Escalation Overflow
Mati Greenspan | Jun 19, 2018 08:25AM ET
Financial markets appear to be reacting to the latest escalation in the trade war between the U.S. and China.
It now appears that the United States may have the upper hand due to the wide trade imbalance between the two nations. Indeed, it would be very difficult for the Chinese to find $200 billion worth of US imports to curtail.
Under the circumstances, I guess you could say that markets are holding up pretty well, as we'll see below. Even though the declines are sizeable, this doesn't come close to the volatility we saw in February.
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Looking at the financial markets today it seems there is a bit of fear creeping in.
The Chinese stock market is down 3% and the Japanese market isn't far behind with losses of 2.5%. Though these are quite substantial movements for any stock index, by putting things in context on the long-term chart we can see that it's not the end of the world.
Please notice how in February, before the whole trade tensions began, the stocks experienced a much sharper sell-off.
On the VIX we can also see that even though volatility spiked yesterday, it's still way below the levels seen in early February.
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What is becoming more pronounced lately is the domination of the US Dollar. The Greenback seems to be rising against just about everything over the last few months.
Here we can see the strength of the British Pound against the Buck since the Brexit referendum in 2016. We're testing a critical level now at 1.3200
Please don't make the mistake of thinking that this has anything do with the recent UK government uncertainty either. No matter the level of pressure Theresa May is under, the fate of the Pound may be more reliant on what happens with the US Dollar than on anything else.
As we can see above, the euro and the pound have both been pretty weak this quarter. To illustrate this further, take a look at the EUR/GBP, which hasn't moved much over the last year.
Digital asset pricing is up 2% to 4% across the board as the market shows exceptional resilience to the FUD.
Bitcoin itself has bounced noticeably above the support of $6,100 per coin and is trading above $6,700 this morning.
Outperforming the market by far is Ethereum Classic, which has seen some remarkable progressions lately in usability and liquidity. ETC is up 8% over the last 24 hours, which is more than any other widely circulating cryptocurrency.
For the first time ever, we can see that Google (NASDAQ:GOOGL) searches for Ethereum have surpassed those of Bitcoin Cash, the other famous hard fork coin.
Most interesting is the search trends in South Korea, where ETC now trumps BTC.
Looking at the long-term graph, we can see that at $15.33 per coin we're well off the lows of $12.50, yet nowhere near the highs seen at the beginning of 2018.
Let's have an amazing day ahead!
@MatiGreenspan
eToro, Senior Market Analyst
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