- A positive start to the week for US equities was driven by merger and acquisition activity, news that Oracle may partner up with China’s ByteDance to buy TikTok and the resumption of Covid-19 vaccine trials.
- The Nasdaq-100 rose 1.7%, the S&P 500 rose 1.3% and the Dow Jones rose 1.2%. The VIX (volatility index) closed to its lowest level in 6-sessions.
- The US dollar index (DXY) was slightly weaker and lost the most ground to the Japanese yen, seeing USD/JPY -0.4% lower. The yen was stronger on the appointment of Yoshihide Suga as Japan’s new PM.
- Overall, volatility remained contained with daily ranges of most major markets we track remaining below their ATR (average true range).
- China’s retail sales, industrial output and urban investment reports are the main economic events today in today’s Asia session. Positive numbers here could support riskier assets such as indices, AUD/JPY and NZD/JPY.
- UK employment warrants a look for GBP and FTSE traders. However, the furlough scheme which is to continue until 31st of October is effectively supporting the unemployment rate. Still, if we are to see weaker than expected job growth (forecast at -125k) then its could be another reason for bears to sell short the British pound.
- Germany’s ZEW economic data far exceeded expectations last month, so it is not unreasonable to expect the headline figure to soften. So we may need to see a particularly bad number for it to materially weaken the euro or the DAX 30 (DE30) .
USD/CNH: Bearish Breakout from Consolidation
- The Chinese yuan has continued to strengthen whilst the USD has broadly weakened, which has provided a very strong bearish trend on USD/CNH.
- A tight consolidation area has retraced into the 10-day eMA before moving to fresh lows, which suggests momentum has realigned with the bearish trend.
- The bias remains bearish below the 6.8550 highs. Bears could seek to fade into (sell) pullbacks to increase reward to risk potential or enter during a consolidation period of a lower timeframe.
- The initial target is the gap-support around 6.7600, and a break above the 0.68550 high invalidates the bearish bias.
USD/JPY: The Market May Have Tipped Its Hand
- In yesterday’s report we suggested that volatility for USD/JPY may rise this week, given its unnaturally tight trading range and busy calendar.
- Yesterday’s bearish candle suggests the bears are back in control and could target the lows around the 105 support zone.
- Bears could consider fading into intraday rallies towards 106 (lows of the tight congestion zone) or enter short on a consolidation of an intraday timeframe.
- A break above 106.30 invalidates the bearish bias.
Gold (XAU/USD): Bullish Outside Day
- Whilst price action was messy on Thursday and Friday, yesterday’s bullish engulfing candle above 1940 suggests bulls are regaining control.
- We are now waiting for a break of the sloping resistance line to suggest bullish continuation on the daily chart and target the 2016 and 2047 highs.
- A break beneath 1936.89 (yesterday’s low) invalidates the near-term bullish bias, but we will continue for look for long opportunities whilst prices hold above the 1900 lows.
CHF/JPY: Bias remains bearish below 118. A break below Thursday’s bearish hammer at 116.20 would be constructive.
Brent: Waiting for a break below 39.50 – although we may see prices retrace higher first.
CAD/CHF: Waiting for retracement higher to fade into.
EUR/CAD: Dip buyers may be interested in a retracement towards 1.5520. Breakout traders could consider a break above (1.5660) and target the highs around 1.5430.
NZD/CHF: Bias remains bullish above 0.6043.
AUD/NZD: Removed from watchlist, as price broke beneath the 1.0875 low.