North Korea And Cohn Cause Markets To Wobble

Market Analysis /
07 Mar 2018

Comments from a South Korean envoy on potential North Korean denuclearisation have led to big swings in major markets, pushing stocks up, bonds up and bring back the pattern of extended us dollar weakness in the currency markets. For the open on Wall Street futures have jumped higher with the Dow now looking to post more than 160 points on the open including fair value, with the S&P up over 10 points.

The headlines on North Korea from this morning;

  • Kim Jong Un has supposedly commented that denuclearisation is a goal that has not changed and his been passed down from previous generations.
  • It’s also a possibility that it will be discussed as part of an agenda in US NK talks.
  • In a strange point it has been said that North Korea have asked South Korea to pass the news on to the US. Very school playground, but very much in keeping with both administrations behavior patterns up to now.
  • Promise of no use of any weapons against South Korea.
  • NK and SK to hold a border summit in April.

Now for me, this is laced with some very strange comments, and the whole thing seems a very strange reason for risk sentiment to jump higher. News, and more importantly fact has always been somewhat at a premium in the largely secretive nation, so it would be difficult not to take comments like this (even though not directly from the North Koreans) without a degree of skepticism.  

The markets however have jumped in with both feet, and especially from a dollar point of view it seems that the dollar strength was always a reluctant move, with us always commenting on the resilience of its counterpart. It seems to fit much more comfortably in a dollar weakness pattern. However, a big move like this is usually kicked off by algos, which means any kind of retracement will see a jump above a key upside level, stops triggered and then the aggressive reversal.

 It must be a case of sit where ever you like in the West Wing of the White House these days as the staff turnover story continues. This time is another high-profile member of the President’s team in Gary Cohn the White House chief economic advisor. Again, the markets have reacted to this with a degree of US dollar downside pushing the dollar index to lows at 89.41 before a recovery first thing this morning.

This is another intriguing story to come out of the White House but interestingly not much has been made of the moves. There is almost an acceptance and inevitability when we hear another story like this, however the reason is intriguing with Gary Cohn disagreeing with the President his metals tariffs, announced last week. As we all know, the move by the President has sparked a global trade war debate, with Canada and the European Union both wading into the argument threatening retaliation if Trump continues with this rhetoric.

 

president Trump seems wiling to continue to wage trade wars across the globe.
president Trump seems wiling to continue to wage trade wars across the globe.

 

Technical levels

After playing out a whole host of trendline tests, we have seen a big refusal and recovery after cable hot lows at 1.3710. The bounce did appear to coincide with support at the 61.8% retracement from the lows in mid to early December and highs for the year so far. The only issue on this downside level is the fact that you could choose a number of different downside point to start your fib, it’s hard not to think this is a little forced.

I posted this chart last week on twitter. Below you can see what happened next.
I posted this chart last week on twitter. Below you can see what happened next.

I posted the above chart on my twitter handle @James_HughesUK last week showing the amount of respect the pair had shown for its levels. The break out came to the downside and it was fairly aggressive, after turning around at the 1.3710 level we now look for GBPUSD to retest, as it has done recently, the upside levels and more importantly the longer term downtrend levels.

We broke out to the downside, pointing to big trendline support incoming.
We broke out to the downside, pointing to big trendline support incoming.

USDJPY is another dollar pair that has had large swings, but has followed suit showing that the markets slip much more easily into the negative dollar scenarios rather that remaining resilient when on the shoes on the other foot. The Korean story will drive some of these moves in the next couple of days, but again I expect a test of the downside trendline resistance, and if we break a test of the 50% fib in the chart below.

Traders seem much safer and happy in the negative dollar trading scenario.
Traders seem much safer and happy in the negative dollar trading scenario.

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