Global sell off | China currency manipulator | 7060 holds | Rise to 7285

Dust settles and a rise to 7635 on the cards | 7570 support | NFP tomorrow - buy the rumour

6th August 2019

Global stock markets suffered one of their worst sell-offs of the year after China upped the ante in its rapidly escalating trade war with the US. The rout worsened as investors rushed for so-called “safe-haven” assets and analysts warned that a bear market “beckons”.

The FTSE 100 endured its biggest plunge this year after Beijing refused to bow to pressure from Donald Trump and ignited fears the trade war is spilling over into currency markets.

China halted imports of American agricultural products and let its currency tumble below a crucial level in retaliation for the latest round of US tariffs announced on Thursday.

The stocks rout extended into a second day as the Vix index – a measure of future volatility expectations known as the “fear gauge” – surged almost 30pc to a three-month high.

A “bear market beckons” and “credible triggers for a significant market correction are materialising”, warned Oxford Economics analyst Gaurav Saroliya. A bear market is a fall of more than 20pc from an index’s previous peak.

London’s blue-chip stock index sank 2.5pc to close at 7,223.85 points as investors piled into government debt, safe haven currencies and gold. The FTSE has tumbled 6pc in a week and the global sell-off showed no sign of abating after the end of play in Europe. The S&P 500, New York’s benchmark index, plunged as much as 2.6pc in afternoon trade as hundreds of billions of pounds were wiped off the value of global stocks.

Currency Manipulator

The U.S. Treasury Department has officially labeled China a currency manipulator after the country’s central bank allowed the yuan to fall below 7 per dollar in retaliation for new tariffs on its imports. Cowen’s Chris Krueger called Beijing’s retaliation “massive,” noting “on a scale of 1-10, it’s an 11.” Morgan Stanley strategist Michael Zezas said tariffs are more likely to be enacted as pressure builds on the Fed to make deeper rate cuts. BMO strategist Ian Lyngen said the biggest unknown is how much further the yuan will fall. The currency’s slide threatens to revive concerns about the capital flight that helped prompt the country to spend $1 trillion of its reserves in 2015.

FTSE 100 Trading Signals, Forecast and Prediction

We have seen a respite from the aggressive sell off overnight with China taking umbrage with being labelled a currency manipulator and stepping up to stabilise things after their currency devaluation actions yesterday. As such, we may well see a bit of a bounce today, as if things were to stabilise a bit, there is some good value today, ahead of the divi tomorrow and stocks significantly cheaper than they were a few days ago. August is always a funny month (and the Christmas week) due to low volume and summer holidays. The technicals are a bit irrelevant as well as we have had such a sentiment driven move, but there are a few levels showing, albeit at fairly wide prices!

FTSE 100 Trading Signals, Forecast and Prediction
FTSE 100 Trading Signals, Forecast and Prediction

That said the bottom of the Raff channels have held overnight and we have had a decent 100 point bounce so far from the lows. If we get a bit of a dip down towards the 7150 support area that is now showing then a long here looks worth a go, for a climb towards the resistance, initially, at the 7280 area.

Above this then there is resistance at 7444 on the 2 hour and 7459 on the daily chart – that would be quite a climb today and whilst we had a massive drop, the bounce might not be so aggressive. Unless there is some sort of news driven intervention from central banks/Trump/something else!

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