On Monday the Asian and European stock market indices fell on average by 5%, the American indices fell by 3.5%. Due to their fall, the euro/dollar lifted by 300 points to 1.1712, the dollar/yen fell by almost 600 points to 116.13. After a sharp strengthening of the euro and the yen, by the end of trading we could see a correction taking place on dollar pairs. Including today’s trading in Asia, the American dollar has managed to win back its losses against the yen by 380 and by 180 points against the euro.
On Friday the VIX index rose by 23.7% and by 115.2% over the course of last week to 28.03. The Volatility IndeX is known as the index of fear and reflects trader expectations on the S&P500. The more fear that investors have, the more the VIX costs and vice versa. A growth in the VIX sees sales of shares and purchases happen when the index is down. If the index is higher than 25, investors get on their bike because of the risk and with any value higher than 30 they start really panicking.
Yesterday the American market managed to survive black Monday. From trade opening, stock markets moved into the red. The VIX lifted to 46.34 during trading (closed 40.74).
The last time it reached 48 points was in August 2011. Back then the SP500 market index fell by 20% over the course of 12 trading days (from 1347.50 (22/07/2011) to 1076.50 (09/08/2011)). Over the course of the last four trading days the index has crumbled by 12.94% to 1831.00.
On Friday, the SP500 broke the trend line of the 4-year bull trend. On Monday, a development on this break began. After the VIX reaches 46.34 on the American session, one can expect a stabilization of the market.
The US Fed’s Lockhart announced that the central bank’s decision to alter the base rate will depend on fundamental factors.
Main news of the day:
- At 9:00 EET, Germany is publishing its Q2 GDP;
- At 11:00 EET, the IFO business climate index, the current conditions index and expectations index for August are out;
- 16:45 EET, the August US PMI for the service sector from Markit will come out;
- At 17:00 EET, July sales of new builds and August consumer confidence values will be out;
- At 19:25 EET, The Bank of Canada’s Lawrence Schembri will give a speech.
Investor attention is still fully focused on the Chinese stock market. On Moday, the Asian stock market was seeing mixed trading. The Japanese Nikkei grew by 0.89%, the South Korean Kospi was up by 1.47%, the Australian ASX added 2.54%, the Shanghai SE Composite Index lost 4.33%, and the Hang Seng was up 1.62%. Futures on the DIJA are trading up by 2.23%, as is the SP500 by 2.24%.
- Intraday target: maximum: 1.1605 (Europe: 67 degrees), minimum: 1.1512 (in States: 90 degrees), close: 1.1580;
- Intraday volatility for last 10 weeks: 119 points (4 figures).
The euro/dollar has corrected from a 1.1712 maximum to 1.1518 (157 degrees). The new impulse was quickly extinguished. The Euro had to rebound to the U3 line. At the moment the pair is trading around 1.1554. If the W shape is by the LB line, we can consider a growth to 1.1712, and since the price way off the trend and the majority of Asian stock indices are trading in the positive zone, today I will limit myself to a correctional phase of two days. It’s fully plausible that the euro will return to 1.1605. From the 67th degree I expect a fall to 1.1512.
By the end of the week I expected 1.17 to be reached, but now due to the American indices falling, the euro/dollar reached the upper limit of the channel on Monday. The resistance is set at 1.1466-1.1533 has been broken. Now this zone is a support. A fall below 1.1466 will be the nail in the coffin for any growth.
If the euro stays above 1.1533, a growth new target can be set at 1.1992. This is another price channel. It might not reach 1.1992 since the U3 crosses 1.1860 on the daily. Over the course of two days, a consolidation is possible. Now to the Weekly.
The 90th degree has been passed. The 112nd at 1.1773 is the new target. The target on the daily is a little higher.