USD/CHF Price Analysis: Pullback from 50-day EMA shifts focus to weekly support trendline

Overview: The US Secretary of State’s announcement that the autonomy of Hong Kong could no longer be affirmed did not derail the rally in US equities. However, the threat of an executive order against social media companies may be discouraging follow-through buying, leaving US equities little changed ahead of the open. In contrast, Asia Pacific and European equities are mostly higher.

Overview:  The announcement that President Trump will hold a press conference on China later today rattled investors yesterday after they had earlier shrugged off the escalation of tension between the US and China to take the S&P 500 up to its highest level in nearly three months.  The S&P 500 reversed and settled on its lows, and this carried over into today’s activity, which also may be reflecting month-end adjustments.

Overview: After several days of aggressive risk-taking, investors are pausing ahead of the ECB meeting.  Equities were mostly higher in the Asia Pacific region, though China was mixed, and Indian shares slipped.  Europe’s Dow Jones Stoxx 600 is snapping a five-day advance, and US shares are trading with a heavier bias. The S&P 500 gapped higher yesterday, and that gap (~3081-3099) offers technical support.

The modest loss in the S&P 500 and NASDAQ yesterday did not signal the end of the bull run. All the markets in the Asia Pacific region rallied, with the Hang Seng among the strongest with a 1.6% advance that brought the week’s gain to around 7.8%. South Korea’s Kospi was not far behind with a weekly gain of 7.5%.  In the past two weeks, the MSCI Asia Pacific Index is up nearly 10%. 

Many observers are attributing the sell-off in risk assets today to the Federal Reserve’s pessimistic outlook, yet, as we note below, the Fed’s median GDP forecast this year is better than many international agency forecasts, including the OECD’s that was issued yesterday.  Moreover, some near-term trends were already in place.

Overview: Shortly after the US stock market opened sharply lower, the Federal Reserve announced that it’s Main Street facility was up and running. US stocks never looked back. After the S&P 500 recouped its full decline, the Fed announced it would begin buying corporate bonds. Up until now, it had been buying representative ETFs. Stocks rallied further on the news before pulling back into the close. The rally in risk assets carried into Asia.

The S&P 500 rallied 1.6% yesterday to extend the streak to a fifth consecutive session, and the longest of the year and completed the negation of a bearish technical pattern.  However, the main feature today is a wave of profit-taking on risk assets.  Most equity markets moved lower in the Asia Pacific region. Chinese markets were a notable exception.

President Trump’s tweet announced that negotiations with the House Democrat leadership had collapsed, and there will be no further talks until after the election. Many economists had been removing it from their Q4 GDP projections, but the market was caught wrongfooted. Risk came off.