Earn2Trade's Daily Market Analysis

[Earn2Trade]

June 19, 2018

Trade War

Trade wars can be defined as a conflict of two or more nations where all parties involved try to harm the other side’s economy through tariffs or other trade barriers as much as possible while trying to outlast them in a war of attrition. This accurately describes the current trade relations between the US and China as both are trying to exploit their opponents’ weaknesses to their full extent. An unfortunate side effect of the trade war is companies getting caught in the crossfire and suffering serious losses. One casualty is the Chinese ZTE Corporation, which many predict will file for bankruptcy soon. China’s greater trade surplus means they also have more to lose than the US. If both countries continue raising the stakes, China will run out of imported goods to tariff more quickly than the US. The latest reports state the 10% US tariff on Chinese products will affect 200 billion dollars worth of imported goods, while the US only exports 130 billion dollars worth of products to China. The markets already anticipate that China will suffer more losses initially. The Shanghai Composite fell back to July 2016 price levels. Today’s 3020 points value is 20% lower than its previous 3590 peak. The Dow Jones index is has declined to 24622, only 2000 points (8%) below its peak. The price differences of the indices acutely reflect the comparative effects the tariffs have on the two countries’ economies.

Reducing Exposure

Asian investors decided step back from the markets today. There was a sweeping wave of positions being liquidated across all markets as traders and investors acted to reduce their exposure to risk in every class of assets. Chinese stocks were overweight in the basket of stocks sold as the Shanghai and the Hong Kong indices dropped 3.8% and 3% respectively. Japanese and South Korean stocks were in line with the global trend, both decreasing approximately 1.5%. Yesterday oil climbed up to $66, however, today it fell back to $65.30.

Silver

Silver’s attempt to move outside its usual price range ended with the same result that occurred on April 20. Whenever price moves above the $16.88 resistance line, it tends to take on a swift and sudden upwards trend, presumably due to a large number of traders placing stop buy orders on that line. Whenever price reaches this range a large volume of short positions close, leading to an increase in buying power due to short covering. The upwards trend lost momentum around $17.35 where many long positions closed and new short positions opened. The result is a red candle, similar to the the one seen in April when price sharply fell as it has done now.

The current $16.40 price is at the center of the 16.03-16.88 range. Silver has been moving within this channel for most of the year, typically around 16.40. The persistent trading range demonstrated by the asset lets us assume that if price continues to decline, it will hit a strong support line at $16 and then rebound back to the center of the channel.

AUDUSD

The Australian dollar is at an all-year low against the US dollar. The exchange rate clearly indicates how Australia’s economy will suffer from the trade war due to their heavy dependence on China. Australia has greatly benefited from Chinese economic growth by supplying China with resources. Australia may end up being the one hit the hardest by the trade war, despite having no conflicts with either the US or China. The devaluation of the AUD against the USD could still increase the competitiveness of Australian resources and raw materials in the global market, however, they can only benefit from it if demand is stable. Whether or not they will find the required stability to take advantage remains to be seen.

The AUD’s devaluation has been ongoing since February and is now entering new lows after a fifth wave of decreasing price movement. By moving below 0.7417, price has broken the support line at the lowest point of 2018 so to find the next support we need to look back to 2017. Last year, 0.7335 caused the AUDUSD to turn around and take on a four month long rising trend. Since we’re only 35-40 pips away from that line, traders predicting further decline should keep an eye out for sudden price movements around 0.7335. The declining trend channel on the chart has been proven reliable and the uncertainty surrounding trade relations will likely continue to pressure price downwards along its lines. These factors could indicate that the Australian dollar’s decline may not even stop at 0.7335 and may continue to reach new lows after the line is broken.

Sincerely,
Laszlo | Market Analyst

Disclaimer:
Leveraged trading is high risk and may not be suitable for everyone as your losses may exceed your investment. We advise you to consider whether trading is appropriate for you in light of your experience, objectives, financial resources, risk tolerance and other relevant circumstances. Ensure you fully understand all of the risks involved and seek independent advice if necessary. Please refer to our more detailed risk warning at earn2trade.com/disclaimer. We recommend that you seek independent financial advice and ensure you fully understand the risks involved before trading. Trading through an online platform carries additional risks.

[James.F]

Interesting stuff about the silver price. Thank you.

[Earn2Trade]

June 20, 2018

Consolidation

Following the massive decline of stock prices in the past few days, Asian markets are showing signs of recovering today. The Nikkei and the KOSPI both closed over 1% higher, producing the best results of all indices. The Shanghai Composite also increased, however, its 0.32% growth fell short of other markets. The popularity of Chinese stocks has visibly decreased in the current economic and political climate. The commodities market is also thriving; with oil, natural gas and wheat all showing a steady increase.

American Real Estate

The number of building permits issued in May 2018 fell by 4.6% compared to April, however, the actual number of new construction projects has also increased. According to a report published today, analysts expect existing home sales to increase by 1.5%. For now the US real estate market continues to enjoy a high turnover, showing no signs of being affected by the recent interest rate hike. The number of building permits issued is still higher than its earlier 2008 peak, despite the decline from last month. The reduction in permits issued mainly affects the construction of multi-family homes in southern states. Finally, low unemployment also plays a large role in the general population’s optimism and activity in the housing market.

Light Sweet Crude Oil

The price of oil took a big hit last week. Following China’s announcement it quickly fell from $67 to below $64. The wave of panicked sell-offs caused price to break out of its rising trend channel and stopped at $63.59. On Monday it recovered almost 70% of its original value. As seen on the chart, the price correction encountered strong resistance at $66 which is the lower boundary of the previous rising trend channel. This line served as both the starting point for another decline and the first point of adjustment for the purple trendline. This second wave of downwards movement could not push price back down it its earlier low point at $63.59. Instead, it rebounded and changed direction at $64.46. The result of these movements was the formation of a triangle pattern, that price managed to breach today as it moved upwards.

Technical analysis substantiated by today’s report on crude oil stock suggests a further increase is likely. Yesterday’s American Petroleum Institute (API) announcement showed a significant drop in oil inventories, exceeding the expected half a million barrel decrease by an additional two and a half million. Today, the US Energy Information Administration (EIA) reported that following last week’s 4 million barrel decline, this week they are now anticipating a 300 thousand barrel increase. If they are overestimating oil inventories as has the API, it could give oil enough of a price boost to break back into its previous trend channel.

EURJPY

The euro is on a declining trend against both the USD and the Japanese yen. The market has priced in both the eurozone’s current difficulties and the dissent among member states. In theory, the ECB’s policy to lower liquidity should have had a positive effect on the euro, however, low interest rates and the region’s worsening economic outlook has caused it to decline. Low interest rates and increasing liquidity through the buying of bonds have supposedly been vital to the EU’s annual 2.5% economic growth. However, these monetary tools do not provide a solution for either the high unemployment figures (8.5%) or inflation not reaching the 2% target. The new US tariffs could also deal a serious blow to the European economy, especially the German automotive industry which is one of the main contributors to the Union’s GDP. The closer we look at the current political and economic situation of the EU, the more evidence we find to suggest the euro will continue to decline in value.

The EURJPY currency pair reflects the Union’s negative economic outlook. The EUR has made several minor corrections during its downwards trend, however, it has not managed to break through any of its notable resistance lines. On the other hand, support lines fell confirming that the sellers outnumber the buyers. The chart also shows that the movements of the EURJPY have been gradual, meaning each drop was followed by a period of narrow sideways ranging movement before breaching the next line. The current range is between 127.7 and 126.7. Price bounced back down today when it touched the intersection of the 127.7 resistance line and the green directional trendline. Based on the current trend, a continued decline is more likely than a possible upwards breakout.

Sincerely,
Laszlo | Market Analyst

Disclaimer:
Leveraged trading is high risk and may not be suitable for everyone as your losses may exceed your investment. We advise you to consider whether trading is appropriate for you in light of your experience, objectives, financial resources, risk tolerance and other relevant circumstances. Ensure you fully understand all of the risks involved and seek independent advice if necessary. Please refer to our more detailed risk warning at earn2trade.com/disclaimer. We recommend that you seek independent financial advice and ensure you fully understand the risks involved before trading. Trading through an online platform carries additional risks.

[Earn2Trade]

June 21, 2018

Profit Warnings

The German automotive corporation Daimler lowered its 2018 corporate profit forecasts. The manufacturer claims America’s new tariff policy and tense relations with China will inevitably hurt their bottom line. The luxury brand Mercedes-Benz also predicts that auto manufacturers will struggle this year. Daimler’s shares fell by 3.8% as did the other two major German manufacturers BMW and Volkswagen, by 2.7% and 1.3% respectively. The Chinese owned (originally Swedish) Volvo will likely halt any plans to build their South Carolina plant that would’ve employed 4000 people. BMW also ceased Chinese exports of their X3 model from their US factory, instead moving production to Rosslyn, South Africa and Shenyang, China. The changing tariff policy is forcing corporations to adapt and the automotive sector has decided its more beneficial to shift production away from the United States.

Mixed Results

The Japanese and Australian stock markets continued on yesterday’s rising trend, however markets in South Korea, Hong Kong and China were dominated by sellers who set a different direction. Reports say China has cut their US acquisitions and investments by 92% from January to May of 2018. Due to rising political uncertainty, Peking has decided to limit how much capital they allow into the States. Meanwhile the US is proposing restrictions on Chinese investments into recently patented or licensed intellectual property of American origin. Tariffs are clearly not the only subject of disagreement between the globe’s two most robust economies.

GBPUSD

The UK government is under pressure as the deadline draws closer for finalizing their exit terms from the European Union. The current Brexit scenario has led to disagreements not just between the ruling party and the opposition, but within the ruling party itself as well. In the current political climate it’s possible that even representatives who helped draft the existing plan may end up not supporting it in the upcoming critical parliamentary vote. Prime Minister Theresa May is in a difficult situation, however successfully resolving the exit procedure could elevate her to the hall of fame alongside historic figures like Margaret Thatcher.

Meanwhile the Bank of England is holding a meeting on the interest rate today. The slowing inflation rate of the past few months means there’s less pressure on the BoE to raise interest rates. Recent comments from the BoE suggest that there are some preconditions for them to decide to raise the base rate. The British pound does need support, since compared to its earlier peak on April 18 it lost 8.5% in value against the USD. The downward trend was interrupted by a sideways consolidation period between May 29 and June 14., however this week it’s back to its downwards tend. On June 19 the GBPUSD fell below the 1.3210 support line, then retested the same line to gain momentum for its subsequent plummet downwards. Its next support could be the 1.3040 line which it could even reach today if the news coming out of the central bank is overly negative.

Corn

Corn lost 5 months worth of steady price growth over the last 22 calendar days. It’s no coincidence that volatility indexes are often considered tools for indicating price decline, considering downwards trends almost always move quicker than rising ones. The underlying reason could be that in the case of speculatory trading, decisions to buy typically have more thought put into them than decisions to sell as the latter are more likely to happen on impulse. The price of corn demonstrates this theory well. When investors get worried and become uncertain, they make sudden moves to reduce their exposure. In the last 18 trading days there were only 5 when price managed to close higher than it opened and only one day when closing price was higher than the previous day’s opening. When the market is this irrational, it’s difficult to apply conventional wisdom and fundamental analysis.

Monday’s trading session started with corn breaking though the 356 support line and kept falling. The decline reached its lowest point on Tuesday when price opened at 355, then fell to 338. Price made several corrections on its way down, however it broke the 345 support line effortlessly. Yesterday’s trading struggled to find a direction, represented by a candle with no body and long wicks on both ends, also known as a doji. The 345 line was previously a strong line of support so if the decline gives traders a chance to fill up their order books it may also become an equally strong line of resistance.

Sincerely,
Laszlo | Market Analyst

Disclaimer:
Leveraged trading is high risk and may not be suitable for everyone as your losses may exceed your investment. We advise you to consider whether trading is appropriate for you in light of your experience, objectives, financial resources, risk tolerance and other relevant circumstances. Ensure you fully understand all of the risks involved and seek independent advice if necessary. Please refer to our more detailed risk warning at earn2trade.com/disclaimer. We recommend that you seek independent financial advice and ensure you fully understand the risks involved before trading. Trading through an online platform carries additional risks.