- It was a solid week for equities with US indices which closed at a 5-week high.
- Major currencies were broadly higher against the US dollar, with Canada’s stronger-than-expected employment figures pushing USD/CAD down by -1.4% and being the largest mover of the week among its peers.
- USD/CAD and USD/CHF were the only majors to exceed their ATR (average true range) for the week.
- Gold closed firmly above 1900 resistance to show bulls are back in control. Silver is back above $25 and rallied 6% for the week, taking advantage of the weaker dollar.
Trader FX Positioning (COT Report):
As of Tuesday 6th October:
- Traders were net long Euro futures for a 30th consecutive week, although net-long exposure was trimmed by -13.8k contracts.
- Outside of the Euro, only minor changes were made to positioning among FX majors last week.
- Net-long exposure to the JPY futures declined for a 2nd consecutive week to show slowing demand for the safe haven currency.
- Bullish exposure to the Mexican peso increased by +8.7k contracts, with traders now being net-long on the currency for 17 consecutive weeks.
Calendar Events This Week:
ECB’s President Christine Lagarde Speech:
At the end of September, Lagarde hinted that ECB may follow the Fed and shift to an AIT (average inflation target), so we are keen to see if there is any further clarity about this issue later tonight.
Joe Biden is scheduled on the 16th to do the virtual Presidential Debate by himself, after Trump refused to take part. Still, it is not like Trump to share the limelight so do not be surprised if he instead holds an extended press conference to rebuff all of Biden’s points, after this event. He knows the world is watching and that the media will cover it.
Australian Employment Report:
August’s job creation of 111k blew past expectations, although now expected to fall by around -35k and unemployment is forecast to rise to 7.1%. If a weaker employment report fails to materialise again, then it could add further fuel to a bullish AUD. Still, the actual employment figures likely to remain skewed due to the jobkeeper stimulus package, which has now been extended until March.
RBA’s Governor Speaks:
Markets had originally forecast RBA to cut rates in October, but given the government were to release their budget later that evening, these expectations have been put back to November. So expect Philip Lowe’s speech on Thursday to receive close attention. In recent years the RBA have effectively confirmed their rate cuts in public speeches or newspaper columns, not their cash rate statements.
With markets pricing in a potential rate cut in November, his speech could materially change these expectations, in either direction and send AUD higher or lower accordingly. Dovish comments (suggesting rate cut) could be bullish for the ASX 200 and bearish for AUD. Hawkish comments (by not suggest a rate cut) could be bearish for ASX 200 and bullish for AUD.
Chinese Trade Balance data:
September’s trade figures for China will reveal if exports have maintained their momentum during the post-Covid recovery. August data showed exports rose to a 1.5 year high of 9.5% YoY, which was well beyond the 7.1% forecast. If exports are up, then so is global demand which points towards a global recovery.
US Retail Sales:
Household consumption accounts for around 70% of US GDP, 40% of which is from retail sales. So traders will keep a close eye on spending habits in retail sales on Friday night.
USD/CHF: Bears Take Back Control
- Friday was its most bearish session in nearly 2-months after breaking a correction line.
- The bias remains bearish whilst prices remain beneath the broken correction line, although bears may look to fade into minor rallies within the resistance zone.
- With bearish momentum having now realigned with the bearish trend, we are looking for a re-test of the September lows. However, a support zone around 0.9050 (swing lows and monthly S1 pivot) make a likely interim target.
GBP/USD: Inverted H&S Around 1.3000
- An inverted H&S (head and shoulders) pattern has emerged to suggest the market is trying top carve out a bottom. If successful, the inverted H&S projects a target around 1.3330.
- Whilst Friday’s strong close confirmed the reversal pattern, the rally stalled right on the 1.3051 resistance levels – so we want to see a break above Friday’s high before assuming a bullish continuation.
- And for the H&S pattern to hold true we’d also need to see bulls regain control quite quickly (preferably today). If prices fail to break higher soon then the pattern becomes much less likely.
- The daily structure remains bullish above 1.2840 (RS / higher low).
S&P 500 (US500): Bulls Drive It To a 5-Week High
- We have seen two consecutive bullish weeks since highlighting the potential for US indices to bounce higher 3-weeks ago.
- Closing at a 5-week high, the near-term bias remains bullish although there is potential for a minor correction before the rally resumes.
- Bulls could look to enter on dips whilst prices remain above 3446 support zone or wait for a break above Friday’s high.
Brent (BRENT) : 2-Bar Reversal at Top of Range
- Brent prices have remained within the 39.50 – 43.60 range for the best part of 7-weeks.
- Friday’s close produced a 2-bar bearish reversal (dark cloud cover) at the highs to suggest near-term weakness. Early price action in Asia has seen a break of Friday’s low which confirms the reversal pattern.
- Range trading strategies (short’s preferable at the highs, longs at lows) whilst prices remain within the 39.50 – 43.60 region.
Gold (XAU/USD): Firm Close Above Resistance
- Last week we had been looking for another leg lower due to the bearish outside candle last Tuesday, but Friday’s bullish price action blew straight above its high.
- Friday produced a bullish Marabuzo candle, which is defined with a long bullish body with little to no upper or lower wick.
- A break above the bearish trendline assumes bullish continuation. However, we may see prices retrace lower from current levels before attempting to break the trendline.
- We would like to see prices hold above a 50% retracement of Friday’s Marabuzo candle.
Bitcoin (BTCUSD): Headed for 12k?
- After coiling up within a triangle for a month from the 9th of September, volatility has now returned with bulls firmly back in control.
- Momentum is now accelerating to underscore the strength of the bullish move.
- The bias remains bullish above the 11,000 area although this could be revised higher if bears try (yet fail) to fully close the gap and leave a higher low.
- Next major target is around 12,000 (psychological round number).