Despite the relatively dovish tone coming out of the Fed meeting minutes, there has been a strong retrenchment of risk appetite today. This is showing through with weaker equities, a stronger dollar, stronger gold and falling safe haven sovereign bond yields.
The economic data out throughout this week has been weak and has been a major concern for equity markets. Following on from poor industrial production and trade data earlier in the week from Germany, the data out from the Eurozone this morning paints a deteriorating picture in other major economies too. The Netherlands, France and Italy have all come out with disappointing industrial production. Coming quickly after Chinese trade data disappointed overnight that has negatively impacted the euro and European indices.
The cumulative impact of this negative data has resulted in a sizeable shift in markets, with decisive breaks specifically coming in gold (upside break) and the FTSE 100 (downside break) as investor concerns are being highlighted.
The Bank of England has opted to stand pat on rates and QE (as widely expected) and released no statement (all eyeys on the minutes though on 23rd July). Traders will therefore quickly switch attention towards the weekly employment data from the US to try and curb the selling pressure. Weekly Jobless Claims are expected to be flat on the week at 315k.
In the forex markets, the dollar has strengthened which has pulled the Dollar Index (.DXY) higher once more. However, there has not been any major breakdown in any of the major pairs yet, with EUR/USD still above $1.3600 and GBP/USD still above $1.7100. The big test is being seen in USD/JPY which is once again back to the lows around 101.30. The rate has still not closed below 101.30 since early February, but the outlook is under increasing strain, and a close below the basis of support would now be rather concerning for the market bulls as Dollar/Yen is often seen as a proxy for risk appetite.
European indices have suffered again this morning. The FTSE 100 has now fallen 210 points (3.1%) in just 4 sessions as the primary uptrend has been decisively broken. This is a big disappointment for the bulls that have seen the support at 6700 wiped out today. There is little support now until 6500. Although the DAX Xetra has fallen 3.5% in the past 4 sessions, the longer term chart is still more bullish than the FTSE. The primary uptrend on the DAX remains intact (for now is is just 30 points away today) but the bulls will need to return to the market quickly to prevent a major breakdown here too. S&P futures are down over 19 points (c. 1%) at the moment as it seems as though any rebound following the dovish Fed minutes has been completely retraced.
Gold has been another beneficiary of this flight into safety today. There has been a break above $1332 key overhead resistance with strong gains seen. This move implies an upside target of $1358 (from the trading range upside break). The gold bulls are back in control. $1332 now becomes the support for a pullback and dips should be sought into.