Market Update - June 25

The switch had once again been flipped back to risk-off with tariffs and virus concerns renewed midweek, easing markets into the Thursday session.


Renewed fears of the Covid-19 spread and fresh tariffs reigns chieftain in guiding market sentiment midweek as riskier assets lost favour amongst investors. For anyone positioned to anticipate the refresh of risk-off sentiment, it had perhaps been a field day as the likes of the Dow and the S&P 500 index plummeted over 2.5% while the US dollar rose in tandem with treasuries.



As the headlines outlined, the White House is noted to be looking at fresh tariffs for 3.1 billion worth of exports from France, Germany Spain and the UK, sending the markets tumbling with concerns of this spiralling into another trade war. Although any materialisation of tariff implementation may not be for a couple of months, the EU is noted to be considering fresh tariffs on the US into July, making the otherwise touted alternative of a settlement dim. Altogether, this continues to build the rhetoric of deglobalization, a trend that is certainly not favoured during a time where the Covid-19 stricken reality sustains. As the IMF’s updated global growth forecast had reflected, GDP is expected to contract greater than initially feared to -4.9% against the -3.0% expectation. The emphasis on likelihood for continued social distancing measures in H2 that would impede productivity and supply chain had arrived simultaneously with recent report of virus surges in the US. This had altogether brought some further cooling of sentiment for financial markets that had been holding up relatively well thus far.


DXY



DXY turned back up so respect potential for an attempt (finally) on 98.40/60. That zone is loaded with technical consideration for resistance; the 200 day average, well-defined horizontals, 2 legs up from the June low, the upper parallel of the Schiff fork from the high, and the centerline of the channel from the 2011 low. Ideally, a rally into that level ‘resets’ sentiment for the next leg lower in the USD.


6/10 – DXY is testing the 25 line of the channel from the 2011 low. This line was support at the March low. Also, the June 2019 low is 95.84. DXY closed today at 96.08 after making low at 95.72. That’s right…DXY is almost exactly flat over the last year. At risk of sounding like a broken record, ‘this is a good spot for a rally attempt’. Markets (stocks down and USD bounce) started to fade after the Fed so I’ll stick with yesterday’s ‘sell the news’ call.


AUDUSD



AUDUSD traded to .6975 on Tuesday before turning down. The area just above .7000 has been significant since late 2018. As long as price is below this month’s high, I see no reason not to look towards .6690ish. This is another clear level and is reinforced by the 200 day average and 2 legs down from the high. .6900/25 is proposed resistance (see the close up chart below).


6/22 – AUDUSD turned up sharply today, forming a bullish engulfing candle pattern in the process. Pay attention levels within the channel from the April low. The center line is proposed resistance near the 6/16 high at .6977. The high volume level from last week is possible support now at .6845.


Good Trading,

Dom

Dominik Stone

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