Markets fall as fears over sluggish global growth continue
It was a sea of red in the world’s stock markets as traders continued to worry about sluggish global growth. This happened after weak economic data from Europe, which was released on Friday. They were followed by the inversion of the yield curve. An inversion happens when the yield on the short-term government bonds rises above those of the long-term. This inversion was the first time it happened since May 2007. This prompted the speculation that the US could be headed towards a recession in early or late 2020. In Asia, the Shanghai, Nikkei, and Hang Seng declined by 1.97%, 3.0%, and 2% respectively. In Europe, the DAX, Stoxx, and FTSE declined by 0.05%, 0.05%, and 0.60% respectively and in the United States, Dow and S&P futures pointed to a lower decline.
The euro rose slightly after relatively strong sentiment data from Germany. The ifo business climate index rose to 99.6, which was higher than the expected 98.7. The current assessment rose to 103.8, which was higher than the expected 102.9. The business expectation rose to 95.6, which was higher than the consensus expectation of 94. The improved sentiment comes a few days after the PMI data showed that the activity by the purchasing managers was slowing down. It was worse for Germany, where the manufacturing PMI declined to below 45.
The sterling moved up slightly as Theresa May faced one of the toughest weeks of her career. Today, she was held up in a meeting with her cabinet. Reports from the meeting showed that cabinet members were open to another Brexit vote, which could be tabled for parliament as soon as tomorrow. With no substantive changes, the vote is likely to fail. If it does, the Brexit period will likely be extended and possibly, the prime minister will be forced to resign. As such, traders will continue to look out for the Brexit issue, which means that sterling and UK stocks could be very volatile this week.
The EUR/USD pair was little moved today after better-than-expected data from Germany. The pair is now trading at 1.1316, which is slightly higher than Friday’s low of 1.1272. On the four-hour chart, the pair is slightly below the important resistance level shown in yellow below. The price is also below the 25-day and 50-day moving averages. The current price is also along the 38.2% Fibonacci Retracement levels. The pair could retest the 23.6% Fibonacci level of 1.1265.
The GBP/USD pair rose as Theresa May continued with her cabinet meeting. The pair reached an intraday high of 1.3245, before paring some of those gains. The pair is now trading at 1.3195, which is along the middle line of the Bollinger Bands. It is also slightly above the 25-day and 50-day moving averages. The pair has been a bit volatile as evidenced by the Average True Range (ATR) as shown below. This volatility is likely to continue as the Brexit negotiations continue.
The CAD/CHF pair has been declining since February 6, when the pair reached a high of 0.7643. Today, the pair declined to an intraday low of 0.7390. On the four-hour chart, the pair is creating an inverted cup pattern. The current price is headed towards the lower band of the Bollinger Bands. The RSI has remained along the oversold level, while the Bears power has remained stronger. The pair will likely continue moving lower to below 0.73500.