Yesterday`s session, the consequences of which are also observed today in the morning, introduced volatility in several asset classes. As a result, it was possible to observe what the market is currently most afraid of and what could happen so that the fluctuations in the markets could be higher, including the sluggish currency market.
The yesterday's reading of the PMI indexes for the US economy was the key event for the markets. Both manufacturing and services PMI showed a sharp decline, most likely due to the escalation of the trade dispute between the US and China. As a consequence, investors began to worry about the condition of the American economy, and with poor previous readings from Europe, also about the global economic slowdown.
The manufacturing PMI fell to 50.6 from 52.6 points in the previous month, which was below market expectations at 52.5. The latest reading pointed to the weakest rate of expansion in the manufacturing sector since September 2009, as new orders fell for the first time since August 2009. It could be enough to pull down both stock indices, oil and US dollar.
The price of oil fell by over 5 percent on Thursday probably due to the escalation of the trade war between China and the US. On the other hand, the day before, the EIA agency published data showing that the increase in crude oil inventories has risen to the highest level since July 2017. Investors may have started to fear a drop in demand due to strong slowdown in the global economy, even though the supply was tightening. Anxiety also appeared on the American stock exchange, where Dow Jones fell by 123 points, or 1.6 percent. S&P 500 fell by 34 points (1.2 percent), and Nasdaq dropped by 286 points, or 1.1 percent.
Worse data from the US affected the US dollar. The key reversal day may appear on the chart. We are talking here first about the possibility to increase in the dollar index to the highest level in 2 years, and then with a very strong reverse toward session low. This is also clearly visible on the EUR/USD chart.
Chart: EUR/USD, D1. Conotoxia trading platform
EUR/USD first slightly broke the previous low, setting the lowest level for two years, then turn back very quickly. As a result, a double bottom pattern could also be created here, which by definition is a trend reversal pattern.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal Opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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