

With the volatility in US equity markets, I have recently looked at both the DJ and S&P. And now, the tech-heavy Nasdaq. Of any of the major US indices, the Nasdaq is most vulnerable to the US trade war with China, and given the very direct comments made by President Trump, it’s no surprise Friday’s drop in the equity markets was felt most sharply by the Nasdaq. 

So where does that leave us technically? The chart doesn’t look that different from the DJ and S&P but is a little steeper off the 2018 December low. As we can see from the hourly chart, there was a significant pullback during May to a low around 6933, and the past couple of weeks has seen us touch a low of 7356. 

Friday’s plunge took us within 100 points of that low but more significantly seems to have broken the trend line in place from Dec 2018. What will this week bring?

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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