Stock Market Crash Intensified With DOW Scored Biggest Single Day Point Drop, Yen Firm

Selloff of global stock markets intensified further as DOW scored the largest single day point drop in history overnight. DOW declined -1175.21 points or -4.6% to 24345.75, comparing to 26616 record high made just six trading days ago. S&P 500 closed down -113.19 pts or -4.1% at 2648.94. NASDAQ lost -273.42 pts or -3.78% to 6967.53. 10 year yield hit new 4 year high at 2.862, before closing down -0.60 at 2.794. In Asian markets, Nikkei follows by dropping more than -5.2% at the time of writing. Hong Kong HSI is down -4.3%. In the currency markets, Yen is trading as the strongest major currency for the week, followed by Dollar and then Swiss Franc. Sterling is the biggest loser, followed by Canadian and then Aussie Dollar.

Just released, RBA left interest rate unchanged at 1.50% as widely expected. Aussie has practically no reaction to the release. Also from Australia, retail sales dropped -0.5% mom in December, trade balance indicated AUD -1.36b deficit in December.

DOW in larger correction towards 22351

Technically, DOW powered through key near term cluster support level at 24708.42 cluster support (38.2% retracement of 21731.12 to 26616.71 at 24750.41), as well as 55 day EMA. The development suggests that correction from 26616.71 is at at least one larger degree.

Fall from 26616.71 is probably correction the up trend from 2016 low at 15450.56. If that’s the case, DOW could head to 38.2% retracement of 15450.56 to 26616.71 at 22351.24, which is close to 55 week EMA (now at 22569.93). That’s the point where DOW would realistically get some solid support to form a base.

ECB Draghi: New headwinds have arisen from Euro volatility

ECB President Mario Draghi pledged to the European Parliament yesterday that the central bank will monitor exchange rate movement and the impact on inflation closely. He said that "while our confidence that inflation will converge towards our aim of below, but close to, 2 percent has strengthened, we cannot yet declare victory on this front." And, "new headwinds have arisen from the recent volatility in the exchange rate, whose implications for the medium-term outlook for price stability require close monitoring."

On the economy, Draghi sounded upbeat. He noted "the euro area economy is expanding robustly, with stronger growth rates than previously expected and significantly above potential." And, "these developments bode well for economic growth, as expansions tend to be stronger and more resilient when growth is broad-based."

UK delay of immigration paper criticized

In UK, the government decided to delay the paper regarding post Brexit immigration system and that triggered much criticisms from the business sector. The Deputy Director general of the Confederation of British Industry Josh Hardie said business would be "hugely frustrated" by the postponement. He said that "firms need time to plan for change" and, "It is perfectly possible to be clear on people’s rights to work in the UK, for the transition period at least." And he urged the government to "commit now that people’s rights to work won’t change over the first two years from our date of departure from the EU."

Looking ahead

Germany will release factory orders and Eurozone will release retail PMI in European session. US will release trade balance later in the day. Canada will release trade balance and Ivey PMI.

USD/JPY Daily Outlook

Daily Pivots: (S1) 108.65; (P) 109.46; (R1) 109.94; More…

USD/JPY’s sharp decline and break of 109.22 minor support indicates that rebound from 108.27 has completed at 110.47. More importantly, larger fall from 114.73 is still in progress. Intraday bias is flipped back to the downside for 108.27 first. Break will now likely resume the medium term correction from 118.65. That will send USD/JPY through 107.31 to 106.48 fibonacci level.

In the bigger picture, current development argues that the corrective pattern from 118.65 is extending. There is risk of dropping further to 61.8% retracement of 98.97 to 118.65 at 106.48. But this level should provide strong support to contain downside and bring resumption of rise from 98.97. However, sustained break of 106.48 will now likely send USD/JPY through 98.97 to resume the corrective fall from 125.85 (2015 high).

Economic Indicators Update