In the early hours of Tuesday China devaluated the yuan, and sent the European and US markets into a nosedive. In the early hours of Wednesday morning they did it again. We’re still waiting to see what the effect on our market will be, but nobody is expecting it to be good. The guesses are “bad” and “more bad.”
The Tuesday devaluation, and Wednesday morning’s follow-up, were both relatively small but they are being touted as the first shot in a “currency war,” a series of competitive devaluations whereby nations try to boost their exports by making them cheaper is US dollar terms.
But the effect on both European and US equities was to drive the main indices down. For example the S&P500 mini-futures, which gained about 26 points on Monday, gave back more than two-thirds of that gain on Tuesday. The futures closed at 2079.75, or 20 points below the prior close.
In early overnight trading the latest devaluation drove the futures down another 15 points in the pre-market, close to the bottom of the triangle pattern (See chart). The volatility is increasing, the swings are becoming wider, and the markets are starting to be a bit scary.
We are living in interesting times. Remember, that’s a Chinese curse.
Today
Today we have the president of the New York Fed, William Dudley, speaking at 8:30 a.m., before the day session opens. The market is hyper-sensitive to anything anyone from the Fed says (or doesn’t say) and we may get an early hint at the day’s direction, and an early chance to assess the effects of the latest devaluation.
The ES could remain inside the triangle pattern on the daily chart, whipsawing back and forth around the 20/40ema lines until it finally breaks in one direction or the other. The 2100-04.50 area will be the resistance line for the triangle pattern, and 2062-59 will be the support. We were getting close to that support overnight.
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