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Economic, Political, Geopolitical Events Contribute to Wild Price Swings

By:
James Hyerczyk
Updated: Aug 20, 2017, 10:18 UTC

Last week, the financial markets were rocked by a mixture of economic, political and geopolitical events, often triggered two-sided responses, but most of

Traders Embrace Volatility

Last week, the financial markets were rocked by a mixture of economic, political and geopolitical events, often triggered two-sided responses, but most of all signaling the return of volatility. While some traders attribute the volatility to the aforementioned events, others blame the wild price swings on the trading conditions due to summer vacation.

While it is true that volume is down and many of the major players are on the sidelines, investors still have to pay close attention to the events and the chart patterns because they could be laying the groundwork for future moves once vacations end and trading volume returns to normal levels.

U.S. Equities

U.S. equities finished lower, but above session lows on Friday in reaction to the news that Steve Bannon, one of President Donald Trump’s top advisors, left the administration. The markets may have rebounded from their lows, but it still wasn’t enough to completely erase earlier losses. The major equity indexes also finished lower for a second straight week.

In the cash market, the bench mark S&P 500 Index settled at 2425.55, down 4.46 or -0.18%. The blue chip Dow Jones Industrial Average closed at 21764.51, down 76.22 or -0.35% and the tech-based NASDAQ-100 ended the session at 6217.97, down 3.94, or -0.06%.

Traders said the news of Bannon leaving the administration is a positive for the market because it means that Gary Cohn is staying and if Cohn and McMaster are the ones left advising the president, that’s ultimately market friendly.

Forex

September U.S. Dollar Index futures closed lower on Friday as investors continued to express doubts over President Trump’s ability to accomplish the goals of his economic agenda. These goals include tax reform and increased infrastructure spending.

The USD/JPY dropped to a four-month low in early trading but recaptured some of its earlier losses after White House senior adviser Steve Bannon was fired. Dollar traders liked the news because Bannon was seen as an opposing force to Trump’s chief economic adviser, Gary Cohn, and Treasury Secretary Steve Mnuchin.

Australian and New Zealand Dollar traders also took advantage of the chaos in Washington, driving prices higher due to the widening interest rate differential after U.S. Treasury yields declined.

Gold

December Comex Gold futures surged to its highest level in more than nine months on Friday, driven by a drop in the U.S. Dollar on political uncertainty in Washington and geopolitical concerns in Spain due to suspected terrorist attacks. However, the market gave back most of its gains and closed lower after the dollar recovered and stocks rallied off their lows. Aggressive profit-taking also contributed to the loss.

Crude Oil

Crude oil rose over 3 percent on Friday as investors took advantage of low prices and oversold conditions. Selling pressure dried up early in the session, and sellers began to aggressively cover as the stock market began to stabilize.

There were no major changes in the fundamentals to trigger the rally, but Baker Hughes did announce that U.S. rigs fell by five to 763.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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