FX Large Speculative Positioning (as of Tuesday 25th August):
- Traders were their most bullish on EUR on record. Whilst this warns of a sentiment extreme, it does not provide guidance on timing. Yes, at some point this will correct but we need price action to confirm beforehand.
- NZD traders are their most bullish since June 2018, yet their net-bullish exposure is far from a sentiment extreme.
- Traders of GBP futures are net-long for a 2nd consecutive week. Yet with Brexit talks set to resume, headline risks prevail so we’re not going to bet the house on further gains and we could see this revert to net-short in due course.
- Whilst demand for safe havens (CHF and JPY) remain in place, gross longs for CHF were trimmed slightly and open interest also declined.
Last week was effectively a one-way bet against the USD following Jerome Powell’s confirmation that the Fed will shift to an average inflation target model. The Japanese yen and Australian dollar were the main beneficiaries of the dollar’s decline whilst the New Zealand dollar and Swiss franc closed the week marginally higher against the greenback.
Monday 31st August:
The Fed’s Vice-Chair Richard Clarida speaks at 11pm (sydney). Given the importance of the Fed’s change of monetary policy framework last week at the Jackson Hole symposium, traders will keep a close eye on Clarida’s comments to hear if he elaborates on exactly how the average inflation target will work and just how far above % the Fed are willing to let inflation rise. USD pairs, precious metals and US indices are in focus for this one.
Tuesday 1st September:
AU RBA Cash Rate: No rate change is expected but, with an increasingly strong Aussie dollar, we’re waiting to hear if and when RBA begin to jawbone their currency. They have ruled out negative rates (but never say never) and 0.25% may well be the floor, and there is practically no chance of a hike in the current environment. So this may well turn out to be a non-event, but that’s no reason to not have it on the radar in case it turns out to be one after all.
Wednesday 2nd September:
Fed member Loretta Mester speaks on monetary policy and the US outlook at 2:00am on Wednesday (Sydney).
AU Q2 GDP: The Reuters poll expects Q2 GDP to contract -6% QoQ. Under the circumstances, that is not too bad at all. We doubt this will be a high volatility event, but anything less than -6% could benefit the surging AUD.
US ISM Manufacturing: This is the most established leading indicator for US (and global) growth so is widely watched by traders. At 54.2 it is back into expansive territory (over 50 is expansion, below is contraction) with new orders, production, employment and new orders all picking up in July. However, given this is a diffusion survey, it effectively behaves like a ROC (rate of change). And as it fell to record lows due to lockdowns and couldn’t get much worse, anything less than ‘not terrible’ is logged as an improvement. So we’ll take a close look on Wednesday to see if the US economy really is within a V-shaped recovery. Or not…
The Fed’s Brainard speaks at 03:00 (Sydney) on the economic outlook and monetary policy. Again, given the shift in the Fed’s policy, traders will want to hear further details on how it will be implemented, making it an important event for global markets.
Keep an eye on: USD, US indices (particularly Dow Jones), gold, oil
Thursday 3rd September:
US Initial Jobless Claim: There has only be one week since March where initial claims were below 1 million. The current forecast is 980k and could see a revision of the NFP forecasts if the actual number deviates too far from this estimate.
Friday 4th September:
Fed member Charles Evans speaks on the current conditions of the US economy and monetary policy at 03:00 (Sydney).
US Nonfarm Payroll: Whilst the weekly jobless claims have been more of a key focus due to Covid-19, the NFP report provides a more detailed monthly snapshot of US employment. The unemployment rate is expected to decline to 9.8% from 10.2% so anything above this figure would be a disappointment. Whilst 1.4 million jobs are expected to be added, it also needs to be taken in context with the initial claims report which is also expected to be around the 1 million mark.
CA Employment: With US and Canada releasing employment data simultaneously, USD/CAD is clearly an FX pair to watch. For a more decisive move we’d want to see a divergence between the two reports, whether it be stronger than expected employment for Canada with weaker US, or visa versa.
USD/JPY – 105 Is the Line in the Sand
A second consecutive bearish week tested, yet failed to break beneath, 105. It remains an important level this week and prices are treading water just above it. Whilst it continues to hold as support, bulls can consider bullish opportunities around the lows and trade the range, or bears can seek bearish setups if it finally breaks – by either trading the breakout or waiting to see if 105 holds as resistance.
AUD/USD Continues to Defy Gravity
The Aussie made minced meat out of the exhaustion candles highlighted last week. After breaking firmly above 73c, resistance has been found just below 74c near the October 2018 high, and we suspect prices may consolidate or correct from this level. This could provide counter-trend traders shorting opportunities below 74c resistance over the near-term, with 73c as a target.
With the trend remaining firmly bullish, we’d be looking for 73c to hold as support for potential bullish setups on the daily chart.
USD/NOK Probes Key Support
The dollar has depreciated over 27% since the March high, and the trend suggests further losses could still materialise. Whilst we didn’t quite see a bearish engulfing week, it closed near the lows at key support and prices are testing the 8.7612 lows at the tie of writing. Technically we could see a minor bounce from current levels but we favour an eventual downside break and for it to target the 8.4650 low in due course. Keep in mind that, due to interest rate differentials, short positions incur a negative swap.
AUD/JPY Breaks Out in Style
The forex market’s barometer of risk closed decisively above resistance to confirm a breakout from compression. The initial target of 77.92 has been hit and prices have paused for breath. If successful, the ascending triangle projects a target around 81.20 but bulls can also use the bullish channel as a dynamic target. We remain bullish above 76.86 and will seek bullish setups above this pivotal level.
CHF/JPY Struggling to Break 118
We continue to monitor CHF/JPY out of curiosity to see if it will finally break above 118, or simply roll over like it has done previously. The last two weeks have produced a bearish hammer and bearish inside week beneath this key level, and we’d consider a break below 115.50 as a signal that the market has topped out. What it would also suggest is that the Japanese yen would be the favoured safe-haven currency during bouts of risk-off.
EUR/CAD Tries to Carve Out a Base
The decline from the 1.5980 high appears to be corrective, and last week’s bullish engulfing candle and prior long-legged doji suggest it trying to carve out a base. Given it also respected a bullish trendline, we’re now waiting to see if bullish momentum returns and break the retracement line to signal further gains.
Gold Finds Support above 1910
Volatility has subsided and a small bullish candle has found support at 1910 to suggest the corrective low is in place. The trend is clearly bullish and the 10 and 20-day eMA’s continue to point higher. Whilst a break below 1920 suggests a deeper correction, we remain firmly bullish on the precious metal.
China A50 Eyes Up 2020 Highs
A series of higher lows occurred below 15,836 resistance to suggest demand was in place ahead of today’s breakout. Friday’s bullish candle closed just beneath resistance and today has seen the market break higher. The bias is for a re-test and break of the 16,432 highs, whilst prices hold above the 15,261 swing low.