Market Risk Remains as Chinese Yuan Weakens

08/12/2019 12:23 pm EST

Focus: MARKETS

Bill Baruch

President and Founder, Blue Line Futures

Equity markets are looking weaker due in part to a weaker Chinese yuan vs. the dollar, reports, Bill Baruch.

E-mini S&P (ESU)

Last week’s close: Settled at 2919.75, down 20.25 on Friday and down 12.75 on the week

Fundamentals: U.S benchmarks are pointing lower to start the week with several factors weighing on sentiment. The U.S-China trade war and a weaker Chinese yuan are the usual suspects. Today, protesters in Hong Kong took to the airport causing all remaining flights out to be cancelled. Unrest and violence within the heart of the city is growing and expanding, increasing the pressure on Beijing to respond. The world is watching. Italy is also under the microscope after Deputy Prime Minister Salvini called for immediate elections citing that the Lega and Five Star Movement coalition no longer have a majority in parliament. There is ongoing friction between the two parties and Salvini’s Lega is leading the polls as he does not want to leave the Eurozone. The Lega filed a no-confidence motion they hope to move on this week.

The Chinese yuan touched a new low against the U.S Dollar to start the week and this of late has been a barometer to the broader market. Upon weakening, it encourages selling. When stable, the market rallies. Goldman Sachs (GS) though did not do the trade war narrative any favors over the weekend. They lowered their growth forecast in Q4 by 20-basis points to 1.8% and cited mounting uncertainty and eroding sentiment due to the trade war that ultimately increase the likeliness of a recession.

Today’s economic calendar is quiet, and tomorrow will bring a crucial wave. German ZEW Economic Sentiment data is released early and expected to worsen to the lowest level since December 2011. Core CPI will be the highlight and analysts anticipate this inflation gauge to remain stable.

Technicals: Our major three-star resistance levels in both the S&P 500 and Nasdaq 100 withheld a test overnight and each of the last two sessions. For the S&P 500 this is 2932.50-2944.25 and for the NQ this is 7702.25-7735.75. Price action is off sharply trekking to new swing lows. First key support in the S&P comes in at 2899-2901.75 and sustained price action below here will pave a path of least resistance down to 2870.50-2877.75. However, a move back above the 100-day moving average at 2910.25 will work to neutralize the early weakness. Major three-star resistance though comes in at 2918.75-2919.75 and aligns Friday’s settlement with our momentum indicator. Similarly, the NQ has first key resistance at 7652.25-7660.25; this aligns Friday’s settlement, our momentum indicator and the 100-day moving average. It would be very bullish for price action to move and close out above these levels for both the S&P and NQ over the next two days as it lays strong groundwork for a potential bull-flag pattern. We remain neutral and as we said all last week, this can be traded from both sides but follow the momentum for the larger swings; its ok to be wrong, just a matter of how long you stay wrong.

Bias: Neutral

Resistance: 2918.75-2919.75***, 2932.50-2944.25***, 2952-2955**, 2969.50***

Pivot: 2910.25

Support: 2899-2901.75**, 2891.50**, 2870.50-2877.75***, 2858.25**, 2819.25-2823.25***

NQ (September)

Resistance: 7652.25-7660.25**, 7702.25-7735.75***, 7806-7815.25**, 7856.50**

Support: 7596.75*, 7542.25-7553.25***, 7481.50-7493.75**, 7420.75*, 7385.25-7396.75***

Crude Oil (CLU)

Last week’s close: Settled at $54.50, up $1.96 on Friday and down $1.16 on the week.

Fundamentals: Crude oil is back in the green after a less than stellar start to the week. Price action followed the broader risk-environment lower but comments from both Iranian and Iraqi Foreign Ministers that foreign ships in the Persian Gulf increase tension have seemed to help things turn a corner. Also, news that Saudi Aramco will purchase a 20% stake of India’s Reliance has lifted sentiment in the energy sector; a heavily invested Aramco reinvigorating talks of an IPO does not want to see a weak market. There are conflicting gravitational pulls in the market, but if equities also turn a corner, there is room on the upside in crude.

Technicals: With price action out above what was major three-star resistance on the week at $53.20-$53.69, we introduced a slight bullish bias on Friday. Furthermore, this level then became major three-star support and on Friday we said the landscape is bullish above here. Price action turned down overnight to directly test and hold here; this was a buy opportunity for the bulls. Crude oil would seem to now have $55.65 in its crosshairs. Our momentum indicator now comes in at $54.15 and the tape is immediate-term bullish above here.

Bias: Bullish/Neutral

Resistance: 54.65**, 55.65-55.97***

Support: 54.15**, 53.20-53.69***, 52.54-52.66**, 51.68**, 50.60-51.15***

Gold (GCZ)

Last week’s close: Settled at $1,508.5, down 1.0 on Friday and up $51 on the week

Fundamentals: Gold continues to ride out an extremely favorable fundamental and technical landscape, trading at the highest level since April 2013. Risk-sentiment became distressed overnight for a number of reasons (see S&P section) and this has helped lift safe-havens: Gold, Treasuries and Japanese yen. All the while, volatility has slipped out of the dollar as it remains rangebound which has provided a tailwind to the more currency dependent gold and yen. Today’s economic calendar is bare but tomorrow we look to German ZEW Economic Sentiment and U.S CPI, both will set a tone on the yield front.

Technicals: Price action is firm, building a base above the psychological $1,500 mark. Last week, we got bulled up as prices came closer to $1,500 because the uptrend remains extremely strong. Although, we are unequivocally long-term bullish, in the short term we need to hold $1,484.5 today and we must see a constructive close above $1,523.9 through tomorrow to maintain such.

Bias: Bullish/Neutral

Resistance: 1523.9-1526.7***, 1588.2***

Pivot: 1511

Support: 1500**, 1494.5**, 1484.5-1487.2***, 1467-1469.2**, 1454.4-1458.2***

Bill Baruch provides technical levels on all markets throughout the week at BlueLineFutures.com.

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