US indices posted sharp declines on Thursday to reverse early session gains as President Trump dealt markets a mighty blow with his plan to impose new tariffs on China. The news suggests that trade negotiations haven’t been constructive and the trade war should extend. This would mark a period of risk off sentiment for US markets as uncertainty hangs over US-China trade relations and future monetary policy. In terms of data, there wasn’t much support as the US manufacturing PMI figure slipped to 51.2 in July while jobless claims rose slightly above expectations. Today the US releases factory orders data and its monthly jobs report which includes the non-farm payroll report, unemployment rate and wages growth. The data is likely to have a strong influence on the day as positive figures would lessen the likelihood of further monetary policy easing and may weigh on US equities.
The Dow index took a beating that dragged it 1.05% lower on Thursday as its attempt to recover was short lasted. The price retraced to the 20-period MA to a high of 27140 before it plunged to a low of 26506 and ended at 26583. Today, look to the 50-day MA at 26500 to be tested as an area of support as it separates the Dow from further declines towards the 100-day MA at 26270. Failure to hold above 26500 should lead price towards the lower support at 26420 followed by 26360. Meanwhile, look for a sustained move above 26600 to indicate upside potential with the next target resistance at 26685.
Resistance: 26600/ 26680