It was turnaround Tuesday in the financial markets as equities, currencies and treasury yields went on a free-fall in the last 2 hours of trade. The Dow Jones Industrial Average had been up more than 240 points intraday before giving up all of its gains to end the NY session down over 300 points. The losses were even greater on a percentage basis for the NASDAQ, which fell 3% and S&P 500, which fell 1.7%. We can attribute the move to a number of different factors but the abruptness of the selling indicates that it is driven by liquidation. No news should be good news and currencies should not have fallen as much as they had today.
Here in the U.S., it's the end of the month and the end of quarter and in Japan, it is their fiscal year end so there can be a lot of position adjustments. Bad news for the tech sector and softer U.S. economic reports also contributed to the move. Consumer confidence eased for the first time this year according to the Conference Board's latest report and manufacturing activity in the Richmond region, which was expected to accelerate also slowed in March. Looking ahead, USD/JPY is eyeing another move below 105 and we think that could happen. Q4 GDP revisions are scheduled for release on Friday along with pending home sales - while stronger data could boost the dollar these reports are not significant enough to alter market sentiment, which is this week's primary driver of market flows.
The Australian dollar took the brunt of the selling, losing nearly 1% of its value against the U.S. dollar and Japanese Yen. No data was released last night and nothing is expected this evening but the currency was pressured by risk aversion and lower commodity prices. China's troubles also have the greatest impact on Australia so its no surprise to see the currency, which did not benefit from U.S. dollar weakness, close in on its 3 month low versus the U.S. dollar.
The New Zealand dollar also retreated after Monday's breakout and while it remains above the 20-day SMA, further risk aversion could take the pair down to .72 cents. New Zealand business confidence numbers area scheduled for release this evening.
Of all the major currencies, the Canadian dollar was the most resilient even though it was also not immune to risk aversion. The loonie was unfazed by the 1.4% drop in oil prices as gains in USD/CAD are capped below 1.29 but a meaningful move above that level would pave the way for a stronger rally towards 1.30.
Softer than expected Eurozone confidence and cautious comments from ECB officials prevented EUR/USD from breaking above 1.25. This morning, ECB member Liikanen said the ECB should be patient in removing stimulus while ECB member Nowotny said asset purchases should be reduced gradually. While everyone is talking about unwinding stimulus, the combination of weaker data and cautious rhetoric has investors looking elsewhere for opportunities. With that in mind, EURUSD has pretty significant support at 1.2340.
Sterling on the other hand sold off aggressively at the start of the NY session, but recovered into the London close and consolidated for the rest of the day, shrugging off the volatility in U.S. equities. The timing of the breakdown and reversal suggests that the move was driven by nothing more than quarter and month end flows. So with that in mind, EUR/GBP, which ended the day well off its highs could see another leg lower.
Past performance is not indicative of future results. Trading forex carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade any such leveraged products you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading on margin, and seek advice from an independent financial advisor if you have any doubts.
Recommended Content
Editors’ Picks
![EUR/USD stays below 1.1100, looks to post weekly losses](https://editorial.fxstreet.com/images/Markets/Currencies/Majors/EURUSD/european-euro-coin-on-top-of-american-dollar-bill-11292130_XtraSmall.jpg)
EUR/USD stays below 1.1100, looks to post weekly losses
EUR/USD continues to trade in a narrow range below 1.1100 and remains on track to end the week in negative territory. Earlier in the day, monthly PCE inflation data from the US came in line with the market expectation, failing to trigger a reaction.
![GBP/USD struggles to find a foothold, trades near 1.3150](https://editorial.fxstreet.com/images/Markets/Currencies/Majors/GBPUSD/iStock-157771037_XtraSmall.jpg)
GBP/USD struggles to find a foothold, trades near 1.3150
GBP/USD stays on the back foot and trades in negative territory at around 1.3150 on Friday. The US Dollar holds its ground following the July PCE inflation data and doesn't allow the pair to stage a rebound heading into the weekend.
![Gold retreats toward $2,500 ahead of the weekend](https://editorial.fxstreet.com/images/Markets/Commodities/Metals/Gold/gold-bars-50657756_XtraSmall.jpg)
Gold retreats toward $2,500 ahead of the weekend
Gold stays under modest bearish pressure and declines toward $2,500 in the American session on Friday. The 10-year US Treasury bond yield edges higher toward 3.9% after US PCE inflation data, causing XAU/USD to stretch lower.
![Week ahead – Investors brace for NFP amid Fed rate cut speculation](https://editorial.fxstreet.com/images/Macroeconomics/EconomicIndicator/Employment/NFP/america-back-to-work-gm178972493-25143312_XtraSmall.jpg)
Week ahead – Investors brace for NFP amid Fed rate cut speculation
Here comes another NFP week, with investors eagerly awaiting the results as they try to discern the size and pace of the Fed’s forthcoming rate cuts. The weaker than expected July numbers triggered market turbulence, instilling fears about a potential recession in the US.
![Easing Eurozone inflation to back an ECB rate cut in September](https://editorial.fxstreet.com/images/Macroeconomics/Countries/Europe/Eurozone_countries/Eurozone/eu-flags-flying-at-the-european-commission-building-brussels-belgium-24759579_XtraSmall.jpg)
Easing Eurozone inflation to back an ECB rate cut in September Premium
Eurostat will publish the preliminary estimate of the August Eurozone Harmonized Index of Consumer Prices on Friday, and the anticipated outcome will back up the case for another European Central Bank interest rate cut when policymakers meet in September.
![Moneta Markets review 2024: All you need to know](https://editorial.fxstreet.com/images/IT/Testing/Review/FXSBadgeCertifiedBackg_XtraSmall.png)
Moneta Markets review 2024: All you need to know
VERIFIED In this review, the FXStreet team provides an independent and thorough analysis based on direct testing and real experiences with Moneta Markets – an excellent broker for novice to intermediate forex traders who want to broaden their knowledge base.