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Market Wrap
The forex heatmap has shifted from risk-on to more risk-off as we enter the London close and end of the week. Today was quad witching with 4 asset classes all coming into expiration. I watched the US open as I trade the NQ and the sell-off was quite severe down to the monthly pivot and hopefully, we can maintain this level of volume going forward for a couple of months, now the summer doldrums are behind us, and we are starting afresh.
The UK FTSE100 led the way lower today dropping -1.22% and ending the week in the red by -0.42%, with the Hang Seng pairing some weekly losses with a rise of 1.03% today. The market sentiment has shifted more defensively with every piece of news coming out of China and Hong Kong around the Evergrande situation. A group of lenders to Evergrande have reportedly made a collection of loan loss provisions, exposure cuts and preparations for debt maturity rollovers. The People’s Bank of China injected a total CNY 100 billion of reverse repos to maintain liquidity in the banking system
The UK FTSE100 also dropped at the London open after the Office for National Statistics reported that UK retail sales had dropped by-0.9% in August. The silver lining to the report was that UK retail sales were 4.6% higher than in February 2020 before the impact of coronavirus, so we’re definitely buying more stuff now than before the world got turned upside down by the pandemic where everyone rushed out to buy every last thing on the shelves for weeks.
US data out today included the University of Michigan Sentiment Indicator which came in slightly under expectations. These are preliminary figures at 71.0 with expectations of 72.0. The report says “There are at least three potential reactions to inflation. Consumers have initially reacted by viewing the rise in inflation as transitory, believing that prices will stabilize or could even fall in the future.” The problem will come with higher prices and continued inflationary pressures and a lack of stimulus cheques to the poorest of people, at some point the tipping point comes when people cannot accept higher prices and we get dis-inflation. There will also be a resolution to the supply shocks and so the supply of materials and goods will come back to levels that meet the demand and the probability will be that we exceed the demand levels. Which may even lead to stagflation. The best way out of this is for people to earn more, which requires more people to enter the workforce and for wages to rise, that way the GDP at least gets a boost, and everyone can afford to accept higher prices.
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The US dollar index caught a bid today and has failed to sweep the highs of the balance area that had been acting as overhead resistance this week. The $93.195 level on the above chart is now a perfect double top so if the price does retreat into the weeks close from here there is a possibility that we go back up to test that level mid-week around the FOMC release. The bullish dollar has put pressure on commodities today as well as the major crosses.
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The Nasdaq made new weekly lows into the London close today which also coincided with some levels we should all be more aware of. Firstly, there was a Monthly Pivot which had acted as support this week, especially on Wednesday. I initially thought the Thursday low would be a good buying opportunity after the sell-off as it was last week, but I got rolled over. The next level of interest was the 15300 which was close to the Initial Balance extension and is where the market eventually turned today. If the price can get back into the initial balance range, I believe it will close 100 points higher, and back into the main body of the weekly range. Today has reversed the previous two days trading strategy which was to print the US session high within the first hour and then for the price to slide back up and take that high before closing a lot higher than the open. Wednesday and Thursday the bulls were buying the dip, whereas today they haven’t quite shown up yet!
