- It was the best week for the US dollar since March. The USD dollar index broke out of a basing pattern and closed at a 9-week high. Commodity currencies (AUD, CAD, NZD) were also lower with AUD/USD falling to a 2-month low amidst its most bearish week in 6-months.
- With a stronger USD, it was not a good week for precious metals which saw gold (XAU/USD) and silver (XAG/USD) fall -4.6% and -14.6% respectively. WTI and Brent also finished lower but downside was perhaps limited following stern words from Saudi Arabia to deter bears form driving oil prices much lower.
- Whilst the S&P 500 (US500) and DJIA (US30) finished the week slightly lower, bearish momentum has fallen considerably which brings the potential for a bounce higher from a technical perspective. The Nasdaq closed the week % higher.
Trader FX Positioning (COT Report):
As of Tuesday 22nd September:
- Bullish exposure to CHF futures were near their highest levels in nine years. It is no coincidence that SNB reminded traders last week that they are ready to intervene in their exchange rate if safe-haven flows make the franc too strong.
- Large speculators remained net-long AUD futures, adding just 120 contracts to their net exposure. However, subsequent price action after the report was compiled has been bearish, as RBA’s assistant governor effectively told markets to expect a rate cut at their October meeting. So traders may actually be net-short AUD heading into the meeting.
- Traders remain slightly long GBP futures ahead of this week’s Brexit talks, but given gross long and short positions have been rising it suggests traders are hedging their bets, and the GBP could easily break out in either direction depending on whether an a deal is struck.
- Euro bulls remained defiantly long and increased their net-long exposure by +12.3k contracts.
President Trump and Democratic candidate Joe Biden go head to head in their first, televised live debate. Scheduled to start around 11am on Wednesday (Sydney time), it could be a volatile session in Asia with traders placing their bets depending on who they believe is winning the debate. This, in effect makes market price action a real-time indicator for who is ahead. And, as real money on the line, the market response is arguably a better indicator than public polls, where people can quickly change their minds when asked and no money is at stake.
As Trump is considered to be good for the stock market, we may find US indices rally if Trump is perceived to be winning the debate, or fall if Joe Biden gets the upper hand. Trade relations (particularly with China) are likely to be a key talking point, so we’ll be closely watching price action on USD/CNH around this theme and of course USD/JPY as it is sensitive to risk sentiment.
ISM Manufacturing Employment:
Last week we saw that Markit’s manufacturing PMI read continued to expand and was at its fastest rate since February 2019. This week we’ll see the ISM manufacturing report to see if momentum remains or concerns over a second covid-19 wave are finally materialising.
Nonfarm Payroll Report:
The US is expected to add 875k jobs in Friday’s NFP report, although underemployment (those who want to work more hours or have simply given up looking for work) is expected to rise to 15.4%. Average hourly earnings are also expected to fall slightly to 4.6% from 4.7% prior, and the participation rate expected to fall to 61.5% from 61.7%. Headline unemployment is expected to fall slightly to 8.3% from 8.4%. Ultimately traders want to see large deviations away from these forecasts to trigger a more volatile reaction. In particular, fewer jobs added (and in particular a negative print) would likely trigger the largest response and weigh on sentiment.
Brexit Talks in Brussels:
From Tuesday, top trade negotiators for UK and Europe will spend three days at the European Commission’s HQ in Brussels to try and pave the way for a trade deal. Time is running out, and they need to make progress this week before moving on to more intensive talks next week. So failure to make progress this week could result in talks stalling next week which would likely instill lots of volatility for GBP pairs.
Such events are difficult to time as headlines and rumours hit traders screens sporadically throughout the day. This leaves GBP and EUR pairs vulnerable to spikes of volatility this week so should be traded with caution.
AUD/USD: 70c Is the Line in The Sand
- Last week was the most bearish for AUD/USD since March. Had it not been for 70c providing psychological support, perhaps it could have been worse.
- As mentioned in Friday’s report, the Aussie appears oversold on the daily chart so there is potential for a minor bounce higher. However, given the bearishness of last week’s candle, we are now waiting for a break beneath 70c to suggest bearish continuation on the weekly charts.
- Bears can use the Fibonacci retracement tool to measure last week’s range and seek areas of weakness to potentially short into. A more conservative approach is to wait for a break below 70c and target 0.6770.
EUR/USD: Bias remains bearish below 1.1700
- EUR/USD closed to its lowest level in 9-weeks on Friday after slicing through 1.1700 support with ease.
- Given the depth of last week’s bearish candle, we may only see a minor pullback before bears retake control. Bears can therefore consider selling into minor rallies below 1.1700 and target the support zone around 1.1500 (38.2% Fibonacci level and prior highs).
- Long USD/CHF looks equally compelling, but it is basically the same theme (EUR/USD and USD/CHF shares a strong inverted correlation).
EUR/AUD: Rises to Top of Its Range
- EUR/AUD has remained within the 1.6130 to 1.6600 range for the best part of four months. However, prices are consolidating near the top of this range.
- A clear break above 1.6600 suggests a bottom pattern has formed which, if successful, would project a target around 1.7100.
- However, whilst 1.6600 resistance hold, the potential for another leg lower remain. Bears could consider setups beneath last week’s low to trade the range and target the 1.6130 lows.
Nasdaq 100 (USTEC): Showing the Potential to Form a Base
- Last week saw the Nasdaq post its first bullish close in four weeks.
- A small bullish engulfing candle closed back above the 10-week eMA and suggests the swing low is in place at 10673.70
- Bulls could seek long opportunities if prices can break above last week’s high at 11,238. However, given we are approaching the US election, we remain sceptical that it can break to new highs just yet – so we are treating bullish setups with caution and open to the potential for new lows over the next moth or two.
S&P/ASX 200 (AUS200): Trading the Range
- Bears failed to keep control of an initial break down through 5,800 support. Instead a bullish engulfing week formed with a close above key support, resulting in a bear-trap at the lows and putting prices back within the 5,800 – 6,200 range.
- Bulls could consider long opportunities with a break above last week’s high and target the 6,000 – 6,200 area.
- Bears could seek to fade into rallies below key resistance.
Hang Seng (HK50): Worst Week in Six months
- Concerns over a rise in covid-19 cases across Europe and US, and lack of another stimulus package saw HK50 drop to a 17-week low.
- The weekly chart remains in a bearish trend and bears have successfully pushed prices below a correction line.
- A bearish hammer and bearish engulfing week have formed two lower highs, and the hammer respected a 61.8% Fibonacci level.
- Given the daily chart is oversold on RSI (not pictured) there is potential for a technically driven correction. However, bears could look to fade into minor rallies to positioning themselves for another leg lower and seek bearish setups beneath 24,156 resistance.
- A break back above 24,156 invalidates the bearish bias.