US Indices, US Dollar…..Buy the Dip
Joe Perry February 5, 2020 8:05 PM
What will be the next catalyst to drive market prices?
For anyone who was upset about lack of volatility in 2019, they must be ecstatic about 2020! Between the tensions earlier in the Middle East and the Coronavirus, different asset classes have been all over the place. For the last 2 weeks, markets have been in risk-off mode due to the unknowns of the Coronavirus. However, given the stimulus pumped into the market and the unsubstantiated stories that vaccines for the Coronavirus have been developed (or are being developed), traders seem to have forgotten about the tragic virus are back to their normal “buy the dip” mentality we have seen over the course of the last year.
Look at a daily chart of the Dow Jones Futures. Price ended 2019 at 28508 and proceeded to move to all time highs on January 17th at 29362, a move of almost 3% in 2 weeks. As fears of the spread of the Coronavirus spread the Dow Jones Futures traded down to 28105, a move of 4.3% lower and giving up all the 2020 gains. This move low included Friday’s bearish engulfing candle and 595-point selloff. Price moved lower despite stellar earnings from Amazon on Thursday. Clearly fear was in the driver’s seat.
Source: Tradingview, CBOT, City Index
Clearly something has changed over the last 3 days, right? Not really. As mentioned earlier, except for some unsubstantiated stories of new vaccines for the coronavirus, traders just bought the dip. The low on Friday was 28105. Today’s high so far is 29166….a 3-day rally of over +1000 points, or 3.6%!
Check out USD/JPY. The USD/JPY is thought to be a risk indicator, just as stocks are. When stocks move lower, USD/JPY tends to move lower as traders buy the safe haven Yen. USD/JPY closed 2019 at 108.62. Just as with stocks, USD/JPY traded to new highs (NOT ALL TIME HIGHS) on January 17th at 110.29, a move of 1.5% in 2 weeks. As stocks sold off, so the USD/JPY. Last Friday, the pair put in a low of 108.31, again giving up all 2020 gains. This move included at 58 pip selloff on Friday alone. After the weekend and over the last 3 days, price has rallied from Friday’s low of 108.31 to today’s high so far of 109.84….a 3 -day rally of +153 pips, or 1.4%.
Source: Tradingview, City Index
That leads us to ask the question: What will be the next catalyst to drive market prices? Friday, we see US Non-Farm payrolls. Today’s ADP data was much better than expectations, however this isn’t typically a market driver. Also, the next Fed meeting isn’t until March 18th, so we will get another round of jobs data before then. Things seem undisturbed in the Middle East, for now. The Coronavirus is seemingly being ignored for now as traders bought the dip. The New Hampshire primary is next week. Perhaps the outcome of the primary may help steer the market. An OPEC cut to drive crude prices higher? Regardless of what the next catalyst, traders have stepped in and bought the dip, which obviously has been working, until it doesn’t!
StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.