- Top officials from China and US reaffirmed their phase one commitments over trade, giving the Antipodean’s (NZD and AUD) the lead and strengthen against JPY and CHF.
- This follows on from a positive session in the US which saw the S&P 500 and Nasdaq print fresh all-time highs.
- Despite new equity highs, US consumer confidence sits at a 6-year low.
- Republicans continued to push Trump for re-election on day two of their convention. It would be more of a surprise if he were not re-elected at this late stage.
- The US dollar index (DXY) remains within its tightest weekly range since November ahead of tomorrow’s Jackson Hole symposium. Yet whilst USD remains under pressure, it still sits at a 6-day high against JPY (Japanese yen) due to a risk-on session overnight.
- No market-moving news scheduled throughout the European of US session.
- With Jackson Hole stealing the limelight this week, volatility may remain subdued ahead of Powell’s speech tomorrow (US time).
- So, take care with USD trades as many key markets sit at inflection points with volatility ‘coiling up’ (and it should be remembered that volatility can break either way).
AUD/JPY: Show Potential for a Bullish Breakout
AUD/JPY has moved up to the July high early Asia and is considering a break above 76.86 resistance. The market has failed to break this level several times since May but wee can see higher lows are forming as part of a potential bullish triangle.
- If successful, the triangle projects a target around 81.20. But given the size of the triangle, it could take a few weeks to reach it.
- An alternative approach for bulls is to use the upper channel as a target.
- If prices break higher, bulls could consider entering on the breakout or waiting to see if a retracement turns prior resistance into support.
- If resistance holds, prices roll over and breaks the lower trendline, then it could make our ‘short’ watchlist.
EUR/JPY: Bullish Range Expansion Reverts to Dominant Trend
It must be said that EUR/JPY has given the run around. Whilst the bullish bias was outlined last week, it initially printed a new corrective low and stopped just shy of our bearish target. And having formed a slightly higher low, bullish momentum has returned with force to take us bac in line with the dominant trend.
Given yesterday’s level of range expansion, we’d prefer to see a period of consolidation or a slight retracement to hold above support before considering new longs.
- Bulls could consider entering on a consolidation, or waiting for a retracement to fid support and target the 126.475 highs (and potentially beyond)
- A quick break below 125.33 places it onto the backburner
- A break beneath 124.3 confirms a trend reversal
USD/CAD: The 200-week eMA could Prove Pivotal
The Loonie has tumbled over 10% in less than 6-months and, with no obvious signs of a trough forming we could see prices lower still. Yet as the decline has stalled at the 200-week eMA, the market has to decide whether to break beneath it or use it as a springboard.
However, the daily chart (and H4 pictured) remains within a strong downtrend. So, if this breaks lower, bears could assume the trend is set to resume.
Prices are ranging between the 1.3135 – 1.3250 region within a solid downtrend, although the 200-week eMA currently sits at 1.3122. So, if USD/CAD breaks out of range higher, it warns of a deeper correction and near-term setups could favour the bull camp.
- A break below the 200-week eMA (1.3122) confirms the bearish range breakout and brings 1.3000 (round number) into focus for bears.
- A break above 1.3272 high switches us to a bullish bias over the near-term and reaffirms the 200-week eMA as support.
Silver (H4): Coiling Up, Breakout Pending?
Volatility oscillates between states of low and high volatility. So, when we see prices ‘coiling up’ like we do on silver and gold, we get excited. However, volatility is non-directional so we have to consider a breakout in either direction.
This is especially the case on gold and silver as no trend is clear, yet the key levels are easier to identify with silver today – which is why we’re monitoring it more closely than gold.
- A break beneath the 25.74 – 26.02 zone confirms a bearish breakout and brings the lows around 24 into focus.
- A break above the descending trendline assumes a bullish breakout and brings the highs around 28.30 into focus.