Oil and stocks sell off as Trump trade unravels; Canada budget today

The selloff in stock markets that started in North America yesterday worked it’s way around the world overnight. In Asia, the Nikkei fell 2.1% while the Hang Seng fell 1.1%. In Europe, the Dax is down 0.6% while the FTSE is down 0.8%. US index futures are down 0.1% trying to regain their footing following yesterday’s selloff that saw the Dow lose over 1% and the Russell 2000 lose over 2%.

The rally of the last several months had been built on the notion that President Trump would come in, pass sweeping pro-business reforms and launch infrastructure spending programs quickly and efficiently and with little opposition, boosting corporate earnings this year. These dreams, however, are starting to run into reality and because of this, stocks are starting to crumble. The tipping point appears to be the ongoing debate over health care reform. The inability of Republicans to agree among themselves has spooked traders concerned that tax reform may also be more difficult to achieve than previously thought with border taxes particularly contentious.

Growing political risk in the US has sparked a flight of capital to the usual havens. ‎Gold and Yen are holding on to Tuesday’s gains. This could shore up support for gold stocks at a time that energy stocks are under pressure and could take the baton of underperformance from financials.

Oil is getting hammered again today with WTI and Brent down 1.7%. Last night API reported. 4.5mmbbl increase in US oil inventories, way above the 2.8 the street had expected. This news has once again crushed hopes that the big build is ending after inventories declined last week.

Oil and related commodities may remain active through the morning especially around the DOE inventory reports.

The Canadian government is set to announce its latest budget later this afternoon. The centrepiece is expected to be the introduction of and infrastructure bank, but tax changes are also possible. What may be most important, however, is what the government’s assumptions for energy prices and energy tax revenues are. If the market share war resumes and prices tumble again making assumptions optimistic, the government could struggle to meet its targets. On the other hand, higher prices could help the government to achieve its goals.

Chart Signals: Major indices and WTI build on breakdowns, JPY and gold build on gains

A rotation out of risk markets and back into defensive havens is becoming increasingly clear. Having broken down Tuesday, major indices continue to decline with WTI crude oil also under pressure. Gold is consolidating Tuesday’s gains while JPY is breaking out in a catch-up rally. CAD is falling with oil while EUR and GBP are retrenching a bit digesting recent gains.

North American and European Indices

US 30 continues to fall, confirming Tuesday break under 20,785 by falling into the 20,610 to 20,650 area. RSI under 50 confirms momentum turning downward. Next potential support at the 50-day average near 20,415.

US SPX 500 remains in retreat with Tuesday’s low near 2,345 becoming resistance and the index falling toward 2,337 with next potential support at the 50-day average near 2,329 then a 23% Fibonacci retracement near 2,313. RSI under 50 confirms increasing downward momentum.

US NDAQ 100 staged a major breakdown Tuesday, taking out 5,395 and diving toward 5,335 which has emerged as new lower resistance RSI is testing 50 where a break would confirm the downturn. Next potential support near 5,300 then the 50-day average near 5,244. 

UK 100 appears to be on the verge of a breakdown, testing 7,300 uptrend line and round number support. The RSI has already broken 50 to signal a downturn. Resistance drops toward 7,325 with next support possible in the 7,250 to 7,275 area near the 50-day average.

Germany 30 continues to decline after completing a bearish rising wedge earlier this week. Confirming a break under 12,000 the index has dropped into the 11,860 to 11,910 area with next potential support near 11,795 then 50-day average. RSI falling under 50 signals momentum turning downward.

Commodities

Gold is consolidating Tuesday’s big rally up off of $1,230 trading between $1,242 and $1,248. RSI steady above 50 indicates a pause within a growing uptrend. Next potential resistance on a breakout near $1,254.

Crude Oil WTI is retesting $47.00 which could end in a double bottom or a breakdown. RSI oversold but still confirming increasing downward pressure. Next support possible near $46.55 an uptrend line, then $45.00 with initial resistance possible near $47.40 then $48.25.

FX

US Dollar Index is digesting Tuesday’s big breakdown under 100.00 trading near the bottom of its big bearish candle in the 99.45 to 99.75 area with next potential support near 99.25 and 98.60 the 200-day average. 

USDJPY is breaking down today, taking out 111.60 channel support and falling to test 111.25 a Fibonacci level with next potential support near the 110.00 round number then a Fibonacci cluster near 109.00. RSI under 50 and falling indicates increasing downward pressure. 

EURUSD has slipped back under $1.0800 toward $1.0780 after channel resistance at a Fibonacci cluster near $1.0830 contained its recent rally. RSI suggests a pause within an uptrend. Support rises toward $1.0770 from $1.0720. 

EURGBP remains under pressure, trading near 0.8660 a Fibonacci level with resistance falling toward 0.8720. RSI bouncing around 50 indicates a downswing underway within a sideways trend. Next potential support near 0.8600 then 0.8560 the 50 and 200 day averages.

GBPUSD has encountered resistance at the $1.2500 round number and has dropped back toward $1.2440 in what looks like a normal trading correction. Initial support in place at the 50-day average near $1.2400.

USDCAD continues to rebound with the RSI bouncing up off 50 indicating upward momentum resuming following a correction. The pair is challenging $1.3400 with support rising from $1.3300 to $1.3360. Next resistance possible in the $1.3480 to $1.3500 area.

CADUSD is resuming its downtrend, unable to hold $0.7500 on the pair and unable to retake 50 on the RSI. The pair has dropped back into the $0.7460 to $0.7485 area from $0.7530 with next potential support near $0.7410 a Fibonacci level.

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