FX Large Speculative Positioning (as of Tuesday 1st September):

  • Traders trimmed their record-long exposure to the Euro by -15k contracts. However, as traders remain so heavily long EUR futures it continues to suggest it is a crowded trade and we could be approaching a sentiment extreme (which could be USD bullish).
  • Long exposure to NZD is at its most bullish level since May 2018, yet with no immediate evidence of a sentiment extreme, it leaves the potential for further upside during periods of risk-on.
  • Traders remained net-long on GBP futures for a third week, yet with Brexit headlines likely to dominate over the next week or two, there is potential for traders to flip to net-short.
  • Demand for the Japanese yen remained in place, which is a trend that is likely to if Indices have indeed topped out.

 

  • The one-way bet against the USD completely reversed last week, which saw the dollar rise against all major currencies.
  • The USD gained the most ground against the Australian dollar which saw AUD/USD down nearly 2% at the low of the week.
  • The US dollar index (DXY) produced a bullish piecing line pattern at the lows to suggest it could now be forming a base.
  • As for indices, the Nasdaq 100 fell over 4% and was the largest mover among the 11 stock market indices we track. The Dow Jones (US30) fell -3.4% whilst the ASX200 (AUS200) declined -2.2%.

 

On Friday, US Fed Chair Jerome Powell said that US interest rates are to remain low for “however long it takes” to help the economic recovery. In the Nonfarm payrolls (NFP) report, slightly fewer jobs were added than expected (1,371 actual versus 1,400 forecast) although the unemployment rate fell to 8.4%, beating forecasts of 9.8% ad down from 10.2% prior.

No-Deal Brexit: There are growing concerns that the UK could have no deal with EU, so GBP pairs are vulnerable to lots of headline risks over the next couple of weeks.

Japan’s GDP: GDP is expected to be revised lower from -7.8% to -8.1% QoQ, due to capital expenditures falling -3.1%. In a separate report, household spending is also expected to fall further than originally estimated.

BOC Cash Rate Meeting: The Bank of Canada slashed their interest rate from 1.75% to 0.25% in March, where it has remained since. At the time they stated they were willing to ease further if need be, although in July’s MPR (monetary policy report) they expressed their expectation for the economy to rebound sharply. Still, whilst there is no expectation to change rates this week, traders will keep a close eye on their statement to see if they are on track for a rebound or veering towards further easing in future.

ECB Monetary Policy Decision: Many are wondering when the surging Euro will negatively impact Europe’s economic recovery and, more to the point, when ECB will start discussing it. Last week the ECB’s Chief Economist stated that, whilst ECB do not target the exchanger rate through policy, the exchange rate does matter. Traders will be keeping an eye on any updates to ECB’s staff forecasts on Thursday’s meeting and any comments from ECB members regarding the exchange rate, at any point.

Initial Jobless Claims: Claims fell below 1 million last week which is an encouraging sign when coupled with unemployment also falling more than expected in Friday’s NFP report. However, initial claims need to fall drastically before we can celebrate a full recovery for the US.

USD/CHF Shows Potential to Mean Revert

  • Last week produced a bullish engulfing candle above key support (0.9000) and enjoyed its most bullish week in 4-months.
  • Given the bullish doji and engulfing candles, the bias is for a counter-trend rally towards the 0.9230 highs.
  • However, as this is against the trend, we may see lots of overlaps between the candles and price action could get messy on lower timeframes.

AUD/USD Pulls Back to Support

  • We can see on the weekly chart that the 200-week eMA held as support, despite last week’s sell-off.
  • As AUD/USD shares a very strong correlation with the S&P 500 (US500), traders should also keep a close eye on this market if trading the Australian dollar.
  • A break below 72c would see it below the 200-week eMA and we would flip to a short bias.

  • On the daily chart we can see that a bullish hammer closed above the 20-day eMA and bullish trendline.
  • A break above Friday’s high could entice further buying from bulls, with the potential to re-test the highs around 74c.

AUD/JPY: Resistance has Turned into Support

  • The sell-off in equities weighed on AUD/JPY, which is an excellent barometer of risk for forex.
  • A spinning top doji formed at the highs and found resistance at the 200-week eMA.
  • Whilst the bias remains bullish above 76.86, we suggest traders do not ‘outstay their welcome’ on this pair and to focus on lower timeframes and shorter holding times.

  • On the daily chart, the retracement found support around 76.86 and formed a bullish hammer on Friday to warn of near-term strength.
  • Bulls could target the highs around 78.45.
  • Keep a close eye on equity markets to see if they can rebound from current lows to help AUD/JPY trade higher.

Nasdaq 100: Key Reversal at the All-Time Highs

  • A key reversal is a large bar of high volume, which can signify a turning point in the market. Given last week’s trade was both a bearish engulfing (candle body engulfs prior candle body) and bearish outside week (the range is wider than the prior week) then bears have plenty to be excited about.
  • Friday’s decline stopped just shy of the 23.6% Fibonacci ratio outlined in Friday’s report and there is the potential to bounce from current levels on lower timeframes.
  • It is not unusual to see prices remain trapped inside the range of an engulfing candle initially, whilst the market regains its footing. So, whilst prices remain above last week’s low, range-trading strategies could be considered on the daily timeframe.

Gold (XAU/USD): 1900 is the Line in the Sand

  • A bearish engulfing candle has formed on the weekly chart, which invalidated our bullish bias with the original break above 1977.92.
  • Whilst it shows the potential to move lower, 1900 could be a strong support level – so we’d only turn bearish with a break beneath 1900.

  • On the daily chart we can see that prices are coiling within a triangle pattern. Typically they tend to breakout in the direction of the dominant trend, but we’d want to see a break above last week’s high before assuming trend continuation.
  • there are several “buying wicks” above 1900 (lower shadows) to suggest demand around this level. The 50-day eMA also resides around 1900, and 1900 is a psychological round number.
  • Range traders could consider entering long above 1900, and bears are more likely to return with a break beneath 1900.
  • If USD does rebound from its lows it could weigh further on gold, so keep an eye on USD performance alongside gold.

 

Oil Slips From its Highs:

  • Two bearish engulfing candles show strong selling pressure on both Brent and WTI.
  • Wednesday’s bearish engulfing candle broke the bullish trendline and Friday’s engulfing candle took Brent swiftly lower to the support zone around 41.43/95.
  • Whilst the bias remains bearish and for an eventual break of key support, there is potential for a corrective bounce from current levels.
  • This could allow bulls to trade the range up to resistance, or bearish to wait for a rally and signs of a bearish reversal below the 44.08/70 resistance zone.

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