US Dollar, S&P 500, President Donald Trump, Covid-19 – Talking Points:
- Equity markets tumbled during APAC trade as news that President Trump had tested positive for Covid-19 sapped market sentiment.
- The US Dollar Index's rebound could be at risk despite adverse shift in market sentiment.
- S&P 500 index may extend its fall from the yearly high.
Asia-Pacific Recap
Risk appetite evaporated during the Asian trading session, as news that President Donald Trump had contracted the novel coronavirus roiled equity markets.
S&P 500 futures tumbled and Australia’s benchmark ASX 200 index fell 1.67% while the haven-associated US Dollar and Japanese Yen surged against their major counterparts.
Gold rallied 0.53% and silver spiked over 1%, as yield on US 10-year Treasuries dipped back below 66 basis points.
Looking ahead, Euro-area inflation data headlines the economic docket ahead of the volatility-inducing US non-farm payrolls report for September.
Market reaction chart created using TradingView
Investors Flee to Safe Havens after Trump Tests Positive to Covid-19
President Donald Trump’s announcement that he and First Lady Melania Trump had tested positive for Covid-19 sent equity markets tumbling during Asia-Pacific trade, with S&P 500 futures falling as much as 1.85% and the haven-associated US Dollar spiking higher against its major counterparts.
Trump tweeted “Tonight, @Flotus and I tested positive for Covid-19. We will begin our quarantine and recovery process immediately. We will get through this TOGETHER!”. The First Lady also tweeted that “@Potus and I are quarantining at home after testing positive for COVID-19. We are feeling good and I have postponed all upcoming engagements”.
Given the President has been openly dismissive of social distancing measures and continually called into question the effectiveness of mask-wearing in preventing the transmission of Covid-19, the shock diagnosis may swing the pendulum further in the favour of Democratic nominee Joe Biden.
Biden leads Trump substantially in the polls, with his lead growing markedly in the wake of the first Presidential debate of the 2020 elections on September 30.
Moreover, the President’s health status now calls into question the second debate scheduled for October 15, with the enforcement of a two-week quarantine period suggesting that Trump would only be able to emerge from the confines of the White House on the day of the debate.
However, given White House physician Scott Conley’s expectation that Trump will continue “carrying out his duties without disruption while recovering”, there is a distinct possibility that the President’s diagnosis will have little effect on the upcoming election schedule.
Nevertheless, the President’s recovery will be closely eyed in the coming days, with a notable deterioration in health outcomes probably exacerbating the recent shift in market sentiment and resulting in a marked increase in haven flows.
Source – Bloomberg
US Dollar Index (DXY) Daily Chart – March Low Capping Topside Potential
From a technical perspective, the US Dollar Index’s (DXY) rebound from the September low appears to be running out of steam, as price fails to break above key resistance at the March low (94.65) and stumbles back below the psychologically imposing 94.00 level.
With the DXY closing back below the September 2018 low (93.81) and the RSI struggling to push back above 60 into bullish territory, further losses could be in the offing.
Therefore, a daily close below the 21-day moving average (93.56) would probably signal the resumption of the primary downtrend, with a break below the trend-defining 50-DMA (93.26) needed to carve a path to retest the yearly low (91.75).
Conversely, a close back above the 94 mark may inspire a more sustained push to the upside and bring the March low (94.65) back into focus.
US Dollar Index daily chart created using TradingView
S&P 500 (e-Mini) Futures Daily Chart – Rising Wedge in Play?
The US benchmark S&P 500 index looks set to extend its fall from the record high set in September (3587), as buyers fail to drive price back above the February high (3397.50) and the RSI dips below its neutral midpoint.
Although price appears to be carving out a bullish Rising Wedge pattern, further losses look likely in the coming days, with a break back below the 38.2% Fibonacci (3306) potentially triggering a pullback towards confluent support at the June high (3231.25) and 100-DMA.
On the other hand, a daily close above the February high (3397.50) would probably invalidate bearish potential and could signal the resumption of the primary uptrend.
S&P 500 (e-Mini) futures daily chart created using TradingView
-- Written by Daniel Moss, Analyst for DailyFX
Follow me on Twitter @DanielGMoss