Clashing Politics with Quarter-End

The overwhelming influence of politics in markets continued Wednesday as the US dollar recovered after the transcripts of Trump's call with Ukraine's President were released. Stocks opened higher on a trade deal between US and Japan, but fell anew on fresh questions regarding the US-Huwawei case and the whistleblower's report (more below). The US dollar was the top performer while the pound lagged. A 4th Premium trade was released ahead of the NY close, supported by 4 charts & detailed notes. The next 2 trading days (Friday and Monday) will prove highly volatile and noisy as the end of month and quarter draw to a close. The chart below is among the 4 charts of today's Premium trade. A 6% decline in Micron on disappointing earnings could sway the technology sector on Friday.

Trump is being investigated on whether he asked Ukraine's President to contain Democratic rival Joe Biden as a favour, but there wasn't a clear connection tying it to military aid. With that, the market concluded it wasn't a smoking gun that could force the President out of office and/or force him into a situation where he might stir up geopolitical turmoil elsewhere as a distraction. The whistleblower's account spelled out that Trump attempted to pressure the Ukraine into indirectly influencing the 2020 elections. But the formal report on whether the Whistleblower account had enough to get Trump impeached by both chambers of Congress remains far from done.

Wednesday's market reaction was to unwind Tuesday's trade: The dollar rallied, stocks climbed, bonds slumped and gold sank nearly $30. On Thursday, stocks ended in the red again, but well off their lows.

Watching Huwawei again

Stocks earlier had made a fresh move lower on reports the US is unlikely to extend a temporary waiver to supply Huwawei as well as reassessing intelligence sharing with allies using Huwawei. Although USDJPY pushed back up to as high as 107.96, inflection points can emerge anywhere on any new twist in the US-China-Huwawei continuum.

Wednesday comments from the Fed's Evans were a further – albeit smaller – reason for dollar strength. He indicated reluctance to cut rates further this year unless the outlook deteriorates. He said was open to the idea but he's a consistent dove and his lack of enthusiasm for lowering rates raises the risk that the Fed could be done for the year.

Finally, US housing continues to show signs of surprising strength as August new home sales rose to a 713K pace from 666K prior. Lower rates are clearly having a simulative effect.

In such an uncertain, headline-driven market, technicals become increasingly important as a way to manage risk. EURUSD 1.09 is key.

Euro Retests 1.0900

EUR/USD resumes its selloff, one day after notable hawk ECB Executive Board member Sabine Lautenschlaeger announced she was quitting two years ahead of schedule. She was an ardent opponent against further ECB easing. Her departure is the strongest message yet that caution has been thrown to the wind at the central bank. The euro is in a well-defined downtrend, feel below 1.0920, threatening the double bottom into the end of the week/month. Next key level stands at 1.0770.