GLOBAL MARKETS JUMP AS MARKETS WAIT FOR CENTRAL BANK STATEMENTS
Stocks around the world recovered today after three days of straight losses. The surge came as global investors grew accustomed to the ongoing rhetoric between the United States and China. According to the Wall Street Journal, Trump believes that the United States is at a better position to win a potential trade war with China. This is because of the volume of Chinese imports to the United States.
In 2017, China exported goods worth more than $505 billion to the US while the US exported goods worth less than $120 billion. Therefore, if the trade war continues, China will lack items to place tariffs on. However, China should not be underestimated because of its influence in the United States. First, China can destroy crucial industries in the US like agriculture and energy resources where it is the biggest importer. Second, China is the biggest holder of US treasuries meaning, it can halt future purchases. Third, China can ban or boycott many US products like iPhones and HP computers. Fourth, China can easily cooperate with sanctioned countries like North Korea, Venezuela, and Iran.
In the United States, it is a new era for the Dow Index. This is one of the oldest indices in the world and one of the most valuable. Its companies have a combined market value of more than $25 trillion. Yesterday, General Electric was booted from the index and replaced with Walgreens Boot Alliance. General Electric was the last original member of the index which was created in 1896. Recently, GE has been under intense pressure after revealing liabilities worth billions of dollars in their previous finance arm. Its share price has fallen to the lowest levels in more than 10 years, mainly because of its liabilities and huge debt. There have also been calls to break down the company.
The kiwi continued its decline and is currently trading at 0.6883, which is the lowest level this month. The declines this month are attributed to the divergence in monetary policy between the Federal Reserve and the Reserve Bank of New Zealand. In the Fed meeting held a week ago, the officials said that they would raise interest rates two more times this year. On the other hand, New Zealand’s officials have committed to a sustained period of low interest rates. Today, the country reported positive current accounts. The data measures the difference in value between exported and imported goods. In Q1, the current account was NZD 0.1B compared to the expected 0.05B.
The important meeting of central bank heads in Portugal will conclude today with statements from Mario Draghi, Hurohiko Kuroda, Philip Lowe, and Jerome Powell. Yesterday, Draghi made news when he said that the ECB would continue Quantitative Easing past December if the economic data demanded so. Traders will pay attention to the statements of the central bankers today.
The Dow started falling on Tuesday last week after the Trump administration announced new China tariffs. Since then, the index fell from $25,405 and reached an intraday low of $24,540 yesterday. As the pair declined, it formed an inverted cup and handle pattern as shown below. Today, the Dow futures points to a 115-point open. This pattern implies that the index might continue the downward trend which could see it test the $24,339 support level.
The NZD/USD pair continued the descent started exactly two weeks ago when the pair reached a high of 0.7060. As shown below, starting from April 2016, the pair has been trading within a narrow range, forming good horizontal support and resistance points. As the RBNZ continues the ultra-low interest rates policy, the pair could break below the important support of 0.6815. If it does, traders should expect further declines with the target being 0.6670.
At the beginning of this month, the EUR/USD pair, which was previously on a sharp upward momentum started falling. The pair dropped from 1.2553 and reached a month-to-date low of 1.1487 yesterday. The pair then attempted resuming the upward momentum but found resistance at 1.1850. Today, the pair is headed towards the 1.1487 where it will likely attempt to form a double bottom and resume going up. If it crosses the level and heads down, the pair could continue the downward momentum and test a new support.