Trump’s first failure sparks stock market selloff

Stock markets have been teetering on the edge of a correction for weeks, and today are falling off the side of a cliff. US index futures are down 0.8% with th‎e Dow falling back under 20,500. The Nikkei fell 1.4% overnight while the FTSE and Dax are down about 0.75%.

The post-election rally has been looking exhausted for a while now but markets kept insisting on pricing President Trump for perfection. The failure of the Republicans in the Administration and Congress to come to an agreement among themselves on health care has become the tipping point reminding the street that politics isn’t as simple as it sounds.

Politics aren’t like the markets while adapt quickly to change, political reform is a slow messy process where people rarely get everything that they want. Next up on the political agenda is tax reform with border taxes and trade likely to be the sticking point. ‎ It remains to be seen if tax reform and health care will delay the infrastructure push off to next year.

Friday’s failure has raised uncertainty about what can be done in the US political process causing traders to rethink and reprice US political risk. In the markets, this can be seen in capital leaving stocks heading back into defensive havens. Gold and JPY in particular are up big to start the week with the yellow metal gaining 1.1%.

Currencies across the pond are also strong today. GBP is up a big figure against USD blasting through $1.2500 decisively ahead of Wednesday’s expected Article 50 trigger. EUR is up on a big decisive win by Chancellor Merkel’s party in Saarland regional elections plus a better than expected IFO business survey report.

Canadian trading could be mixed today. While gold stocks could benefit from the gold rally, a 1.5% in copper and a 0.7% decline in WTI could impact base metal miners and energy producers. The banking sector which worldwide had benefited from the Trump election trade, may be impacted by that big global sector play falling apart. CAD has also been held back by commodity price weakness unable to take advantage of the US Dollar retreat so far.

Chart Signals: Major breakdowns for major indices, big breakouts for big currencies

There is a lot of big technical action happening to start the week. With the Trump trade collapsing, recent pauses in major indices and the US Dollar are turning into bigger breakdowns and deepening corrections. The drop in the Dollar, meanwhile, has ignited big rallies and breakouts in Cable, the Euro, Yen and gold.

North American and European Indices

US 30 remains under pressure, breaking down below 20,500 from 20,565 to signal the start of a new downleg. RSI under 50 and falling confirms downward pressure increasing. Next potential support at the 50-day average near 20,465 then 20,285, a 23% retracement of the post-election rally.

US SPX 500 is testing its 50-day average near 2,330 having pierced it overnight. Resistance falls toward 2,340 with next potential support near 2,320 then 2,313 a 23% retracement level. Falling RSI confirms increasing downward pressure.

US NDAQ 100 is falling away from a lower high near 5,395 having completed the right shoulder of a head and shoulders top. RSI testing 50 where a break would signal a downturn in momentum. Neckline support in place near 5,300 followed by the 50-day average near 5,260.

UK 100 is breaking down today, taking out 7,300 and an uptrend support line that may become resistance. RSI breaking under 50 confirms the downturn. Initial support near 7,263 a 23% retracement of its recent uptrend followed by 7,200.

Germany 30 is starting to break down again. The index failed to retake 12,040, also failing to call off a bearish rising wedge and has dropped back under 12,000 which it’s retesting as resistance trading between 11,930 and 11,990. Next potential support at the 50-day average near 11,840. RSI falling toward 50 and a negative divergence indicate upward momentum weakening.

Commodities

Gold has rallied up toward its 200-day average near $1,260 and a test of channel resistance. Next potential test on a breakout appears near $1,278 a Fibonacci level. Initial pullback support possible near $1,256 then $1,242 where it rallied up from. Rising RSI confirms increasing upward momentum. 

Crude Oil WTI continues to stabilize between $46.00 and $48.00 recently trading near $47.00. The price has paused to work off an oversold RSI and is holding uptrend support but at the same time in many ways, this is looking like a pause in a bigger downtrend rather than a base.

FX

US Dollar Index is getting hammered again. The index has dropped from 99.50 down through 99.00 and on toward 98.80. This signals the start of a new downleg with growing downward momentum confirmed by a falling RSI. Next potential support at the 200-day average near 98.65.

USDJPY is breaking down again today, taking out 111.00 and falling to test the 110.00 big around number with next potential support after that at a Fibonacci cluster near 109.10. Falling RSI confirms ongoing distribution.

EURUSD is breaking out today. The pair has blasted through a Fibonacci cluster near $1.0840 which may become support, and has rallied to test its 200-day average near $1.0880 with next potential resistance near $1.0940 a Fibonacci level. Rising RSI confirms upward momentum still increasing.

EURGBP has slipped back under 0.8660 a Fibonacci level from lower resistance near 0.88700 with next potential support in the 0.8570 to 0.8590 area between the 50 and 200-day averages.

GBPUSD is breaking out today! The pair has decisively cleared $1.2500 and $1.2550 soaring up toward $1.2600 with next potential resistance at the February high and a Fibonacci level near $1.2685. RSI above 50 and rising confirms upward momentum accelerating.

USDCAD is trading just above $1.3300 the middle of a broad $1.3100 to $1.3500 channel, trading between $1.3320 and $1.3360. Rising RSI holding 50 indicates continued accumulation. Next resistance near $1.3400 with next support near $1.3260.

CADUSD found support at a higher low near $0.7475 and is sitting on $0.7500 but needs to really break through this barrier plus 50 on the RSI to signal this is more than just a trading bounce. Next resistance near $0.7525 then $0.7550 with next support near $0.7455.

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