Market Moves:

  • GBP/USD had its most volatile (and bearish) week since March, shedding 3.7% with an intraweek low of over 4%. EUR/GBP was the largest mover of the week, rallying 3.9%.
  • US and European equities diverged, with CAC 40 (FR40) and DAX 30 (DE30) paring some of the prior week’s losses whilst the FTSE 100 (UK100) printed a bullish engulfing week.
  • The S&P 500 (US500) closed just beneath February’s high, although the Nasdaq 100 (USTEC) sustained the heaviest losses of -4.6% yet remains significantly above February’s high.
  • The DAX 30 (DE30) closed to its highest level since February’s sell-off and inched its way closer to its 2020 high. How prices react around current levels are key going forward – as it has to decide whether to break to new highs or roll over as part of a bearish wedge formation.

 

Trader FX Positioning

As of Tuesday 8th September:

  • Changes to FX positioning was mostly light last week, with all monitored pairs seeing adjustments of less than 10k contracts.
  • Traders remained bullish on the British pound but, as we warned in last week’s report, Brexit headlines are likely to have seen traders flip to net-short since this report was compiled.
  • Bullish interest in the Mexican Peso rose to a 10-week high.

 

 

United States:
The FOMC meeting on Wednesday is the main event for the week. Markets are pricing in just 4% chance of a rate cut so we doubt the meeting will create large bouts of volatility. But traders will focus on any comments surrounding inflation given the Fed’s new AIT (average inflation targeting) approach and seek any clarity over how this is to be implemented.

Keep an eye on: USD pairs, S&P 500 (US500), Nasdaq 100 (USTEC) DJIA (US30).

China:
On Tuesday China release a slew of data including urban investments, industrial output and retail sales. Seen as a bellwether for global growth, any strength or weakness in this data set will be reflected in risk assets such as equities.

Keep an eye on: China A50 (CN50), Nikkei 225 (JP225), Hang Seng (HK50) and S&P/ASX 200 (AUS200), AUD and JPY pairs.

Europe:
Germany’s ZEW Economic Sentiment index has shot up to 71.5, its highest level since 2004, as “hopes of a speedy recovery” continued to grow. Whilst it is expected to soften slightly to 69.8, it is still highly elevated so would require a large miss to the downside to have a material impact on the DAX or Euro crosses.

Keep an eye on: EUR pairs, EURO STOXX 50 (STOXX50), CAC 40 (FR40) and DAX 30 (DE30).

United Kingdom:
Without wanting to sound like a broken record, Brexit remains the key driver for GBP pairs. We have seen heavy selling of Sterling this past week as fears of a ‘no deal’ were more likely than traders were positioned for. However, this also means that any positive developments over the next few weeks could also see GBP pairs rebound.

The BOE (Bank of England) hold their monetary policy meeting on Thursday. Whilst no immediate change to policy is expected, they may lay the groundwork for further easing in November.

We’ll also keep an eye on Tuesday’s employment report as this could bring forward BOE’s need to further easing if the report is weak enough.

Keep an eye on: GBP pairs and FTSE 100 (UK100).

Japan:
On Tuesday, the LDP (Liberal Democratic Party) vote for their new Prime Minister after Shinzo Abe stepped down due to health reasons. Cabinet Secretary Suga is currently the favourite to take the new title.

BOJ hold their monetary policy meeting on Thursday. Whilst no policy change is expected, BOJ have been known to surprise markets over the years, so that is no reason to let your guard down this time. Keep an eye on the Nikkei 225 (JP225) and JPY pairs.

With Japan being a major export nation, Tuesday’s trade balance data is another bellwether for global growth.

Keep an eye on: JPY pairs, Nikkei 225 (JP225), Hang Seng (HK50) and S&P/ASX 200 (AUS200).

 

Nasdaq 100 (USTEC): Declines Stall at a Pivotal Level

  • In last week’s report we noted a bearish key reversal week at the all-time highs. Prices continued to decline with the week closing on the bullish trendline and near the 23.6% Fibonacci retracement level.
  • Given the depth of the decline to support around 11,140 there is potential for a technical bounce higher. However, if any bounce lacks momentum, it runs the risk of turning into a dead-cat bounce (a bearish setups which assumes further losses).
  • Whilst prices remain above 11,140 support, bulls could target last week’s high around 11,584.11.
  • Bears could seek to fade into such a level to anticipate another round of selling and target the 20-day eMA around 10,540 and the 38.2% Fibonacci level around 10,230.

 

USD/JPY: With Volatility So Low, is It About to Spring Back to Life?

  • Last week’s trading range was around 50 pips. And we can see that price action since June has seen oscillations coil within an ever-tightening triangle formation.
  • At some point volatility will return, so we are on guard for a breakout of the triangle, one way or another. Given the busy calendar for Japan this week, perhaps this could be the week volatility returns and we see a directional break.
  • An upside break of the triangle brings the 107 highs into focus for bulls, whilst a downside breakout brings 105 into focus for bears.

 

EUR/CAD: Bullish Engulfing Suggests Corrective Low is In

  • Last week’s bullish engulfing candle suggests the swing low is in place at 1.5430.
  • To improve reward to risk potential, bulls could wait for a retracement towards 1.5520 and seek bullish setups on lower timeframes. The initial target is near last week’s highs around 1.5650. A break above here then targets the highs around 1.5980.
  • The bullish bias is invalidated with a break beneath 1.5430.

 

CAD/CHF: Bearish Engulfing Week Suggests Corrective High Has Formed

  • A bearish engulfing candle formed on the weekly chart (not pictured) to suggest the swing high is in place around 0.7000. A bearish engulfing candle also formed on the daily chart at this key level.
  • On the daily chart have seen a clear break of the trendline, and prices have found support around the monthly pivot point.
  • Whilst prices have potential to bounce higher from current levels, the bias is for a break to new lows and target 0.6840, near the monthly S1.
  • Bullish setups could be considered above the monthly pivot and target the 38.2% or 50% retracement levels.
  • Bears could wait for evidence of a bearish pattern around the 38.2% or 50% retracement level.

 

NZD/CHF: Potential to Bounce from Support

  • NZD/CHF enjoyed a strong bullish move near the end of August and start of September. Since topping out at 0.6185, price action has retraced against the trend.
  • Support may have been found near the 50% retracement level around 0.6043, and today’s price action has bounced aggressively from this level to mark a potential double bottom.
  • A break above last week’s high at 0.6086 would also break above the 50-day eMA and suggest momentum has realigned with the bullish trend. Bulls could then target swing highs.

 

BRENT: Oil Prices Continue to Look Unstable

  • The market showed its hand with the bearish engulfing candle around 46.50, and we expect to see lower oil prices before they break back above 46.50.
  • Bears could look to fade into (sell into) minor rallies on lower timeframes or wait for a break of last weeks low to assume bearish trend continuation.
  • The Fibonacci levels can be used as bearish targets.
  • If strong bullish momentum is to return, we would remove it from the watchlist and seek bullish setups if it broke above 46.50.

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