It was a sea of red in US stocks yesterday after the US reported weak PMI data. The Dow Jones Industrial Average declined by 343 points while the Nasdaq declined by 90 points. According to the Institute of Supply Management (ISM), manufacturing PMI declined to 47.8 from the previous 49.1. This was the worst number since the financial crisis. The biggest losers in US stocks were stockbrokers like Schwab, TD Ameritrade, and E*TRADE, which declined sharply after Schwab announced that it would remove all trading commissions. The other brokers too will be forced to bring their commissions to zero to compete.
The US dollar declined sharply after the release of the PMI data. The index declined from a high of 99.3 to a low of 98.70. The decline happened as traders placed their bet that the Fed will be forced to aggressively cut interest rates. The Fed could also be forced to restart the quantitative easing program. In a tweet, Donald blamed the slump in manufacturing activity on the Federal Reserve. Most analysts believe that the blame falls squarely on Trump for his unending trade war with China. Later today, ADP will release its employment numbers, which are expected to show that the economy added more than 140k jobs in September, down from 196k.
The USD/JPY pair declined sharply to a low of 107.60. This level was along the 50% Fibonacci Retracement level. On the hourly chart below, the pair had just completed the impulse wave of the Elliot Wave. The decline was part of the corrective wave as shown below. Therefore, it is likely that the pair will complete the corrective wave and test the 108.20 level.
Sterling rose in overnight trading as Boris Johnson is expected to submit his Brexit proposal later today. Supporters of the Prime Minister hope that he will produce a better offer, which will lead to a deal before the October 31 deadline. However, critics fear that the deal he proposes will not satisfy the European Union. It will also not satisfy the two sides in the Brexit divide. If Johnson fails to come up with an acceptable deal, he could be forced to break his word and seek another delay. Meanwhile, EU countries appeared to be making a major concession on the Irish backstop. According to Bloomberg, member states are considering a time limit on the Irish backstop. This time limit would only be on offer if the UK accepted a backstop which would keep Northern Ireland in a customs union with the bloc.
The GBP/USD pair rose slightly to 1.2338, which was slightly lower than the 38.2% Fibonacci Retracement level. As of this writing, the pair is trading at 1.2285. The Average True Range (ATR) indicator has jumped, which is a sign of increased volatility. Today, the pair may decline as traders react to Johnson’s proposal.
The price of Brent crude oil is trading close to a two-week low as traders focus on supplies and the world economy. A decline in global manufacturing activity is viewed as being bearish for crude oil. Overnight, the American Petroleum Institute (API) released the inventories numbers for the past week. Over the week, inventories dropped by more than 10 million barrels after rising by more than 1.4 million barrels in the previous week. Later today, EIA will release the official numbers. Estimates show that inventories rose by more than 1.5 million barrels.
As of this writing, the XBR/USD pair is trading at 60.05. This is slightly higher than the two-week low of 59.10. During this time, the pair has declined from a high of 69.82. The RSI has jumped slightly to the current level of 43 while the pair is trading along the 14-day EMA and slightly lower than the 28-day EMA. Today, the pair is likely to continue the downward trend and move past the support of 59.10.