- It was a sea of red for global equities overnight, with technology stocks leading the decline. The Nasdaq 100 fell -5.3% to its worst session in nearly 6 months, whilst the S&P500 and DJI fell -3.5% and -2.8% respectively.
- Reasons for the decline are up for debate as there was no obvious trigger. Although with relentless bullish momentum just 60 days ahead of the US election, some profit taking had to begin at some point.
- A risk-off tone can be seen in the FX markets today with NZD/JPY and AUD/JPY leading the declines.
NFP (Nonfarm payroll) is the main calendar event, although its importance may be in question given the extreme levels of volatility seen overnight. Typically, volatility is very low leading into NFP but we may find Asia reacting to overnight moves more than usual, given losses from Wall Street.
That said, US and Canada release employment reports together. Currency traders will want to see a divergence between the two reports for a clean move on USD/CAD, so keep that pair on your watchlist.
Nasdaq 100: It’s a Long Way Down…
The Nasdaq suffered its worst single day loss since March. However, taken in context of where it sits in the cycle, it is a worry for the bull-camp. Whilst high levels of volatility in a downtrend can indicate a potential reversal higher, high levels of bearish volatility in an uptrend can signal the beginning of a reversal lower.
Be warned. If this is the beginning of a bear trend then intraday volatility can be very hard to manage, so extreme care should be taken. So, if nothing else, grab the popcorn and enjoy the show if it does continue to fall.
- The bear market in March declined just over -30%. Should it fall -30% from the ATH (all-time high) of 12,468.87, the Nasdaq could fall to 8,728.20 near the 62.8% Fibonacci level.
- Note possible support from the 20-day eMA and 50-day eMA / 23.63% Fibonacci level near 11,085.
- Remember, volatility moves both ways, especially during a sell-off in the stock market.
USD/CAD in Focus Ahead of US and CA Employment Reports:
Price action on the daily chart sits at a technical juncture; whilst it remains within a bearish channel, strong bullish momentum pushed it firmly above 1.3000 (psychological round number) and now sits just beneath 1.3130 resistance and the bearish trendline.
- A breakout of the bearish channel warns of a trend reversal, and an initial target could be the resistance zone around 1.3250.
- If momentum turns lower, then the bearish channel remains in play and bears could target the 1.3000 lows.
NZD/JPY Looks in Trouble Below 72c:
Ahead of yesterday’s close, NZD/JPY sat at its highest level since January after 8-consecutive bullish session. Then yesterday’s risk-off environment took hold, sending NZD/JPY -1.3% low warning of a bull-trap below 72c.
- NZD/JPY failed to properly break above prior resistance (bull-trap) and produced a 2-bar reversal at 72c.
- Two-bar reversals in June and July saw NZD/JPY fall over 4% over the next few weeks. So, we are now watching its potential for a sustained move lower.
- Bears could consider fading into rallies (shorting) within yesterday’s range or waiting for a break beneath yesterday’s low to assume a bearish resumption.
- A 4% decline from 72c would target the lows around 69c and the 200-day eMA.