Markets took the recent impeachment investigation and Ukraine transcript in stride, reports Adam Button.
The overwhelming influence of politics in markets continued Wednesday and Thursday as the U.S. dollar recovered after the transcripts of President Trump's call with Ukraine's President Volodymyr Zelenskiy were released. Stocks opened higher on a U.S.-Japan trade deal but fell anew on fresh questions regarding the US-Huwawei case and the whistleblower's report. The U.S. dollar was the top performer while the pound lagged.
The next two trading days (Friday and Monday) will prove highly volatile and noisy as the end of month and quarter draw to a close. A 6% decline in Micron on disappointing earnings could sway the technology sector on Friday.
An impeachment investigation has been launched after President Trump released notes from his conversation with Ukraine President Zelenskiy, which revealed that he asked the Ukraine president to investigate Biden and his son after he had held up military aid. With that, the market concluded it wasn't a smoking gun that could force the President out of office and/or force him into a situation where he might stir up geopolitical turmoil elsewhere as a distraction. The whistleblower's account spelled out that Trump attempted to pressure the Ukraine into indirectly influencing the 2020 elections. But the formal report on whether the Whistleblower account had enough to get Trump impeached by both chambers of Congress remains far from done.
Wednesday's market reaction was to unwind Tuesday's trade: The dollar rallied, stocks climbed, bonds slumped, and gold sank nearly $30. On Thursday, stocks ended in the red again, but well off their lows.
Watching Huwawei again
Stocks earlier had made a fresh move lower on reports the United States is unlikely to extend a temporary waiver to supply Huwawei as well as reassessing intelligence sharing with allies using Huwawei. Although USDJPY pushed back up to as high as 107.96, inflection points can emerge anywhere on any new twist in the U.S.-China-Huwawei continuum.
Wednesday comments from the Fed's Evans were a further – albeit smaller – reason for dollar strength. He indicated reluctance to cut rates further this year unless the outlook deteriorates. He said he was open to the idea but he's a consistent dove and his lack of enthusiasm for lowering rates raises the risk that the Federal Reserve could be done for the year.
Finally, U.S. housing continues to show signs of surprising strength as August new home sales rose to a 713K pace from 666K prior. Lower rates are clearly having a simulative effect.
In such an uncertain, headline-driven market, technicals become increasingly important as a way to manage risk.
Euro Retests 1.0900
EUR/USD resumed its selloff, one day after notable hawk ECB Executive Board member Sabine Lautenschlaeger announced she was quitting two years ahead of schedule. She was an ardent opponent against further ECB easing. Her departure is the strongest message, yet that caution has been thrown to the wind at the central bank. The euro is in a well-defined downtrend, fell below 1.0920, threatening the double bottom into the end of the week/month. Next key level stands at 1.0770.
Adam Button is co-owner and managing director of ForexLive.com and a contributor at AshrafLaidi.com. You can see Ashraf’s daily analysis at www.AshrafLaidi.com and sign up for the Premium Insights. Ashraf's Tweet on indices here.
