- The US dollar was the worst performing FX major last week, closing broadly lower against all of its peers.
- The British pound was firmer on the resumption of Brexit talks and spiked above 1.3000 on Wednesday.
- The presidential debate was refreshingly ‘presidential’, thanks to the introduction of the mute button. Yet the debate is unlikely to have changed the minds of many as we head into the last full week before the election.
- Indices were also broadly lower, although European shares led the declines with the DAX 30 (DE30) and EURO STOXX 50 (STOXX50) falling -2% and -1.9% respectively.
- Gold bugs failed to break above 1933 resistance and produced a bearish pinbar, although 1900 continues to support.
Trader FX Positioning (COT Report):
As of Tuesday 20th October:
- Large speculators were close to flipping to net-long on GBP/USD futures. Gross long exposure was increased by 7.8k contracts and gross shorts were reduced by -4.1k contracts.
- Traders were their most bearish on CAD futures in 8 weeks and added 5.5k contracts to their net-bearish exposure
- Despite the threat of negative interest rates by RBNZ, traders increased their bullish exposure on NZD futures to their highest level since June 2018.
Calendar Events This Week (Time are GMT+10 Sydney)
Inflation data on Wednesday could be a high volatility event, given traders are pricing in a rate cut at RBA’s next meeting. By Friday’s close the RBA’s rate tracker suggested an 84% chance of a cut in November.
The data set of most interest to RBA (and therefore traders) is the trimmed mean CPI. As it contracted -0.1% last quarter, another negative print could effectively confirm a rate cut. But as this is already priced in, the more volatile reaction could be if inflation were to surprise to the upside. So if trimmed mean is 0% or higher we could we short covering and a higher AUD as a consequence.
BOC (Bank of Canada) Interest Rate Decision:
No monetary policy change is expected and BOC are now scaling back their emergency measures due to an improvement in economic data.
That this occurs less than a week before the US election could be viewed as a wildcard for last minute voters. Still, advance GDP will effectively confirm if the leading indicators such as flash PMI’s have been correct with their expansive views.
ECB Rate Decision:
We are not expecting further easing from ECB at this meeting, but they may use it to hint at easing in December. And they may want to see how employment, inflation and GDP figures play out on Friday. However, the rise on coronavirus cases and weak economic data do suggest further easing will be required.
BOJ Rate Decision:
There’s no expectation for a change of policy from BOJ but we shall keep in on our radars as BOJ have a long history of surprising markets. They are likely to downgrade their economic assessment yet again though.
AUD/JPY: Slowly Topping Out?
- Momentum has mostly favoured bears since printing a Spinning Top Doji below the 200-week eMA. 5 of the 7 last weeks have also produced bearish candles.
- An elongated bearish candle two weeks ago formed part of a 2-bar reversal to suggest a swing high is in place at 76.52.
- A clear break beneath 73.97 suggests the bearish trend is set to resume.
- Whilst the daily chart (not pictured) shows the potential to bounce from current levels, overall bias remains bearish whilst prices remain below 76.52.
AUD/CHF: Correction Stalls at 10-day eMA
- The original swing trade short below 0.6500 worked out well with both targets being reached.
- Whilst prices have retraced, momentum has slowed to suggest the corrective phase could be nearing completion.
- Friday’s Doji suggests a swing high could be in place. A break beneath Friday’s low (0.6435) suggests bearish continuation and brings the 0.6375 low back into focus.
EUR/USD: Bulls Eye Up the 1.2000 highs
- A bullish trend is forming on the daily chart of EUR/USD
- Friday’s bullish engulfing candle suggests a higher low in in place.
- A break above 1.1880 assumes bullish continuation and brings the 1.2000 high into focus.
USD/CNH: 6.6834 Is Pivotal
- USD/CNH remains within a strong bearish trend on the daily chart.
- A retracement has stalled near the March 2019 lows. A break of Friday’s low (Doji) assumes bearish continuation and that the correction phase has completed.
- A break above Friday’s high (6.6834) suggests a deeper correction, although the trend remains bearish below the 6.6748 high. So, we would continue to look for short opportunities whilst prices remain below 6.7648.
Nikkei 225 (JP225): A Potential Bearish Wedge is Forming
- The weekly chart is showing the Nikkei grinding higher with diminishing momentum and forming a potential bearish wedge.
- Since 2017, the Nikkei has fallen sharply with reversal patterns around 24,000. That the Nikkei it struggling to retest the highs around 24,000 adds to the bearish case.
- We will wait for clear signs that bearish momentum has returned before confirming the wedge reversal. If successful, the pattern projects a target around 21,610.
Copper (XCUUSD): Holding Above Key Support
- The retracement has been deeper than originally anticipated, although prices remain above key support at 309.12.
- Three lower wicks on the H4 chart show that bears have failed to drive it lower, so its possible a basing pattern is being carved out.
- The 50% retracement level is acting as support. The bias remains bullish above the 309.12 and for bulls to re-test and break above the 319.66 high.
- Next major resistance is around 330.
Gold (XAU/USD): A break above 1933 resistance assumes bullish continuation, although a bearish pinbar on the weekly chart warns of a hesitancy to break higher. This may be removed from the watchlist if bullish momentum doesn’t return soon.
Ethereum (ETHUSD): Prices re retracing after stopping just shy of the initial 425 target. Near-term bias remains bullish above the monthly pivot (386) although a longer-term bullish bias above 360 could also be used if targeting 485 and beyond.
Bitcoin (BTCUSD): A 2-bar reversal on the daily chart warns of a potential correction. Although we’d need to see a break below 12,673 support to confirm it.