- US indices close lower for a third consecutive week, although bearish momentum is losing steam.
- Precious metals (gold and silver) failed to break out of their ranges and closed flat for the week.
- The Japanese yen and New Zealand dollar were the strongest currencies among the majors.
- WTI and Brent rallied 10.1% and 8.3% respectively after Saudi Arabia sent a stern warning to oil bears.
Trader FX Positioning:
As of Tuesday 15th September:
- Bullish exposure to the Mexican peso was at its highest level since March.
- Traders flipped to net-long AUD for the first time in 9 weeks.
- Gross bullish exposure for EUR dropped to its lowest level in 2-months, yet bearish interest remains historically low.
- Traders were their most bullish on gold in 2 months.
Flash PMI’s (purhcase managers indices) are released for Australia, France, Germany, Europe and the US. Being leading indicators of growth potential, they will confirm or deny future expectations of a V-shaped recovery. A large deviation from expectations generally provides a more volatile reaction.
The Fed’s Jerome Powell testifies before the Senate banking committee hearing (midnight Thursday in Sydney / 10pm in China). Fed members James Bullard, Charles Evans, Thomas Barkin, Raphael Bostic and John Williams are also scheduled to speak after Powell. Treasury Secretary Steven Mnuchin is also set to speak, which brings the potential for volatility across currency, equity, commodity and bond markets.
After Wednesday’s PMI’s for Europe and Germany are released, the IFO business report is also released on Thursday to give a sneak-peak on future growth potential. Despite a rise on Covid-19 cases, German businesses have an optimistic view of their economic recovery which is underpinning the euro’s strength.
BOE Governor Andrew Bailey speaks at the same time as Jerome Powell. Given their discussion on negative rates at BOE’s last meeting, traders will be on guard for clarity on the potential and timing of negative rates.
Fitch ratings agency will review the UK’s credit rating on Friday, where a downgrade would be expected to be bearish for GBP and the FTSE.
Markets to watch: GBP pairs and FTSE 100 (UK100)
RBNZ hold their cash rate decision on Wednesday. Whilst no change of interest rate is expected, they have become more vocal about negative interest rates in recent weeks. The consensus is for RBNZ to implement negative rates in Q1 2021.
Markets to watch: NZD pairs
CAD/CHF: Waiting for A Break Below 0.6872
- The bearish outside week two weeks ago suggests a swing high is in place around 0.7000.
- Prices have consolidated within a tight range last week, and it remains unclear whether we will see a minor rebound before it breaks lower at this stage.
- Bears could consider fading into rallies around the 38.2% and 50% retracement levels. Or wait for a break below 0.6872 to assume bearish continuation.
EUR/CAD: Waiting for a Break Above 1.5660
- Whilst a breakout is yet to materialise, the bullish bias remains whilst prices remain above 1.5430 support (a bullish engulfing week at this level suggests the swing low is in place).
- A higher low has formed above 1.5520 after breaking a bearish trendline.
- A break above 1.5660 assumes bullish continuation and brings the 1.5980 high into focus.
CHF/JPY: Bears Regain Control
- We noted the potential for prices to roll over below 118 three weeks ago, given the historical significance of this key level. After a couple of weeks of indecision, bearish momentum has finally returned.
- Bias remain bearish beneath last week’s high (116.95). Bears could consider fading into minor rallies below 116.95 and target 110 (round number).
- There is the potential for a correction higher due to support residing around 114.40.
EUR/GBP: Support Found at the 50% Retracement Level
- A morning star reversal pattern (3-bar bullish reversal) has formed at the 50% retracement level to suggest the swing low is in place.
- Bulls could seek to enter long with a break above Friday’s high, or seek to buy dips above Thursday’s low.
- Keep in mind that GBP pairs are vulnerable to Brexit headlines, with any signs of the talk breaking down likely to weaken GBP (and strengthen EUR/GBP). Conversely, if a trade deal is made it could weaken EUR/GBP.
Nasdaq 100 (USTEC): Bearish Momentum Loses Steam
- Lasty week closed with an inverted hammer which suggests bearish momentum is waning.
- Whilst its next directional move remains unclear, the inverted hammer provides caution to bears and suggests we could see a bullish rebound above last week’s low.
- Over the near-term our bias for US indices remains neutral, so trades are preferred on an intraday basis.
ASX 200 (AUS200): Testing The Lows of Its Range
- 6,200 proved to be too tough a resistance level to crack, and the ASX 200 has spent most of its time since the end of May trapped between 5,800 to 6,200.
- Whilst prices remain above 5,800 support, bulls can consider long opportunities to trade the range and target the 6,000 to 6,200 area.
- However a break (or daily close) beneath 5,800 could entice bears to return to the table and push the ASX 200 materially lower.