The S&P has dropped -2.6% to 3050, moving into negative territory this week amid mounting concerns about COVID-19.  New cases in the US reached their highest level since April, with hospitalizations rising in certain major municipalities, motivating some states to pause re-opening or impose travel restrictions. The jitters have spilled over into the business sector with Apple closing all its stores in Houston and Disney pushing back the re-opening of their California based theme parks.

Oil prices also fell several points with Brent down 6% breaking below $40/bbl at one point before hovering above the handle, as the sector is caught in a seemingly revitalized pandemic and US crude inventories that have risen to record levels.

A new IMF report added to risk-off sentiment; the group downgraded its global growth outlook to +5.4% growth in 2021 from +5.8% and -4.9% this year from -3%, citing the economic risks stemming from potentially longer lockdowns.

The risk off theme and the approaching month end rebalancing could be negative for equities and in our view good enough reasons to be short commonwealth from these levels. Especially after dovish RBNZ earlier in the week and the Fitch downgrade of Canada from AAA to AA+, our short NZDUSD and long USDCAD trades continue to perform well.

The US is reportedly weighing new tariffs on $3.1 billion of exports on olives, beer, gin and trucks, while increasing duties on aircraft, cheese and yogurt. from France, Germany, Spain and the U.K, risking igniting a wider transatlantic trade fight later this summer.

We’d be wary of USDJPY in the current risk off period, as JPY has not so far reacted as a safe haven in this environment. It will be all about the USD as we saw back in February when virus concerns were first hitting markets, USDJPY rallied up to over 112.00. We’d rather be short crossJPY including GBPJPY, AUDJPY and EURJPY.

Looking in more detail at the US equities market.  The Dow and S&P were both off over 2.5%. The Nasdaq tried for a 9th up day in a row but got hit, leaving us a level to watch at 10137.  The S&P has given us 3155 on the upside as its area of note.

USDJPY – the 106 level definitely closed the door on the pair and since we have seen a healthy rally towards our resistance of 107.25/30. A push through this level would open way for the Fibonacci level of 107.72. We still advocate selling rallies as long as we remain below 108.00 as if we go through here then we will readdress our view. Today we have US GDP and durable goods orders, hoping for good numbers to give equities a respite. Ideally would like to see the S&P back above 3070/80 and hold the week opening low of 3030 as a move through here and we could test 2980.

EURUSD – really has remained on the backfoot since the US announced yesterday that it is mulling some $3.1bln worth of tariffs on European exports coupled with the stronger USD. This morning modest support has been found after German GfK confidence improved to -9.6 from -18.6 and beating the -12.0 forecast, but a spike in Covid cases across the US and Germany are now making sure any significant rebound attempts are being contained.  We really need this 1.1225/30 to hold otherwise we could be going back towards 1.1180 and then the important 1.1150/60 support zone where a move through here would cancel our bullish view for now. On the topside a break of 1.1280 would alleviate the downside pressure and drive us towards the strong resistance of 1.1230. The DXY is well above our level of 97.09 and trading around 97.32 and we really like this to go back towards the lower level.

GBPUSD – cable did try a few times yesterday to continue its move higher through the 1.2520/25 level hitting a high of 1.2545 but subsequently came off and the USD got stronger and risky assets were sold off. We broke through the 1.2460 pivot level and so far have hit a low of 1.2403. For now this area is acting as support however, a break through here and it would open way for 1.2360 and then 1.2305/10. Right now the news out of the US is not great but neither is the news from the UK any better so it appears it’s a tug of war between the pairs therefore, we need to see how stocks behave for clues and drivers. Like we have mentioned before we are GBP bears in our macro view and we will wait for better level to instigate shorts.

FTSE100 – the FTSE dropped by more than 2.5% to close at 6125 on concerns of a growing transatlantic trade dispute and rising US Covid-19 cases which amplified fears of a second wave slowing down global economic recovery. An hourly close below 6110 will favour further downside with 6037 and 5929 as the closest support targets.

DOWJONES – all three major indexes on Wall Street suffered their biggest daily percentage drop in almost two weeks as the IMF revised global growth downwards (yet again) and a surge in US. Coronavirus cases intensified fears of another round of government lockdowns and worsening economic damage. A volatile trading day ahead with lots of economic data out of the U.S and a highly awaited Fed Stress Test which could pull the Dow all the way down o the 24,800 level.

DAX30 – the index dropped by 2.5%, ending yesterday’s session in the red at 12,123. Despite improving German consumer sentiment released in early trade today, the Dax continues to trade below the 200 period SMA on the hourly (and daily) after the US mulled new tariffs on European imports and a surge in US Coronavirus cases weighed down on risk sentiment with 11900 as the closest support target.

GOLD – printed a daily high at 1779.38 amid rising Coronavirus cases in the U.S. and an IMF revision to global growth with contraction now forecasted at -4.9%, up from -3% in April. A stronger greenback hindered further upside with the yellow metal ending yesterday’s session in the red, as a pullback to our support at 1752 is looking favourable with the metal trading below the 20 and 50 period SMA as investors eye GDP, Durable Goods Orders and Weekly Jobless Claims data. N.b: Fed stress test results to be released today may just be the catalyst needed for higher prints on Gold.

US OIL – WTI hit our 200 period SMA target as it dropped by almost 5% on the back of a surprise build-up of 1.442 Mb in EIA crude inventories vs. a previous of 1.215Mb and a forecast of 0.299Mb. Resurging COVID-19 cases also weighed down on the black gold with Florida, Texas, and California continuing to register record daily new cases. Weak economic data out of the U.S today could continue to weigh down on WTI, with 37.20 and 36 as the closest support targets.

 

Rony Nehme
Chief Market Analyst at SquaredFinancial

Rony has over twenty years of experience in financial planning and professional proprietary trading in the equity and currency markets. Prior to joining SquaredFinancial, Rony educated and coached numerous traders helping them find their edge and arming them with proven trading methodologies to successfully battle the markets. Rony obtained a B.S. in Finance from Concordia University in Montreal, and his professional designations include Certified Financial Planner CFP® obtained from the Canadian Securities Institute.

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