The big question circulating in investors‘ minds must probably be whether the recent market moves are just a foretaste of a larger downturn or simply a temporary correction.

The answer delves into the reasons for the sudden change in market sentiment. Once the latter is understood, it may become clear whether the same scenario will repeat itself.

Let’s start by saying that a prevailing theory is that investors suddenly fear that the US is headed for a recession, given the continued weakening of the labor market.

Similar news in the past would have sparked optimism by suggesting that the Federal Reserve might tighten monetary policy. But now, fears of a hard landing have surfaced.

However, Monday’s ISM services PMI data, which showed an increase of 2.6 points to 51.4 in July, cast doubt on the worst-case scenario (a deep recession).

Another factor cited by the media was the pullback in technology companies due to downbeat earnings reports and a generally uncertain outlook.

But there could be another element at play: a global margin call.

The trigger was the sudden strengthening of the Japanese yen, driven by the Bank of Japan’s more hawkish stance, which recently raised its interest rate to 0.25%.

In addition, the BOJ pledged to halve its bond purchases, reducing them to about 3 trillion yen ($19.9 billion) by the first quarter of 2026. In other words, goodbye Abenomics…

As a result, USD/JPY fell sharply to 150. It seemed that this was precisely the Bank of Japan’s target. So, how could this move have impacted international markets?

The problem is that investors have long been borrowing in the Japanese yen because of its lower rates, investing in assets in countries with higher rates, and engaging in carry trades.

With the Bank of Japan’s policy change, those borrowed in yen suffered losses, leading global investors to liquidate their positions in foreign assets and buy yen instead.

This led, on the one hand, to a massive sell-off of risky assets and, on the other, to a further strengthening of the yen. In other words, we witnessed a global margin squeeze.

Interestingly, the strengthening of the yen has had very adverse effects on other major markets worldwide in the past. So, such a phenomenon has occurred before.

What is the verdict?

Beyond macroeconomic indicators and geopolitics, investors will now closely monitor the yen. Thus, we can see a more emotional move in the coming days or even weeks.

The big question now is whether the Fed could call an emergency meeting or whether the recent improvement in market confidence will make them hesitate to take urgent action.

This article was written by FL Contributors at www.forexlive.com.

The recent events
in the markets reminded me of a great tip from the legendary investor Stanley
Druckenmiller. For those who don’t know him, he averaged 30.4% return per year
for 30 years with not even a single negative year.

In an interview he
was asked about what made him so successful in the markets and his answer was:

“Having an open mind.
I never get married to a position. I’ve had positions where I was sure I was
going to hold them for 2 years and a week later I didn’t have a position and I
was short. Because conditions change. If conditions change, you have to move immediately.
That was true 20 years ago and it is 10x now with the internet and everything.”

To explain this
concept better, I will use a recent example with the Nasdaq (this is of course hindsight analysis but it’s good for educational purpose).

Last Wednesday, after
a strong selloff caused by the deleveraging of the Yen carry trades, the market
started to bottom out going into the BoJ decision. At one point it looked
like the worst was behind us as the Nasdaq broke through key technical levels
and rallied almost 5% in a single day.

Unfortunately, the following day we got an ugly ISM Manufacturing PMI which
sent the market into risk-off and defensive positioning into the NFP report. The
US Jobs report worsened everything as the data surprised to the downside with
unemployment jumping to a totally unexpected 4.3% rate. The losses extended and
eventually we got a strong overnight selloff yesterday as the Nikkei crashed 12% in
a single day causing a global market rout.

In the bigger picture, there were certainly good reasons to expect a rally last week and eventually even a new
all-time high. But we can see from the chart above that the ISM Manufacturing
PMI was the catalyst for the selloff, and once the price fell back below the key
19400 zone, the bearish momentum increased.

In that case, conditions changed.

This is when you should take countermeasures to protect your capital.

You
could have closed out a long position altogether or you could have reduced your
risk if the conviction in your trade remained strong. In any case, it was the time to adjust and not getting married to your original idea.

This article was written by Giuseppe Dellamotta at www.forexlive.com.

Fundamental
Overview

The weak US NFP report last Friday led to a key breakout in
the USDJPY pair which eventually triggered another deleveraging in the Yen
carry trades. Things got dire yesterday as the Nikkei dropped 12% overnight and
we saw a general selloff in global stock markets.

This led to risk-off flows
and at one point, the markets saw the Fed cutting rates by 136 bps by year-end
and some chances of an emergency rate cut. Although the volatility calmed down
a bit, the markets are still expecting a 50 bps cut by the Fed in September and
a total of 110 bps by year-end.

The NZD got pressured by
the risk-off sentiment but bounced back pretty quickly erasing all the losses
since last Friday. On the monetary policy front, the last RBNZ policy decision weighed on the Kiwi as the central
bank changed slightly its language to a more dovish leaning which increased the
rate cuts expectations.

Tomorrow, we get the New Zealand
Jobs report and if we get weak data, the market will likely increase the
chances of a rate cut at the upcoming meeting which at the moment stands at 35%
probability.

NZDUSD
Technical Analysis – Daily Timeframe

On the daily chart, we can
see that NZDUSD spiked back lower to the April’s lows at 0.5850 yesterday but
eventually erased all the losses. The buyers are clearly stepping in around the
0.5850 level to position for a rally back into the 0.6050 resistance.
The sellers will need the price to break below the 0.5850 level to increase the
bearish bets into the 0.5770 level next.

NZDUSD Technical
Analysis – 4 hour Timeframe

On the 4 hour chart, we can
see that we have a minor resistance zone around the 0.5980 level where the
price got rejected from several times. The buyers will want to see the price breaking
higher to increase the bullish bets into the 0.6050 resistance next. The
sellers, on the other hand, will likely continue to lean on that minor
resistance with a defined risk above it to keep pushing into new lows.

NZDUSD Technical Analysis – 1 hour Timeframe

On the 1 hour chart, we can
see that we have mostly a rangebound price action with the price now trading in
the middle of the two key levels. There’s not much to do here other than
waiting for the breakouts or some catalyst. The red lines define the average daily range for today.

Upcoming
Catalysts

This week is basically empty on the data front. The only notable economic releases
will be the New Zealand Jobs report tomorrow and the US Jobless Claims figures
on Thursday. The market will also pay close attention to Fed members’ comments
given the latest developments in the markets.

This article was written by Giuseppe Dellamotta at www.forexlive.com.

Leading financial service provider, easyMarkets,
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Gold and Nasdaq. Gold prices increased by 20% compared to the same period last
year, attracting significant investor interest.

Predominant
Instruments and Assets

During
Q2 2024, Nasdaq
emerged as the predominant instrument attracting the highest trading volumes
among easyMarkets clients, with a 51% increase. This surge underscores its
continued relevance and appeal in the current market environment.

Main
Market Shifts: Crypto Trading Declines

With
the conclusion of the bull market came a significant 45% decrease in crypto trading volumes
compared to Q1. This shift indicates a strategic realignment by traders in
response to evolving market conditions.

Notable
Spikes and Crashes

In
Q2 2024, several instruments experienced remarkable price movements compared to
the same period last year, with a 125% surge in Cocoa,
a 20% increase in Gold
and a 6% appreciation in USDJPY.

Stable
Sector Activity and Central Bank Impact

Throughout
Q2, trading activity across sectors remained stable. Interest rate
announcements from central banks worldwide created volatility, boosting trading
volumes. However, the interest rate trajectories were largely anticipated,
resulting in no noticeable shift in market sentiment.

Expert Insight: Resilience and Adaptability

Thomas
Tsaloupis, Head of Risk Management at easyMarkets, commented on the quarter’s
performance, stating: „The second quarter of 2024 demonstrated our
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of the crypto bull market, the strategic focus on an instrument like Nasdaq
highlights their ability to adapt and capitalize on prevailing trends. Our
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As
we move into the second half of the year, easyMarkets remains committed to
providing our clients with the tools and insights needed to navigate the
evolving financial landscape successfully.

ABOUT easyMarkets

easyMarkets, founded in 2001, is an
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This article was written by FL Contributors at www.forexlive.com.

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This article was written by FL Contributors at www.forexlive.com.