The direction of the trade will be largely decided by Trump’s Twitter feed in the sense of what will be the news flow of the Chinese trade war situation. Trump wants to hold out for a “good” deal, but the Chinese won’t give him one until after the 2020 presidential elections. It is as simple as that. The question is will Trump blink? The Chinese will not – the advantage of not having to face an immediate political backlash of one’s decisions.
Meanwhile, the global economy slowly sinks. We are approaching the time of year where we get market sell-offs – this is the current directional thinking unless Trump blinks.
News Forecasters’ Market Watch (click charts for a technical analysis overview):
The S&P500 is currently locked in a tight range. Once it breaks its price box, it will run at least the distance of the width of the price box. The direction of the trade will be largely decided by Trump’s twitter feed as stated before. If the news flow becomes highly negative or positive, we could see new highs on the upside or, a breach of the next support level on the downside. We do however have a negative bias.
Bonds are still signaling a negative economy coming. It keeps pushing through to generational low rates. It is in search of a bottom and we are getting near them. A bond rally in rates is in the offing, though it may be a few weeks away.
Our view on EURUSD is that it will continue to work the downward wedge for a few more weeks in its current range. ECB QE is priced in, but not further erosion in the Eurozone economy – this may happen and eventual push the EURUSD lower over a long-term period.
If you looking for one that might move well, it may be the GBPUSD. If recent lows hold we could be setting up for a nice rally – but be patient. Let the recent downtrend line break with time first. If those lows hold, along with some Brexit resolution path forward (even if hard Brexit), it may be an interesting trade.
Moving into the fear part of the year (September to October), JPYUSD may move lower out of the very large wedge it has been working. BUT, it may be short-lived and bounce right back into the wedge after the fear part of the year is over. Longer-term JPYUSD will likely move back higher.