- Softer manufacturing PMI data from the US and lack of fiscal stimulus on the horizon sent stocks and gold lower again overnight. Fed Chair Jerome Powell reiterated his view that the Fed must continue supporting the economy along with help from the government.
- UK manufacturing PMI beat expectations, although the composite PMI was weighed down by the service sector to suggest the UK’s recovery is flattening out.
- European service PMI barely expanded this month at 50.1 versus 51.9 previously (below 50 denotes industry contraction). With growth potential flattening whilst Covid-19 cases continue to rise it will be a headache for governments and the ECB.
- The Australian dollar was broadly weaker overnight after Westpac forecast the RBA will cut by 15bps at their October meeting, to take their cash rate to a new low of 0.1%. A strong USD and risk-off tone only added to the selling pressure which saw AUD/USD and AUD/JPY plummet to 2-month lows.
- Fed Chair Jerome Powell’s prepared testimony for the Senate hearing has been released, so there’s no room for any surprises when he delivers it tonight.
- No rate change is expected from the SNB (Swiss National Bank).
- Euro pairs and indices (DE30, FR30 and STOXX50) are in focus for the IFO business climate report.
- Initial jobless claims and durable goods warrant a look for USD and US index traders (US500, USTEC, US30).
USD/CHF: Bullish Momentum Gains Traction
- We noted earlier this month that USD/CHF had the potential to mean revert, and it has not disappointed. The series of bullish hammers and stochastic the signal around the monthly pivot suggested a base could be forming and bullish momentum has most definitely returned.
- Now testing 0.9240 resistance, we are either waiting for a breakout or a minor pullback before the trend resumes.
- The bias remains bullish above the monthly S1, although prices may need to consolidate to achieve a better reward to risk entry.
- Next target above 0.9240 is the resistance zone around 0.9350.
NZD/CHF: Probing Key Support
- NZD/CHF is testing key support around 0.6040 with a bearish outside day. Having rejected a long-term bearish trendline and forming a double top pattern, we see potential for a bearish breakout.
- If successful, the double top pattern projects a target just above 0.5900, although a more sensible target would be around the 0.5930 area.
- Bears could consider waiting for a break below support or enter on a lower timeframe during a period of consolidation beneath the breakout level.
EURO STOXX 50 (STOXX50): Potential Rounding Top Pattern
- A bearish outside day closed right on key support at 3145 (also just below the Monthly S1 pivot point.
- A 4-month rounding top pattern has also formed. A clear break beneath 3145 confirms the pattern which, if successful, projects an approximate target around 2850.
- Bears can consider entering a breakout or waiting for a period of consolidation below 3145 on a lower timeframe.
- Interim targets could also include the Monthly S2 and S3 pivots.
US30: Prices pulled back almost perfectly into the resistance zone highlighted yesterday before moving sharply lower. The bias remains bearish below yesterday’s high around 27,600 with bears likely to be targeting 26,000.
GBP/CAD: Bias remains bearish beneath the bearish resistance zone highlighted yesterday. However, bullish momentum was stronger than we’d have liked yesterday, so is close to being removed from the watchlist if it continues to break higher.
EUR/JPY: The tight consolidation continues. We will continue to monitor for a breakout from compression, whichever way that may be.
Nasdaq 100 (USTEC): Removed from watchlist. A bearish engulfing candle invalidates the original breakout above the bullish hammer originally highlighted.
EUR/GBP: Removed form watchlist. Bullish momentum failed to fully materialise before yesterday’s bearish candle.