Global market sentiments stabilized after steep early selloff. DOW initially dived to 23778.74 but rebounded to close up 567.02 pts or 2.33% at 24912.77. S&P 500 recovered 46.2 pts or 1.74% to 2695.14. NASDAQ also regained 148.35 pts or 2.13% to 7115.88. Asian markets followed with Nikkei trading up 660 pts or 3% at the time of writing. In the currency markets, Yen remains the strongest one for the week so far despite paring back some gains. Yen is followed by Kiwi and Dollar. Meanwhile, European majors remain the weakest, with Sterling leading the way down.
If our view is right that DOW's fall from 26616.71 is correcting the whole up trend from 15450.56, then the decline is far from finished. 38.2% retracement of 15450.56 to 26616.71 at 22351.24 is the first target. Whether this bearish case will realize will depend on the strength and duration of the current rebound. Reactions to 25197.72/25532.60 fibonacci resistance zone will be crucial. The 55 hour EMA also lies inside this zone. For the moment, we don't expect a clean break of this zone and DOW would likely revisit 23778.74 low soon.
EU toughens up Brexit transition demand
According to a draft document, the European Commission might ask UK to pay a higher Brexit bill than agreed last year. There would be demand to "cover the financing, during the transition period, of the relevant Common Foreign and Security Policy and Common Security and Defense Policy agencies or operations on the basis of the same contribution key as before the withdrawal date". The most important thing is that, during the transition period, UK will have no say in EU decisions.
In addition, UK "shall abstain, during the transition period, from any action or initiative which is likely to be prejudicial to the [European] Union's interests in the framework of any international organization, agency, conference or forum of which the United Kingdom is a party in its own right."
New Zealand job data won't change RBNZ neutral stance
New Zealand employment rose 0.5% qoq in Q4, slowed from Q3's 2.2% qoq but beat expectation of 0.4% qoq. Unemployment rate dropped to 4.5%, down from 4.6% and was better than expectation of 4.7%. The unemployment rate was also the lowest in 9 years since 2008. The news is certainly welcomed by RBNZ ahead of the rate decision on Thursday. Nonetheless, no one is expecting any change to the 1.75% official cash rate. There is indeed a risk that RBNZ would try to talk down the exchange rate after recent appreciations.
Technically, NZD/USD should have topped out in near term at 0.7435 after breaching 0.7432 resistance. Deeper pull back would likely be seen back to 55 day EMA (now at 0.7172). Sustained break there will pave the way to retest 0.6779 low. On the upside, in case of another rise, there is likely strong resistance in zone of 0.7432/7557, to limit any rally attempt. Overall, medium term range trading is expected to continue inside 0.6779/7557 for a while.
Looking ahead
The economic calendar is light today. German industrial production and Swiss foreign currency reserves will be released in European session. Canada will release building permits later in the day.