U.S. Markets Under Midday Pressure

What started off to be a slow day on Wall Street has turned into a selling frenzy. At the halfway point of the U.S. session, the DJIA DOW (-233), S&P 500 SPX (-28), and NASDAQ (-122) are all in steep intraday downtrends. For the time being, no real market driver is being credited with the move. Although not a full-blown flash crash, one thing is for sure ― momentum algo traders have piled onto the short side of American stocks.

While no single item has driven today’s sell-off, coronavirus fears and statements from FED Vice Chairman Richard Clarida are certainly contributors. Earlier, Clarida spoke in a CNBC Squawk Box interview that has grabbed the attention of traders worldwide. In it, Clarida put forth a few revelations: 

• Clarida cited a Bloomberg survey of economists that largely do not see a FED rate cut this year. In addition, Clarida suggested that a rate cut is not already “priced in” to the markets.
• “Fundamentals in the U.S. are strong.”
• “We [FED] are monitoring the coronavirus outbreak, because China is a huge part of our economy.”

Even though the markets are not hanging on Clarida’s every word, any rate cut talk is certain to be raising eyebrows. Although lagging inflation continues to be a concern, the FED is looking for other ways to combat the issue instead of slashing the Federal Funds Rate.

U.S. Equities Markets Flag, USD/JPY Tapers Early Gains

The past two sessions have been monsters for the USD/JPY. Participation has been heavy, with bidders driving rates to a weekly high north of 112.00.

Bottom Line: Right now, bullish sentiment is dominating this market. In the event that we see a pullback from current levels around 112.00, buying a dip isn’t a bad way to play the action.

As long as the Spike High (112.22) remains valid, I will have buy orders in the queue from just above the 38% Current Wave Retracement at 111.26. With an initial stop loss at 110.89, this trade yields 35 pips on a slightly 1:1 risk vs reward ratio.