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Wall Street plunge! Risk-off sentiment boosted before NFP

Wall Street plunge! Risk-off sentiment was boosted before NFP

04-09-2020 08:33

The big drop of the tech stocks overnight triggered the sell-off momentum of the whole US stock market. Today, Asia-Pacific stocks are generally lower, following the Wall Street’s trend with no surprise.

Overnight, the Dow lost over 800 points, once dropped more than 1000 points, the biggest single-day drop since June 11. The Nasdaq fell by nearly 5%.

There are different interpretations for the market crash. Most of the analysis believe that “overvaluation” would be the main reason. Investors may be doubtful about the sustainability of those high price stocks. On the other hand, before the Non-Farm payrolls on Friday, investors may book the profit, triggering such big move. In addition, negotiations of the new stimulus package between the White House and the Democratic Party have no progress at all, sparking concerns over the lack of fiscal policy.

The dollar was still strong on Thursday. Dollar index hit 93 level as investors are also shifting their expectation over the euro, after the remarks made by ECB’s officials, talking about the exchange rate “does matter”, showing concerns about the upward pressure of the euro. The EUR/USD dropped more than 200 pips, back to 1.18 level from the highest level in more than two years.

ZFX analyst Jacob Leung said that, it may be a profit taking move, unwinding the long position over these weeks, since July. But in the medium terms, it may imply a change of the monetary policy of ECB, as the weak dollar has already drawn the attention among those “policy makers”.

The dollar index is trading around 92.8 level, ups and downs in a narrow range in Asian trading session on Friday, as traders are waiting for the key US job report. The data will show the progress of the economic recovery from the coronavirus pandemic. It is now expecting around 1.4 million jobs adding in August.

ZFX analyst Jacob Leung said that, as mentioned earlier, the performance of the economic data is not directly related to the move of the stock markets. The whole financial market is experiencing a series of correction in different time period, making a loss of correlation between each market.

ZFX analyst Jacob Leung said that, dollar once again showed the logic of “Cash is King” in such risk-off condition, however, while the Fed will keep the rates low for a longer time, or even implement more stimulus, bullish sentiment over greenback remains weak in the medium and long term.

Risk Warning: The above content is for reference only, and does not represent ZFX’s position. ZFX does not assume any form of loss caused by any trading operations carried out in accordance with this article. Please be firm in your thinking and do the corresponding risk control.