Daily Market Analysis – 26.10.2017

Market Summary

Asian markets were mostly higher on Wednesday, but one notable drop came from Japan’s Nikkei. The benchmark Japanese index had risen for sixteen consecutive sessions, but ended the record breaking run on Wednesday as it erased early gains and fell to profit-taking in the afternoon. The index could easily resume its uptrend today, however, as the Yen remains weak versus the U.S. dollar, and investor confidence is high in response to continued strength from Wall Street and corporate earnings. Japanese investors are also looking forward to more loose monetary policy after Prime Minister Shinzo Abe’s political party won a landslide victory this past weekend in Japan’s general elections. Chinese markets moved higher on enthusiasm following the 19th Chinese Communist Party Congress, where Xi Jinping was appointed to another five-year term as the leader of China. Elsewhere, Hong Kong’s market gained, as did the Australian and South Korean benchmark indices.

Markets in Europe ended with broad-based losses on Wednesday as investors took a cautious stance ahead of today’s monetary policy meeting of the European Central Bank. While the ECB is not expected to make any change to interest rates, they are expected to begin tapering their massive bond buying program, but there is uncertainty regarding how large this taper will be. This uncertainty caused investors to dump equities on Wednesday, and could see them continue selling today, at least until the ECB monetary policy statement is released. In London, the FTSE snapped a three-session winning streak and fell sharply after a preliminary reading on third-quarter GDP showed more strength in the U.K. economy than was expected. The Pound rallied in response, taking equities lower.

U.S. markets suffered a pullback as well after early earnings reports were weaker than hoped for by investors. The early selling took hold, and markets continued falling throughout the day as investors chose to pull profits from the historically high valuations in equities. The S&P500 saw all eleven of its sectors ending the day in the red, with the greatest losses coming from the telecommunications and industrial sectors. All three of the major benchmark indices ended the day 0.5% lower, although they were off their session lows at the close. Today will be another heavy day of corporate earnings reporting, and the second day of disappointments could put the markets at risk of a more severe downturn in the coming weeks.

Today’s Assets

GBP/USD 

The pair surged higher Wednesday, breaking out of a fairly tight fivefive-dayge bound trade after preliminary readings on U.K. third quarter GDP came in stronger than expected. The move took the pair back near the 1.3300 level, but it was unable to break through resistance there. Of course the questions over Brexit negotiations remain for traders, and this could easily short-circuit any emerging strength for the Pound and send it back down, at least to the 1.3200 level, if not lower to test the 1.3000 level for support. If the pair were to break below the 1.3000 level we would expect to see it continue falling for an additional 250-300 pips before finding support again.

Cryptocurrencies 

After falling following the Bitcoin Gold hard fork Bitcoin has been trying to make a recovery, but has twice bumped into resistance at the $5,650 level on Wednesday, causing the cryptocurrency to end the session with a modest gain, but unable to mount any real upward momentum. Also of importance to traders was the action in the alt-coins, which had staged significant rallies in the previous session. There was no follow-through to those rallies, with most alt-coins dropping instead, indicating they could be in for an extended period of weakness.

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