US Resistance
Led by the National Retail Federation (NFR), 60 US trade associations formed a resistance movement, or rather a lobby group against the trade war on China and the rest of the world. Their goal is to pressure representatives of five states to block the Trump administration’s import tariffs on China. They claim the tariffs threaten to cancel out the economic growth resulting from the recent tax cuts and endanger their normal daily operations. The group is backed by leading US corporations such as Exxon Mobil, Chevron, Target, Microsoft, Amazon, Apple, Alphabet to name only a few. The combined economic clout and market influence of these companies is enough to topple nations, however, they’ve declared that they will not back any specific political side or candidate in the upcoming November 7 elections.
Digging Trenches
Stock markets are becoming increasingly cautious as the deadline for the 200 billion tariff package draws near. As the risk factor of emerging market currencies rises, so does the number of investors choosing to fall back behind their own defensive lines. This implies that under the current circumstances it’s entirely possible for almost any asset to suffer minor flash crashes. Meanwhile China will be making its case against the US in front of the World Trade Order (WTO) next week. If successful, they’ll be permitted to retaliate against the US tariffs by implementing sanctions. Doing so would greatly escalate tensions, as Trump has repeatedly threatened to leave the WTO if they rule against US interests. Asian indices continued to decline as a result. Although all major Asian indices were in the negative, the Hang Seng’s 0.5% drop was the largest loss. The European trading session on the other hand started off with a minor increase, giving investors a sliver of hope.
EURJPY
Natural disasters are a significant factor of risk for Japan, especially when nuclear power plants are involved. Their latest predicament was a recent earthquake that damaged the Hokkaido nuclear plant. The plant went to backup power and Japanese households were asked to reduce their use of electricity by 20% until the plant is fully restored. As expected, these events also had an adverse effect on the country’s currency.
The yen weakened against the euro mainly due to the disturbance caused by the earthquake. In addition, Trump’s remarks painting Japan as the next potential target of his new tariff plan also had an adverse effect. As seen on the chart, the yen’s strengthening against the euro came to a halt in mid August at approximately 125, then formed into a double top pattern. The euro’s strengthening brought about a trend reversal that gradually reached 130.88. This long rising period was naturally followed by a price correction back to 127.835, where it lost momentum. The pair is now stuck between two trends and by the end of the day one of them will likely come out on top. The purple trendline indicates a rising trend that reflects its most recent movements, while the blue trend channel suggests a downward trajectory. The breaking of the purple line could signal price moving back to 127.8 while a breach of the trend channel would make 120.88 the primary target.
Soybeans
It’s rare to see a chart take on a pattern as unsightly as the one soy has right now. Ever since began declining in late May there have only been a few days where it managed to close without losses. The obvious underlying reason is the reduction of China’s soybean imports and so far it seems US soybean farmers have not yet found the appropriate replacement market. Today’s report by the Wold Agricultural Supply and Demand shows there have been no major changes on the soybean market since May, although current trends don’t seem particularly promising.
It’s difficult to estimate where a market with so much downwards pressure will find it’s low point and bottom fishing is not widely thought of as a viable investing strategy. Although the current 828 price is not the lowest it’s been this year, when looking at the big picture it’s still obviously at a price level not seen since December 2008. Price is currently only 17 cents away from a persistent support line that previously reversed major downwards trends on two separate occasions. The 810 line is under continuous pressure and the uptick following the latest retest only lasted for 40 cents before turning back downwards from the green trendline. Technical analysis suggests the 810 line will eventually break and today’s report just may be the event that gives price enough momentum to do so.
Sincerely,
Laszlo | Market Analyst
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