A Sour Mood
The currency crises in several emerging markets has made investors across the globe more cautious. The US-China trade war is entering a new stage today, as the US tariffs on Chinese imports affecting 200 million dollars worth of goods go into effect. These concerns may be what led investors across Asia to start a wave of stock sell-offs. The Hang Seng’s 2.7% decline is by no means insignificant, making the 1.7% loss suffered by the Hang Seng and the 1% drop of both the ASX and KOSPI seem mild in comparison. In Europe the French CAC index had the worst start of the day, being 0.9% in the negative within the first hour of the trading session.
Spreading Panic
It’s usually considered a bad omen when when major news outlets run headlines that affect market sentiment and now the news seems filled with the impending collapse of the currencies of emerging markets. The previously inconspicuous decline of these currencies now seems to be accelerating due to investors trying to rid themselves of risky assets. The situation for the currencies in question is becoming increasingly precarious, raising the likelihood of a potential market intervention. What’s worse, the list of currencies affected seems to be growing. Case in point, today the Mexican peso declined by 1%. The Turkish lira and Russian ruble both declined by 0.5% as did the Indian rupee by 0.8%. Several Central European countries were also affected, including the Hungarian forint, the Polish zloty and the Romanian leu, foreshadowing the possibility of the crisis rippling into these countries as well.
USDCAD
The Bank of Canada’s holding its interest rate meeting today. Investors expect them to leave the current 1.5% base interest rate unchanged. Leading up to the meeting, the Canadian administration faces a lot of pressure from the US, urging Canada to speed up NAFTA negotiations. The Trump administration has a vested interest in the success of this agreement and the economic benefits it could bring.
Today also marks the release of the latest trade balance figures, which Trump cited as the main reason behind this conflict and the market is eager to see what effects these tariffs will have on US foreign trade. Meanwhile panic on the currency market has led to the strengthening of the US dollar, even against the Canadian dollar. Yesterday’s movements went well above the defining trendline, technically breaking out of its downwards trend. Furthermore this happened within the range of a previously defined upwards trend channel, which could be taken as additional confirmation of a continued upwards trend.
Nikkei
Amidst all the turmoil on the global markets, Japan has been quietly biding it’s time. They’ve benefited from both the USA’s economic growth as well as the shifts in Asian trade relations. The Japanese yen weakened against the USD, which is always good news for Japan, although their stock market index has still not produced any breakthroughs. US indices are reaching new heights while the Japanese Nikkei is nowhere near that level.
Looking at the chart its evident that the 23000 level is a powerful line of resistance acting as a persistent barrier preventing price from going higher. Price already breached this line in September 2017 and even briefly lingered above it, but only for a brief period and only following multiple attempts. After falling back below 23000 it could not approach that level again. For now it seems that Nikkei is locked between 21880 and 23040. Price has been locked into this approximately 1000 point range since April. On the upside the low points appear to form a rising trend. This trendline also narrows the range of movement price has and necessitates and eventual breakout in one direction or the other.
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.