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  • Turkish Lira recovers further ground, how markets more concerned  over contagion risks and  an undercurrent of  tightening dollar liquidity offshore.
  • The CBOE Volatility index spiked  to its highest level since June 29.  
  • Oil prices collapsed, sending the energy sector lower.

The CBOE Volatility index rallied on Wednesday, climbing to the highest level in more than a month as the fear of contagion spread throughout  global markets.  North American stocks  were a sea of red following a negative European session and the Dow Jones Industrial Average DJIA dropped 137.51 points, falling 0.5%, to 25,162.41 after losing more than 300 points at one stage to  below the psychological 25,000. The S&P 500 lost 21.59 points, or 0.8%, to close at 2,818.37 while the Nasdaq Composite lost 96.78 points, or 1.2%, to finish at 7,774.12 with large-capitalization technology and internet bleeding heavily.  

However, overall, there are growing  concerns of contagion risks spreading throughout nations with debt exposure to Turkey and indeed emerging market nations while the cross-currents of a stronger dollar ripples through the less developed markets – and the US is not isolated considering the  integration  of global markets and indeed its worsening trade relations with its major partners such as China.  

Hence, the VIX spiked a considerable margin of 25%, or by 3.28 points, to 16.59 making for the index’s biggest one-day percentage gain since June 25. However, it still remains well below its long-term average between 19 and 20 – for the time being at least. Investors are concerned for the deteriorating  relationship between the US and Turkey, (and of other nations), whereby Turkey is refusing to free the US pastor jailed on espionage  charges and retaliated to the US imposing  duties on Turkish aluminum and steel last week by  raising tariffs on a number of American products, in response to those “conscious attacks,” from a tweet  posted by the NATO nation’s vice president – Fuat Oktay.

Meanwhile, WTI dropped to a fresh low of $64.95 and oil futures also fell following  U.S. crude inventories posting an unexpected rise last week – (The S&P 500 energy sector lost 3.5%).

DJIA Technical Outlook (via FXStreet Chief Analyst Valeria Bednarik)

The daily chart for the index shows that it neared its 200 DMA before recovering, while the Momentum indicator remains flat around its 100 level, but the RSI turned south, currently at around 46, all of which leans the scale toward the downside without confirming it. In the 4 hours chart, the index finished below a bearish 20 SMA which extended its decline below the 100 SMA, while technical indicators bounced from near oversold levels, now advancing within negative readings.

Support levels: 25,144 25,088 25,027

Resistance levels: 25,233 25,280 25,338