WEEKLY MARKET ROUNDUP: 25th August 2020
FX Large Speculative Positioning (as of Tuesday 18th August):
- Traders were their most bearish on the Canadian dollar (CAD) in 14 months
- Net exposure on GBP futures were flipped to net-long, for the first time in over 3-months
- NZD trades flipped to net-long exposure. However, this may have been short lived after RBNZ suggested they will be ‘ready’ to implement negative interest rates early in 2021
- Demand for safe-haven currencies (CHF and JPY) remained in demand with net-long exposure for the 24th and 25th consecutive weeks respectively. However, gross-long exposure was trimmed slightly for both currencies.
- The USD dollar index (DXY) closed the week higher for the first time in 8 weeks, at just +0.16%. Still, it produced a bullish hammer candle near the lower Bollinger Band to suggest the dollar could be nearing an inflection point and potential retracements against its bearish moves seen this year.
- The Canadian dollar (CAD) and Japanese yen (JPY) were the only currencies to trade higher against USD, and AUD and EUR were the weakest performers among FX majors.
Tuesday 25th August:
Germany Q2 GDP: Europe’s power horse slumped into recession in Q1 at -10.1% QoQ. We don’t expect them to rebound any time soon, but by international ‘Covid’ standards, -10% doesn’t see so bad all of a sudden. Also keep an eye on the Ifo business report as this will provide a sneak peak into sentiment and potential growth in the face of a wave 2. Also keep an eye on Covid headlines from Europe as cases are indeed beginning to pick up once more.
Wednesday 26th August:
US Home Sales: Low interest rates and an urge for people to flee covid-related hotspots saw home sales surge over 13%. Whilst its one of the brighter spots of the economy right now, its questionable as to how much longer it can surge given the economic backdrop and high unemployment.
Thursday 27th August
US Initial Jobless Claims: In the fast-paced world of lockdowns and Covid, jobless claims is the new NFP. With new claims back above 1 million per week, the outlook is not looking too rosey for the US economy overall.
Jackson Hole (virtual) Symposium: For the first time in in nearly 40 years, Central Bankers won’t get to meet at the famous retreat. The main focus of the event will be discussions from Fed members and whether they change their policy framework to allow for an ‘average inflation’ regime over the current fixed inflation rate set at 2% target. We may find volatility to be low leading into this event.
Friday 28th August
Canada Q2 GDP: Its highly likely Canada will record a technical recession on Friday (two consecutive quarters of negative GDP). A Reuters poll suggests it may at an annualised rate of -40%, so anything above this monstrous number might even be seen as a positive for CAD. But not by much.
USD/CHF: Strong support around 0.9000
Markets rarely move in straight lines although the dollar’s decline has tried to do that in recent weeks. The Swiss France finally printed a bullish weekly candle following 8 consecutive weeks of bearish ones, and we suspect the market is trying to form a base.
Strong support resides around 0.9000 (psychological round number) but the monthly S1 pivot is just beneath here too.
Whilst we’re not outright bullish on this pair, it may be suited to range trading strategies such as seeking bullish opportunities above 0.9000 or bearish setups below resistance around 0.9230 / 0.9250
GBP/USD: Falters at 1.3200
Cable is another FX major with a weekly reversal pattern. A bearish pinbar saw GBP/USD close firmly below 1.3200 and beneath the 200-week eMA to suggest exhaustion at the highs.
However, we’d want to see a break beneath 1.2979 support before assuming a deeper correction which brings the 1.2686 – 1.2766 support zone into focus.
ASX 200 (AUS200): 6200 Is Pivotal
The weekly chart shows there have been four failed attempts to crack the 6,200 level. Not only is this a psychological round number but it also lands near the 61.8% retracement from the March lows to the February highs. Of the four attempts, two were over the past two weeks which comprised over a bearish hammer and doji. And the highest close was last week at 6,100.24.
Ultimately, until momentum break or close above 6,200, bears are likely to fade rallies into resistance. It also means we are likely to find some large stops above this level so, if the levels does finally break to the upside, large stops could be triggered to add bullish fuel to the fire. So, we’ll be keeping a close eye to the 6,200 level as the bias is bearish beneath it and bullish above it.
- Near-term bias is bearish below 6,200
- A break beneath last week’s low brings 5,881.64 into focus
- A break below 5,881.64 assumes correction form the March lows is complete
- A break above 6,200 switches us to a bullish bias
AUD/USD: Stalled At the 200-week eMA
The rebound of AUD/USD has been nothing short of epic since it printed its lowest price since 2002 in March around 55c. Having rallied over 32% in just 22 weeks, a pause in trend is no major surprise. Although we are also on the lookout for a potential retracement.
The past four weeks have presented signs of exhaustion around the 200-week eMA. However, we wouldn’t want to turn too bearish until we see a clear break beneath 0.7083 (or perhaps 0.7000).
This could make AUD/USD more suited to range trading over the near-term (where bears sell below resistance and bulls seek to buy around support).
AUD/USD shares a strong correlation with the S&P 500 (US500) so we would not turn too bearish on AUD/USD until US500 stops printing new highs.
AUD/NZD: Signs of Exhaustion at 1.10
We can see on the weekly chart that 1.10 has proven to be a pivotal level previously. And last week’s bearish pinbar back below this level underscores the importance of this level.
- If bearish momentum returns, traders can use the Fibonacci retracement levels to seek areas of potential support (and use as bearish targets).
- We wait to see if prices break beneath last week’s lows to suggest a correction is finally underway.
CHF/JPY: The Battle of Two Safe-Havens
It can be useful to monitor CHF/JPY as it can suggest which is the stronger safe-haven of the two to trade during times of uncertainty. Since June, CHF has had the upper hand over JPY but this may be about to change.
A two-bar reversal has occurred at a historical resistance area. We can see in July 2017, February 2018 and September 2018 that two-bar reveals around 118 have resulted in a sell-off from the highs.
- Bears can look for a break beneath 115.50 to suggest a deeper pullback is underway
- A break or close above 118 assumes bullish continuation