Fragile Markets
Emerging markets are often the driving force behind the global economy, yet their dependence on other countries also makes them more fragile than developed markets. The effects the ongoing trade war had on developed countries pales in comparison to the damage suffered by emerging markets. These damages could easily lead to a domino effect that could ripple back into developed countries. Venezuela’s 82766% inflation over the past few months was already a sign of trouble, however, Argentina raising their base interest rate to 60% to avoid the same situation made it clear that something has changed in South America. During this delicate situation. Turkey burst on the scene when the lira lost half its value. The Iranian rial also weakened by 25% over the course of the year. The situation in Asia is also worrying, the Indian rupee was versus the US dollar went from 63 at the start of the year to 71 today. Over the same period the Indonesian rupiah went from 13300 to 15000 also against the dollar. These extreme movements in the currency markets are causing investors to flee in a panic, making the situation worse. Meanwhile China and the US are tied down by their dispute while all of Europe’s attention is focused on Brexit.
The Day After Labor Day
US markets were closed yesterday due to labor day, this being unable to provide the Asian trading session with a direction. China spent the day in an optimistic mood, the Shanghai Composite increased by 1.23% and the Hang Seng by 0.84%. This minor correction was necessary for Chinese stocks, as unlike their US counterparts they’ve strayed far from their former peak. The Shanghai index for example dropped by 18.56% over the course of the year. Going back to yesterday, Japan and Australia were mostly bearish, although the the Nikkei’s 0.05% decline and the ASX’s 0.28% drop will not have any major global after effects.
Light Sweet Crude Oil
The fundamentals of the oil market have become muddled as of late. The November deadline for the Iran sanctions to go into effect draws ever closer, urging oil producing countries to increase their output, resulting in a slight overproduction. Meanwhile Iran has threatened to close off the mouth of the Persian Gulf, should the sanctions go into effect. This could affect the oil delivery routes of Kuwait, Qatar and the United Arab Emirates. According to several news outlets, Iran has made preparations to deploy missiles in the region as a confirmation of their intent to follow through. The enactment of the sanctions is only two months away, however, at this point it does not seem like either the US or Iran will back down.
Oil traders are trying to strike a balance between the oversupply and the possible decline of global demand as well as the possible difficulties in provisioning. Oil’s price trend this year can basically be described as a rising one, although price has sharply declined from its $75 peak point. It found support at $65, from where it rebounded and broke through the downwards trendline, successfully passing through both the 100- and 200-period moving average. It quickly formed into an upwards trendline that followed price all the way to it’s current level. On the other hand $70.40 appears to be a powerful line of resistance, although technical analysis suggests the intersecting moving averages are an indicator of further increase.
AUDUSD
The Reserve Bank of Australia (RBA) held its interest rate meeting today, deciding to leave the base rate unchanged at 1.50%. The RBA Governor claims they aren’t worried about the AUD’s weakening as it’s still within the acceptable AUDUSD exchange rate target. The lack of noticeable inflation pressure in Australia also makes an interest rate hike wholly unnecessary. Meanwhile the declining unemployment figures and higher than expected GDP growth makes lowering interest rates equally needless.
Although the RBA’s press conference didn’t allude to exactly what their optimal AUDUSD exchange rate is, however, looking at the past 1.5 to 2 years on the chart reveals the Aussie to be close to its lowest point of the given period. The price level that stopped the pair’s decline in late 2016 is located at approximately 0.7165, making this a powerful line of support that could cause price to reverse. Based on previous experience, its rare for price to breach a long term support line of this caliber on the first attempt.
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 full disclaimer for more details. 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.