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Global Market Unwind: USD Jumps as Euro, Sterling Plummet, Stocks Stare into the Abyss

Global Market Unwind: USD Jumps as Euro, Sterling Plummet, Stocks Stare into the Abyss

James Stanley, Senior Strategist

USD, Stocks Talking Points:

  • It’s been a rough week for the risk trade and the US Dollar has continued to jump, now trading at a fresh 20-year-high.
  • There seems a bit of disconnect at the moment between US equity markets and global FX markets. The Euro and Sterling are showing collapse-like moves. US equities, at least in the S&P and the Nasdaq remain above June lows as of this writing. It appears there will be some re-alignment in risk trends before too long.
  • The analysis contained in article relies on price action and chart formations. To learn more about price action or chart patterns, check out our DailyFX Education section.

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We’re nearing the end of what’s been a brutal week for the risk trade and there’s been a number of central banks reporting rate hikes, with perhaps a disconcerting theme showing up.

The UK hiked rates by 50 basis points yesterday and Sterling responded by spilling down to a fresh 37-year-low. And then this morning’s unveil of the UK budget didn’t seem to help matters much, as a program of energy subsidies and tax cuts merely helped to push the Pound to another lower-low against the US Dollar.

At this point, the US Dollar is a main driver as the currency has pushed to yet another fresh 20-year-high. From the monthly chart we can see a massive move in September as prices have made a decisive break above the 110.00 psychological level.

US Dollar Monthly Chart

image1.png

Chart prepared by James Stanley; USD, DXY on Tradingview

EUR/USD

This was a large driver in that USD move and what happened in the Euro this week is disconcerting. I had looked at this on Monday, lining up around the parity level that had continued to play a role in the matter.

But, by Tuesday, support was looking vulnerable ahead of FOMC and I talked about that in the report published that day. Price has since broken down to a fresh 19-year-low, invalidating a falling wedge formation along the way.

As for next support – there’s an item of interest around the .9600 level, as this was a prior swing-high turned swing-low back in 2002.

EUR/USD Monthly Chart

image2.png

Chart prepared by James Stanley; EURUSD on Tradingview

Cable in Collapse Territory

Unfortunately there’s no similar context in GBP/USD as price is trading at fresh 37-year-lows. I had looked at bearish continuation scenarios in the pair yesterday from a short-term basis but a similar approach feels improper today after such an elongated move.

The big item of hope here is that the 1.1000 psychological level helps to stem the bleeding for a little while. RSI is at its most oversold since 2009 and while this is not a timing indicator, it does highlight the danger of selling at this point below the 1.1000 level, which may lead to a bit of stall or bounce in the matter.

GBP/USD Monthly Chart

image3.png

Chart prepared by James Stanley; GBPUSD on Tradingview

Stocks

Stocks are in a dire spot but given what we looked at above, with both the Euro and Pound in the midst of collapse-like moves, the fact that the S&P 500 hasn’t even tested the June low feels like a bit of a mismatch.

I had looked at US equities coming into this week, with a bearish forecast after last week’s build of bearish engulf formations on the weekly charts. The June low in the S&P 500 appears vulnerable.

Bigger picture – S&P 500 next support below the June low could plot at either the 3500 psychological level – which is around the 50% mark of the pandemic move. Or around 3400, which was the pre-pandemic swing-high.

S&P 500 Weekly Price Chart

image4.png

Chart prepared by James Stanley; S&P 500 on Tradingview

Nasdaq

The Nasdaq is in a similar spot, sitting just above June lows which posted at a big spot on the chart. Next longer-term supports on my Nasdaq chart are at 10,500 and then a zone from the pre-pandemic high of 9763 up to the 10k psychological level.

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Nasdaq Weekly Price Chart

image5.png

Chart prepared by James Stanley; Nasdaq 100 on Tradingview

--- Written by James Stanley, Senior Strategist, DailyFX.com & Head of DailyFX Education

Contact and follow James on Twitter: @JStanleyFX

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

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