Markets around the world made dramatic moves lower yesterday as a bout of risk aversion struck the markets. The cause was multi-factorial, a combination of weaker data, rising Covid-19 numbers, failure to agree on stimulus packages in the US, seasonality and profit taking ahead of earning releases. Cases of Covid-19 are rising again in a number of countries that had the virus under control. Notable outbreaks include Germany, China and Japan, some of the leading economies in the world. The other leading economy, the US, is deep in its outbreak, with the death toll rising on a daily basis and is by far the worst effected country. Weaker GDP data hit markets yesterday, with Germany reporting a fall to -10.1% against and forecast of -9.0% and a prior read of -2.0%. US Advance GDP fell to -32.9%, slightly better than the expected -34.5%, but well below the previous -5.0%. This led to a large decline in European equities. In the US there has also been a failure to find a breakthrough on the Unemployment Benefits deal. Negotiations are proving fruitless, with both parties entrenched in their positions and the issue becoming a political football ahead of the November Election. US Treasury Secretary said yesterday that they are going to keep going back to the negotiating table and it is going to take time to get the unemployment deal done. He added that the best case would be a deal done in a few days, which would produce a gap in benefits for those that have lost their jobs. White House Chief of Staff was far more negative saying that, “I’m not very optimistic that we will have any kind of an agreement on a comprehensive bill in the near future. I'm not even optimistic about next week”. A tweet from President Trump drove markets lower, when he suggested that the November Presidential Election be delayed due to the Covid-19 virus. Seasonally the end of the summer is a weak time for equity markets and there was a degree of profit taking as July draws to an end and markets remain at elevated levels. The markets began selling off after the FOMC on Wednesday in the Thursday Asian session. US Equities opened lower but found strong support, particularly around the 3200.00 level in the US 500 Index, pushing higher after earning beats from the FANGs. A loss of that area may suggest that sellers have gained the upper hand. Better European data this morning is finding buyers after Asian traders again sold the overnight highs. The Japanese 225 closed lower by 2.82%, while the Shanghai Composite is trading higher by 0.2% while the Hang Seng is down 0.3%. European Futures are lower by between -0.1% to -0.2%. Gold is trading at 1978.70 and USDJPY is trading at 104.400.
German Retail Sales have come in at -1.6% against an expected -3.0% and a prior 12.7%. Eurozone Flash GDP is expected to fall to -12.0% from a previous -3.6%. Canadian GDP is expected to rise to 3.6% from a prior -11.6% in the afternoon.
The USDCAD pair is now trading around the 1.3426 level having fallen back from the March high of 1.4668 and having found support around 1.3335. The price rallied into resistance at 1.3715 and fell back lower as it continues to consolidate. From the current level resistance may now have formed around the trend line at the 1.3500 level which was supporting price since mid June. Further resistance may be seen at the 1.3646 lower high, the 1.3670/1.3686 area followed by the 1.3700 level and the 1.3750 zone of consolidation from late May. The 1.3860 former area of support may now be resistive ahead of 1.1400. The chart contains potential resistance at the 1.4100 round number followed by 1.4141, 1.4180, the 1.4250 area and 1.4298/1.4300 zone. The previous lower high formed at 1.4173 and this may also provide a level to lean against, with a breakout targeting the 1.4400 level. Beyond this the 1.4424 level is followed by 1.4500 and 1.4560. The high created at 1.4660 represents the resistance level to beat, followed by potential resistance at the 1.4700 level. The next area may prove to be resistive at 1.4750. Beyond this the 1.4800 area may also create an interest for traders. A break above these levels might seek to test 1.4900. Beyond this the 1.4950 level comes into play followed by 1.5000.
Support for the pair is being tested around the 1.3400 area after price failed to remain above the 1.3600 level. The 1.3500 zone was tested last week as support and failed. Below this the 1.3440 area may be used as resistance, with the 1.3385 providing support. A loss of this area may open the way to a retest of the 1.3345/1.3340 area followed by 1.3327 as former resistances. Below this level, potential lower areas of support at 1.3320 followed by 1.3300. Under this level the 1.3250 area may be used as potential support ahead of the 1.3000 round number. Traders may potentially lean on this area followed by the 1.2953 level if the round number is broken.
US 500 Index
The US 500 Index sold off at the end of February and has retraced a large amount of this move from the March low. The selloff since Late February has been the most extreme selloff for the Index on record, with an equally sharp and record breaking bounce from the low. The price is currently trading around the 3263.00 area and has potentially strong support at the 3200.00 round number. Initial resistance may be found around the 3225.00 area. A break back higher may seek to engage the 3230.00 area followed by the 3280.00 area. Price is consolidating around the 3240.00 area this week and is testing the 2019 year closing level at 3220.00. The January lows at 3180.00 might be supportive again but traders may well seek to retest the 3160.00 area. A break back higher from the current level, targets the 3280.00 level and the 3290.00 area. The 3300.00 area also featured as support and resistance on the chart along with 3340.00 ahead of the 3396.00 high.
Support may come into play around 3200.00 and 3181.00 followed by the 3155.00 area, the 3140.00 level, the 3120.00/3115.00 area and the 3100.00 round number area. The 3070.00 area has been used as support and this is followed by further potential supports at 3061.00, 3044.00 and the 3017.00 level. The round number 3000.00 area may also offer support followed by the 2980.00 and 2950.00 levels. The 2908.00/2900.00 area may be used as a higher low in the event of a pullback. Further support may be found in the 2860.00/2850.00 area, followed by the 2820.00 area and the 2800.00 round number. Below these levels the 2750.00 area is followed by 2725.00 ahead of the 2700.00 round number. The 2645.00 area may also provide support to price action followed by the 2500.00 area and the April low at 2240.00/2437.00. The 2400.00 level is followed by potential support at 2345.00. Below these levels the 2300.00 area and the low at 2275.00 may potentially be used by buyers. The 2250.00 level might follow as potential support and this is in turn followed by the 2200.00 round number. Below this the 2120.00 may be used as support followed by the 2100.00 area. The 2000.00 area could possibly see buyers attempt to enter the market in the event of another selloff.