Volkswagen Vexation and the Euro in Play

September 23, 2015

Volkswagen Vexation:
The major story with market implications overnight has come out of Germany, with Auto conglomerate Volkswagen revealing that 11 million of its diesel cars worldwide are equipped with devices that can cheat pollution tests. With huge political implications and negative publicity adding to the fraudulent claims, this story sent VW stocks tumbling and worldwide indexes along with it.

Volkswagen shares, fell 17% on Monday, followed by another 23% last night. The company’s biggest duel day slump since 2008! The latest drop on the back of news that the company is now warning that it will have to lower its profit outlook.

This scandal has dragged other car manufacturers around the world down with it as investigations are sure to be cast wider now that one has been busted for cheating on its emission tests. Either way, this story is sure to drag out and weigh on the industry for possibly years to come.

The hit was felt across the Atlantic in the US, with stocks continuing to fall away from the 61.8 Fib level that we spoke about on Monday. The impact on markets that Fed tightening would have has also not been forgotten, with renewed interest around October following this week’s Fed speakers adding fuel to the smouldering fire.

Euro in Play:
Staying in Europe, focus tonight will turn to Mario Draghi who is due to testify on monetary policy before the European Parliament’s Economic and Monetary Committee in Brussels.

Markets will be hanging out for any QE related rhetoric and opinions on fair value of the Euro relative to where we sit right now. Just remember that we are still nowhere near lows with Fed on the cards and European growth outlooks not inspiring a whole lot of confidence. Eurozone PMI numbers on the calendar tonight will add to the narrative but the greater risk looks for more falls.

EUR/USD Daily:
Click on chart to see a larger view.

With the deluge of European event risk coming up this session, the Euro will be well and truly in play throughout today. While still sitting in the middle of its newly formed bullish channel, price has come back to re-test a previous swing long and point of interest. A nice solid technical zone to manage your risk around.


On the Calendar Wednesday:
JPY Bank Holiday
CNY Caixin Flash Manufacturing PMI

EUR French Flash Manufacturing PMI
EUR German Flash Manufacturing PMI

CAD Core Retail Sales m/m
EUR ECB President Draghi Speaks


Chart of the Day:
Cheating the ‘Chart of the Day’ name a little today by showing two AUD/USD charts, but the longer time frame is needed for context.

AUD/USD Weekly:
Click on chart to see a larger view.

Using the weekly chart as context for the trend line price is flirting with in the big picture, what I really wanted to highlight is in the daily chart to follow.

AUD/USD Daily:
Click on chart to see a larger view.

After having broken the major weekly trend line, price came back to re-test not only the trend line, but also the short term broken support level. It’s here we get these two beautiful long wicks rejecting price off the level.

Was this the last push up by the AUD/USD bulls to comprehensively break the major weekly trend line?

Dane Williams – @VantageFX

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