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Crash or Correction? Today's Moves Suggest Selloff May Have Gone Too Far

Crash or Correction? Today's Moves Suggest Selloff May Have Gone Too Far

2018-02-06 12:24:00
Martin Essex, MSTA, Analyst
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Talking Points:

- Prices have stabilized in Europe Tuesday after the selloff.

- While further losses are possible, so far this looks like a healthy correction rather than a new bear market.

- In this webinar, DailyFX Analyst and Editor Martin Essex looked at market sentiment and the likely direction of asset prices after the stock market plunge and subsequent recovery.

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Asset prices have stabilized Tuesday after the plunge in stocks that raised fears of a new bear market. While they may have further to fall, the latest price action suggests that so far this looks more like a healthy correction than the start of a slump.

In Europe, stock markets are more stable and futures prices suggest relatively small losses when Wall Street reopens. US 10-year Treasury note yields are below Monday’s four-year highs and there has been little sign of panic buying of the traditional safe havens such as gold, the Swiss Franc and the Japanese Yen.

USDJPY Price Chart, 10-Minute Timeframe (February 5/6, 2018)

Crash or Correction? Today's Moves Suggest Selloff May Have Gone Too Far

Chart by IG

IG Client Sentiment data are currently sending out bear signals for the US Dollar against the Euro, the British Pound and the Japanese Yen, although not gold, and a bullish signal for Wall Street. However, CNN’s Fear & Greed Index has moved from “Greed”, suggesting investors are putting more money into the markets to “Extreme Fear”, suggesting they are reducing their exposure.

--- Written by Martin Essex, Analyst and Editor

To contact Martin, email him at martin.essex@ig.com

Follow Martin on Twitter @MartinSEssex

You can learn more by listening to our regular Trading Webinars

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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