Stock markets hit new lows during the night (on a futures basis). Only to recover dynamically with Donald Trump’s statements. The Dax has risen from 10,170 points to 10,950 points after touching lows in the 10,170 range, the S&P500 (on a future basis) climbed from 2,700 to 2,880 points. USD/JPY has also risen sharply after the previous sell-off. The correlations with the equity markets have thus been confirmed once again. You could say: the catastrophe is taking a break.
Have we reached the end of the stock market sell-off? Of course we can’t know that, but the capital flows are telling us at the moment that we are in a technical upward correction. But the turbulences are probably not over yet. We have not seen the massive liquidation of Gold long positions to release liquidity, which is an important indicator also for the stock markets, at the moment. We are waiting for further developments on the monetary policy front, especially here in Europe.
While we know that America is prepared to contain the situation, we in Europe are waiting for the decisions to be taken at the ECB meeting on Thursday. Many people are thinking about the interest rate corridor and wondering what an appropriate interest rate level might look like. But we think it is more important to think about transferring liquidity to companies that are currently in difficulties.
Unfortunately, the European system is centralised, which means that probably all available credit will go through the banks. Even though they will probably be prevented from using the money made available for operations that are not linked to loans to companies at very low interest rates. It is also possible that the decision will be taken to extend the current QE and increase it from 20 billion Euros per month to 40 or 50 billion.
We believe Lagarde has understood that inflation is no longer an objective to pursue. This is because oil has fallen massively and the difficulties we now face are more important. What we need now is effective help for the economy. That is now more important than an inflation target!
Oil still under pressure
The black Gold remains under pressure. Although after reaching the low at $27.50 it was able to gain again and showed slight rebound attempts. The high volatility of the oil price should continue. As for the argumentation on the macroeconomic level, nothing has changed compared to what we saw yesterday. Let us therefore look at the chart technical situation. Important is the range between $30.30 and $29.70 on the lower side and the range 34.70 to 35.30 on the upper side. Positions in these areas are changing and create pressure for traders to act. The technical levels, which are decisive in the event of further rises, are in our opinion at $35.90, $37.30, $38.90 and $39.30. While supports are at $30.30 to $29.70, then $28.30 and finally yesterday’s low at $27.50.
Currencies: The sale of the Dollar and the Stock Markets
The Dollar is currently suffering massively from the expectation of further interest rate cuts by the Fed. Having reached the 1,1500 mark against the Dollar, the Euro has created bearish divergences. It is now in a correction towards the support ranges between 1,1290 and 1,1350. The Dollar is recovering against the Yen, as we have already said (as is the Dollar against the Franc) and closed the bearish gap on Sunday evening, having reached 101.00 Yen per Dollar.
The British Pound is following the Euro. Overall volatility is strong and we need to work on a technical level, keeping in mind both the potential directional nature of the movements that are starting in the equity markets. It is you who are in charge at the moment.