FxPro: Closing below 2700 for S&P500 may trigger new selloff

The US dollar is rising, having updated this year highs since the beginning of the year at USDX on the demand growth for safe assets. At the end of the week, the demand for protective assets has increased sharply. The yield on long-term Japan and Germany bonds fell to two-year lows, and the US long-term bonds yield again decreases.

Separately, stock markets are under serious pressure. The Japanese Nikkei lost almost 3% in two days, which knocked him out of the growth corridor since December. Trump’s message that he does not plan a new meeting with the president of China before March 1, that is, before the deadline in trade negotiations, could have become a formal reason. Our fears are confirmed that we should not wait for breakthroughs in the negotiations. This is bad news for markets that are no longer hoping for positive news following the trip of the Treasury Secretary and US Trade Representative to China.

From the side of technical analysis, the markets have come to an interesting point. The S&P500 index turned to decline after approaching the 200-day moving average, which should be considered as a manifestation of market participants’ uncertainty in the future prospects. Reversal of the last two days calls into question the growth trend from the end of the year. If at the end of Friday the index will fail to close above 2,700, we can talk about the return of the tendency to decline. The Japanese Nikkei 225 feels even worse, turning sharply into decline this week.

The dollar index will have to pass its own stability test. Earlier this year, USDX twice turned to decline from around 96.30, where it is now. The first decline was 1.8%, and the second – 1.5%. A smaller second correction looks like a display of dollar bulls confidence. The development of growth above 96.3 will open the way for the dollar index to 97.50 – the peak levels of December, and a breakthrough of this resistance may increase purchases up to levels of 103.7 – the multi-year highs reached in early 2017.

Alexander Kuptsikevich, the FxPro analyst