Stocks slumped around the world as investors rushed into haven assets after the delta coronavirus variant cast a pall over the economic recovery, while tension between the U.S. and China escalated

20 July 2021, 05:46

Market Focus

Stocks slumped around the world as investors rushed into haven assets after the delta coronavirus variant cast a pall over the economic recovery, while tension between the U.S. and China escalated. In a reversal of the reopening trade that has powered this year’s equity rally, cyclical companies bore the brunt of the rout on Monday. Commodity, financial and industrial shares led to losses in the S&P 500, which fell the most in two months. The Dow Jones Industrial Average had its biggest decline since October, while small caps extended a slide from March’s peak to nearly 10%. After recently plunging to pre-pandemic levels, the CBOE Volatility Index, or VIX, soared.

The resurgence of Covid-19 is unsettling global investors, who are considering whether new lockdown restrictions will sap the economic rebound and reverse an equity rally that had driven stocks to a record. Matt Miskin, the co-chief investment strategist at John Hancock Investment Management, told Bloomberg Television that the move to “higher-quality assets” such as Treasuries is justified. Americans should avoid traveling to the U.K. because of a surge in that nation’s spread of Covid-19, the U.S. government and health officials warned.

“Risk aversion is firmly in place as the Delta Covid variant spread is triggering a flight to safety,” wrote Edward Moya, senior market analyst at Oanda. “Equities were ripe for a pullback given Wall Street agreed that this is ‘as good as it gets’ for peak earnings, economic growth, monetary stimulus. It is hard to hold risky assets over the short-term now.”

Geopolitical jitters also resurfaced on Monday after the U.S., the U.K. and their allies said the Chinese government has been the mastermind behind a series of malicious ransomware, data theft, and cyber-espionage attacks against the public and private entities — including the sprawling Microsoft Exchange hack earlier this year.

Main Pairs Movement

The dollar index flirts with the 93.00 level amid the spreading risk-off sentiment across global markets. The greenback beat most of its major rivals except for JPY, which was also boosted by risk aversion. The upcoming Summer Olympics on Friday may also be a strong catalyst.

The euro pair slumped during the early European session and regained some of its losing grounds after the opening of the American trading hours, closing the day with a mild loss; commodity-linked currencies plummeted as the poor performance of stocks and commodities. Both antipodean pairs dropped over 0.5%, while Loonie surged over 1% as CAD being weighed by the severe decline in the oil price.

Cable experienced a huge plunge yesterday mostly due to the pessimistic Brexit news. News over the weekend suggested that the UK will demand EU more flexibility over the Northern Ireland Protocol. UK Brexit Minister David Frost is said to be preparing an announcement on the matter this week. When asked about the protocol, Frost said that it will always have to be a treaty due to the special situation of Northern Ireland, adding that “the question is what is the content.”

US 10-year Treasury Bond Yield dropped below 1.200%, the first time since February. The gold price was volatile, with the yellow metal once priced below $1800 a troy ounce but ended the day with mild gains. Crude oil prices plunged amid the dismal market mood and the announcement of the OPEC+, which finally reached a deal to increase output, coupled with slowing demand. WTI trades at $66.30 a barrel, and Brent settles at $68.90.

Technical Analysis

GBPUSD (4-hour Chart)

Sterling once fell to the daily lowest at 1.3654, the level was the last spot in Feb 2021. At the moment, the dollar hovered momentum from its safe-haven demand as the market worry the variant virus is getting out of hand, while the UK is suffering from Brexit woes. News over the weekend suggested the UK will demand EU more flexibility over the North Ireland Protocol. Furthermore, UK has reported roughly 40Knew contagions and 10 death as the country lifted most Covid-10 restrictions on freedom day. For the technical aspect, the RSI indicator has drop below 30 that showing sterling steeping in a diabolical over sought sentiment. On the other side, 15- and 60-long SMAs have death cross in an earlier session that also cripple the bull side.

If the market continuously goes down, we expect the next downside support will be found in 1.36 as a psychological spot. However, as the overly plummet in a day market and reached the over sought territory, we can’t rule out the market will gain a slight rebound. Therefore, the first resistance is setting at the price cluster zone at 1.3745 which is also a critical support level during the last consolidation pattern.

Resistance: 1.3745, 1.3896

Support: 1.3665, 1.36

AUDUSD (4- Hour Chart)

Aussie got struck badly by risk-off sentiment by variant virus then the lowest point in more than seven months after governor extended lockdown measures to contain the pandemic outbreak, and pan-commodities market were having an onerous condition as well. The copper futures market has slumped over 2.8% intraday and other industrial metals are also downbeat. From the technical perspective, despite the RSI indicator was a record 31.6 figure, the pair remaining a vital situation. Meanwhile, 15 and 60 long SMA retaining descending way to lower low. On the downside, if the pair fails to trade above recently low at .7323 level, it could hand over the first to next lower stage over even below .7300 level.

Resistance: 0.7415, 0.7492

Support: 0.7323, 0.73

USDJPY (4- Hour Chart)

Japan’s yen once dipped to 109.06 level, which last time has seen since May 26, as markets were driven by risk aversion mode while variant worries rose. At the same time, the Dow Jone shed over 900 points, its largest one-day for the year, as heating U.S. inflation fueled speculation the Fed will revoke monetize support earlier than expected. U.S. Treasuries yield overwhelming to 1.176 with contraction -1.2% roughly in daily. Japan will release National inflation data during the upcoming Asian session.

For the technical side, the RSI indicator shows 35 figures that hover some upside momentum for the short term, yet still under bearish expectation. Other than this, 15 and 60 long SMAs indicators are retaining a downward slope. In the light of the suggestion, we still expect the yen will extend the bearish movement at least for a short run. On the downside, we foresee 109.36 will be the first immediately support, if break through the first pivot support, the yen wound hobble move to the 109.04 level.

Resistance: 109.713, 110.1571

Support: 109.36, 109.04