NZD and AUD On The Rise

In today’s analysis we will focus on the currencies from antipodes. We will give a break to the index traders as summer holidays combined with Independence Day in the United States can result in very low volatility and overall a boring session on the global indices. Recent optimism and relatively good situation in China are definitely helping the AUD and NZD. Thanks to that, we do have very interesting setups on the pairs with those currencies.

Let’s start with the Kiwi, NZDUSD. The pair escaped from the triangle pattern with the bullish breakout off its upper line. That gave us a mid-term buy signal. Now, the pair has to confirm this sentiment by breaking the horizontal resistance on the 0.653. The sentiment here is positive.

Taking a look at the Aussie, AUDUSD, the price is still inside of the symmetric triangle pattern. Friday brings us another bullish attempt and it looks like the resistance will be finally broken. Pressure from the buyers looks serious and the chances that they will succeed are quite high.

On the AUDJPY, the breakout of the resistance already happened, so the buy signal here is already up and running. As long as the price stays above the upper line of this formation, the sentiment is positive.

For a look at all of today’s economic events, check out our economic calendar.

USD/JPY Price Forecast – US Dollar Looking for Buyers Against Yen

The US dollar has cracked below the ¥107 level during the trading session on Thursday, as we continue to see a lot of negativity out there. After all, the Dow Jones Industrial Average futures are down about 900 points at the open, and this typically favors this pair falling due to the fact that the market starts looking for safety in the form of the Japanese yen. If we can continue the momentum, the next support level is closer to the 160 and level.

USD/JPY Video 12.06.20

On the other hand, if the market saved itself yet again, then it is likely that we will go looking towards the ¥107.50 level, and then after that go looking towards ¥108. Moving above the ¥108 level allows for the market to go looking towards ¥109, and of course followed by ¥110. I do not necessarily think that we are suddenly going to rally, but then again it is easy to say what we “should” and” should not do”, because quite frankly the markets have not been paying attention to any of that for a while.

With this being the case, I continue to use this pair more or less as a Japanese yen strength or weakness indicator, and not necessarily trade it directly. At this pair continues to fall hard, then it is possible to short other pairs that will give you a little bit more momentum like the AUD/JPY pair, NZD/JPY pair, CAD/JPY pair, and so forth. This pair is a little congested and noisy, which makes quite a bit of sense considered both currencies are thought of as “safety currency.”

For a look at all of today’s economic events, check out our economic calendar.

Is There A Strategy To Make 20 PIPs Per Day?

As far as strategies goes, there’s so many different strategies out there, in terms of exit, and, entries and exits, in terms of a technical strategy.

The way that we find gives us the highest probability opportunity to make pips from the market, every day, is just by following the daily sentiment. Now, whether that’ll give you five pips for that day, whether it’ll give you 10 pips, 20 pips, 100 pips, it really does depend on the type of sentiment. It really does depend on the type of trade that you take. Also, the underlying volatility of the market.

So, looking at something like the Aussie-Yen. Normally, in a day trade, like the Aussie-Yen, due to much lower volatility ranges, we would expect to make anything, from, or would be happy to make anything, from, let’s say 10 to 30 pips, on a normal, standard day trade like this one, today.

But, because we’ve seen all those massive moves in the market, traded recently, due to the, basically, the run up to the recession, and those big moves we saw in equities, if we just look at this range for today, we can see, it’s almost a 60 per branch to the downside, which is quite a lot for just a standard day trade.

So, it really does depend on quite a couple of factors.

There isn’t a strategy, especially technically speaking, that can guarantee you any type of, you know, set pip range per day. 10, 20, 30 pips, etc. A trader out there that tells you, you know, you will make 10 pips, every single day by trading this strategy, you know, I would be, I would be very confident in saying that they are not being honest.

If they are trying to sell something like that, a strategy that gives you 20 pips, every single day, every single market environment, timeframe, etc, isn’t being honest.

For us, the highest probability of looking at, basically, taking pips from the market, every day, is making sure that you’re staying on the right sentiment, the fresh sentiment, every single day.

Whether it is trading the Aussie-Yen, like, in an example, for today, in terms of risk of trading, whether we are trading, you know, any other sentiment-type of shift.

Whatever the market is focused on today, whatever is driving the markets today, we prefer to focus on those things, as we think that provides you with a much higher probability of staying on the right side of the market, and ensuring that you extract pips from the market on a daily basis.

Now, that is important, also, because, there might be some days where there just isn’t any high probability sentiment driving currency prices. Now, on those days, the very best of traders are the ones that are gonna be patient, and know that this isn’t an environment to trade in. I’m rather gonna sit out, and wait for a clear catalyst, a clear short-term driver, to, for the next highest probability move.

In days where there’s just nothing driving the markets, on those days, it’s better to stay out, because you might trade something, and you’ll just get a range-bound market, or you’ll be whipped around, in terms of price action. So, there might be some days where you get nothing.

There might be other days where there are ample trading opportunities.

On a day like today, there’s quite a couple, not only looking at the Aussie-Yen, you could’ve considered the Aussie-Swiss, the Kiwi-Yen, Kiwi-Swiss, CAD-Yen, Kiwi-Swiss, a CAD-Swiss, I mean.

So, there’s a couple of opportunities when we have strong sentiment driving the markets, but nothing that will guarantee you a set amount of pips, every single day, in every market environment. So, I hope that helps you out there, Bobby.

For a look at all of today’s economic events, check out our economic calendar.

This article was written by Arno Venter, ForexSource.

Bullish Equities = Bullish AUD/JPY

Dear Traders,

The AUD/JPY is the best pair to compare Equities with as the excellent correlation exists on all time frames.

At this point, the AUD/JPY wants to make a continuation move towards 69.52, daily camarilla pivot. If the market manages to close above, we should see a continuation of the confluence target, which is 69.75. We can also see the ATR projection up there. Only if the trend line breaks lower, we might see a deeper correction down as the AUD/JPY is strongly bullish.

The Analysis has been done with the CAMMACD.Core and Sit Systems

 

USD/JPY Price Forecast – US Dollar Breaks Down Slightly Against Japanese Yen

The US dollar dropped a bit against the Japanese yen during early trading on Monday as most banks around the world were closed. Ultimately, it seems as if the market is drifting a bit lower towards perhaps the ¥107 level. If the market breaks down below there, then it’s likely that the next target will be the ¥105 level, possibly even the ¥102 level. In the short term, I believe that the market will continue to be very choppy, but overall I feel that this pair is a bit more neutral than anything else. I think at this point we are probably looking at a scenario where you can probably use this chart as an indicator of Japanese yen strength or weakness. Ultimately, I think that this is best used as a way to decide how to trade other pairs like AUD/JPY and EUR/JPY.

USD/JPY Video 14.04.20

I believe that the upside is probably protected by the ¥111 level, extending to the ¥112 level. If we were to break above that level, then we certainly could go much higher. I am a bit suspicious about any move towards that area, because it would certainly be a major “risk on” environment, something that has supposedly been thrown into the marketplace due to the Federal Reserve and all of its injection of liquidity, but notice how this pair has moved along with that. Something isn’t quite right so it’s best to leave this particular pair alone in the short term.

Playing the S&P500 Through FX – the AUD has Found its Mojo

We can also consider the notion that the RBA has been active in cutting its daily bond purchases from $5b p/d to $1.5b p/d and that may also be another factor boosting the AUD of late.

Source: Bloomberg

If I look at the technical set-up of the S&P500 it looks like the benchmark heads towards the 50-day MA (2919) in the near-term, and the pain trade in the market is clearly higher. Liquidity is at the heart of the move

  • Top pane – white – Feb excess reserves, blue -RBA excess cash, orange – ECB excess liquidity
  • Lower pane – blue – global money supply, yellow – S&P500
Source: Bloomberg

I like the outperformance from small over large caps, cyclical over defensive sectors, and even companies with levered buybacks are outperforming the S&P500 – until we start to see earnings roll in, I would not want to be short the S&P500 here. Although, we have event risk in spades today, with weekly jobless claims (consensus 5.5m claims) and Fed chair Powell speaking on the economy.

Traders are also getting excited about today’s OPEC meeting (commences at 3pm London time), with Kuwait suggesting we could see up to 15m barrels of crude output being cut. Russia has committed to a cut of 1.6m barrels. The sticking point being how the cuts will be distributed through OPEC nations, and how involved the US will be, or whether they even go down the tariffs route. Oil could easily be 10% higher or lower by the end of the day, but one suspects it will influence the S&P500 and the AUD by proxy.

Here, we see S&P500 10-day realised volatility (white) has collapsed, but at 59% details the S&P500 is moving 3.71% a day (over the past 10 days). Implied volatility has dropped hard from 77% to 37% (although the VIX index sits higher at 43%), which suggests the market still sees daily moves of some 2.3%. Either way, vols are painting a picture of calmer conditions, although, they’re not at levels which tell us we are firmly out of the woods by any means.

Source: Bloomberg

AUD the strong

The reason I have singled out the AUD, is that it is strong – simple as that. If you believe you can obtain an edge by keeping things simple in FX trading by buying strong and selling weak, albeit assessing how mature that move is, then the AUD has found its mojo. That said, if you look at the weekly commitment of traders (CoT) report as a loose guide on positioning, with non-commercial accounts holding a short position of 31,664 contracts, so, clearly the recent rally has been part driven by a position readjustment.

The technical set-ups

All of these positions are a play on the US500 moving higher, as the correlation suggests, and while I feel there could be downside risk next week when earnings start rolling in, the pain trade in the short-term, as I say, is higher.

AUDJPY – marries the weakest and the strongest and the look on the daily is certainly compelling. Price is just breaking horizontal resistance, with the 5-day EMA portraying the move, and that may define a more aggressive move higher. If price is to trend, traders will lean into this average especially when the impulsive move is in its infancy, but if this kicks higher I’d follow.

AUDUSD – finding sellers into the 61.8% retracement of the March sell-off, after a break of 0.6212 high. Watch price action around the fibo, but a break here and I’d be holding for 0.6350.

EURAUD – Price has broken below the 61.8% retracement of Feb-March rally at 1.7510 and maybe headed into trend support. Conditions are oversold, and we watch for a turn in stochastic momentum, but unless we see a sharp turnaround in market dynamics, rallies are to be sold

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Chris Weston, Head of Global Research at Pepperstone.

(Read Our Pepperstone Review)

USD/JPY Price Forecast – US Dollar Quiet Against Japanese Yen

The US dollar has gone back and forth against the Japanese yen, showing signs of confusion at this point, as the market is dancing around the 200 day EMA and the 50 day EMA simultaneously. The moving averages of course will cause a lot of confusion as the markets look to them for guidance on longer-term charts. That being said, this is a market that is confused to say the least, so at this point I think it’s very difficult to make a position play based upon this chart right now, so I think it’s ultimately a chart that should be used as a secondary indicator for the strength or weakness of the Japanese yen. In other words, if we see this market break down, then I think what you might want to do is start looking towards trading the Japanese yen against other currencies.

USD/JPY Video 10.04.20

For example, if you see weakness in the Australian dollar, then you should be shorting the AUD/JPY pair if this chart is also falling. On the other hand, if the pair rallied significantly from here, it’s possible that the AUD/USD rising as well triangulate towards a long position in the AUD/JPY pair. In other words, this chart is essentially a tool at the moment, not necessarily a market that we should be looking to trade per se. The ¥111 level above is an area where I could find sellers, and therefore would be looking for short positions. On the other hand, the ¥105 level underneath should offer plenty of support. At that point I would be looking for buying opportunities.

AUD/USD Price Forecast – Australian Dollar Crashing Towards the Lows

The Australian dollar initially tried to rally during the trading session on Thursday but give back the gains as we started to see a lot of negativity out there. Ultimately, this is a market that requires a certain amount of risk appetite but if we break down below the 0.60 level is very likely that we go crashing into the 0.58 level. This will be about whether or not there is going to be demand for global trade, and quite frankly with the shocking initial jobless claims figures coming out the United States, that’s a huge hit to global outlook as far as demand will be concerned.

AUD/USD Video 03.04.20

In order for this pair to suddenly look strong again, we need to clear the 61.8% Fibonacci retracement level which is closer to the 0.6250 level. This has been a strong bounce, but quite frankly it’s a bit of a “dead cat bounce”, at least from a quick visual look at it. I fully anticipate that a lot of fear will enter the market and drive up demand for the greenback. More importantly, it’s difficult to see a driving up demand for the Australian dollar. The greenback will probably win by default in this scenario. Furthermore, there will probably be even more rapid movement in the AUD/JPY pair, which tends to move in the same direction based upon risk appetite. Rallies should continue to offer selling opportunities on short-term charts, but all things being equal it is all about the global coronavirus crisis, which seems to be a long way from ending.

AUD/JPY Bearish Continuation or Bullish Bounce

Dear Traders,

AUD/JPY is overall bearish. The price must remain below 66.00 in order for bears to stay in control.

65.50-60 is the POC zone where the price might reject lower. The first target will be 65.22, and the break below should target 64.60, 64.36 and 63.90. We can see a lot of historical sellers within the POC. However, a bounce above 65.70 might lead the price to a retest of 66.00. If 66 breaks, then bulls should expect a bounce up. Observe it and trade as the AUD/JPY is the best pair which follows the equities correlation.

The Analysis has been done with the CAMMACD.Core and Sit Systems

 

USD/JPY Weekly Price Forecast – US Dollar Has Wild Week Against Yen

The US dollar has pulled back a bit to kick off the week, but then shot straight up in the air as the demand for the US dollar continue to pick up. Even though the risk appetite has been decidedly negative, the Japanese yen has suffered at the hands of the greenback, which is by far the most favored currency in the world right now. Having said all of that, the ¥112 level looks to be very resistive, so I think it’s only a matter of time before we rollover.

USD/JPY Video 23.03.20

Looking at the size of the candle, it shows just how volatile the markets are, and have been for the last couple of weeks. I think we are trying to carve out some type of range year, and for what it’s worth the US Dollar Index is getting extraordinarily overextended, which should weigh upon this market as well. While I don’t necessarily like shorting the US dollar, I do think that the Japanese yen is far oversold. It’s very likely that we go looking towards the ¥108 level on signs of weakness, possibly even as low as the ¥105 level.

Keep an eye on the yen related currency crosses out there, and I think that paying attention to this chart may lead to opportunities in pairs such as AUD/JPY, EUR/JPY, and the like. Remember, this is one easy way to measure the overall strength of the Japanese yen in can be extrapolated to other markets.

Yen Gets Ready For Another Upswing

Yesterday we looked closer on the situation on the Swiss Franc and today, we will analyze Japanese Yen. First, the JPY Index, which is showing first signs of a bullish sentiment. We do have two major positive signs at the moment. First one is the defense of the horizontal support around the 23,6% Fibonacci and second one is the breakout of the mid-term down trendline, connecting lower highs since the beginning of February. Buyers have just one obstacle left – 38,2% Fibonacci. Once the price will close a day above that one, buy signal will be triggered.

Now, AUDJPY, which we analyzed few days ago. We were bearish and the pair did not disappoint us at all.  After bigger flag, the price created a smaller wedge and yesterday broke its lower line. With that, the current sentiment is negative.

Last one is the USDJPY, where the price is trying to create a head and shoulders pattern. On this pair, we do not have a huge slide right now, as both currencies are strong. Recent appetite for Dollar is significant too. Potential for a drop is here though. As You can see, very similar pattern was already present here in January and resulted in a nice drop. Sellers can potentially count here on around 100 pips but first, we should see the breakout of the neckline. As long as we stay above the blue line, buyers can still be optimistic.

Three Excellent Trend Continuation Patterns on EUR/USD, GBP/USD and AUD/JPY

2020 is so far a nightmare for the EURUSD. The pair is extending the losses and today, we are on the lowest levels since May 2017. Fundamentally, that is a combination of dovish ECB and fears about the slowdown in Eurozone, Germany in particular. Technically, that is a result of a bearish breakout from the beautiful wedge pattern, which the EURUSD was creating at the turn of the year. As they say, trend is your friends, so further decline seems more probable at the moment.

GBPUSD is also suffering, although not that seriously as the European peer. Here, we are still inside of the flag pattern and the price being above the lower line of this pattern is actually the last hope for the buyers. Breakout looks imminent though and has chances to bring us a legitimate long-term sell signal.

What happened if the price breaks the lower line of the flag can be seen on the AUDJPY? Here, the breakout happened at the end of the January and gave us a sweet drop for around 250 pips. Now, we are having a bullish correction. The price tries to create an inverse head and shoulders pattern but the buyers are struggling with the attack on the neckline. It looks like, they do not have enough power to do this, which can change this bullish iH&S formation into a bearish wedge in no time. Sentiment stays negative.

Three long-term Forex occasions. EURJPY, AUDJPY and CADCHF

Traders are slowly getting bored with the Coronavirus. In financial media, this topic is mentioned less frequently and slowly, the attention of the market participants is being shifted towards the other information. This allowed to perform a bullish correction on the indices and a bearish one on safe heavens. Today, we will show you long-term situation on the three currency pairs, where we could spot interesting trading opportunities.

First one is the EURJPY, where the recent pursuit to safe heavens increased the appetite for Yen and triggered a negative sentiment. It all started with the bounce from the 122.8 and the upper line of the wedge. Wedge is a trend continuation pattern, so it was naturally promoting the breakout to the downside. It happened on the 24th of February and after that, the price created a small rectangle. This rectangle is promoting a further slide and this is our current outlook on this instrument.

Similar setup can be found on the AUDJPY, where the price also bounced from the horizontal resistance and later broke the lower line of the correction pattern. In this case, it was a flag. What is different is the price movement after the breakout. On AUDJPY the price dropped like a rock, without a pause like on the EURJPY. Well, Australian Dollar is simply much weaker right now. Today, the price tries to initiate the correction but we are not convinced about the durability of this movement.

Last week was absolutely crucial for the CADCHF and you need to look on the weekly chart to understand why. After few weeks of a decline, the price eventually broke the lower line of the massive symmetric triangle pattern. In theory, that can start a new long-term down trend on this instrument. As long as we stay below the triangle, the sentiment remains negative.

AUD/JPY Possible Counter Trend Rejection in 76.20 Zone

76.10-20 zone looks a bit overbought and the price might drop. We already see a lower high and if the price stays below 76.60 we might see a drop towards 75.82 and 75.45. Have in mind that this is effectively a counter trend move (retracement) that presents a trading opportunity. If the price makes a retracement lower to M L3 -75.45, we might see another bounce.

The analysis has been done with the CAMMACD.MTF template.

For more daily technical and wave analysis and updates, sign-up up to our ecs.LIVE channel.

Many green pips,
Nenad Kerkez aka Tarantula FX
Elite CurrenSea

Yen – The Currency of Choice in Volatile October

The Trend is always a Trader’s Friend

USDJPYDollar Yen has been locked in a sideways action for most of the last three weeks between a top capped by the 50.0 Fibonacci and September high at 108.50 and a floor at 107.00. Wednesday’s move down below the 20-day moving average also breached the flat-lining 50-day moving average and was another attempt to test the 107.00 low. A breach of this level would test the 23.6 Fibonacci level and S2 at 106.00, the September low at 105.75 and the August low and key psychological 105.00. A breach and hold of 108.50 could then test the 200-day moving average at 109.00 and the 61.8 Fibonacci level. The Oscillators remain neutral but bias is to the downside in the higher timeframe weekly and monthly charts.

EURJPYThe Euro continues to be buffeted by continued weak economic data, the uncertainty that still swirls around Brexit and now the Trade War comes to Europe as the WTO backs the US and the imposition of tariffs on $7.5bn of goods it imports from the EU. The pair broke under the 20 SMA September 23, stalling at 118.00 and the 50.0 Fibonacci level before moving lower again yesterday to the 61.8 Fibonacci level. 117.00 represents the next support and the 116.00 September low. A significant reversal over 118.50 is required if the pair is to test 120.00 and the September high. The Oscillators remain negative and the bias is to the downside in the higher timeframe weekly and monthly charts.

GBPJPY – Sterling, as I have written many times in the last 40 months, remains firmly locked in the claws of Brexit fear, uncertainty and doubt and if it’s one thing that markets hate above all else it is FUD. GBPJPY the “widow-maker” moved below the 20 SMA and 50-day moving average September 27 stalling at 132.50 and the 38.2 Fibonacci level before moving lower again on Wednesday to test the S1 level at 131.50. Today the pair has recovered 132.50. 131.00 and the 50.0 Fibonacci level is the next support area, with the 61.8 Fibonacci at 130.00. The September low breached 127.00. A reversal over 133.50 is required if the pair is to test over 135.00 and the September high. The Oscillators are negative and the bias in the higher timeframes is mixed with the weekly chart positive and the monthly chart still negative.

AUDJPY – Action recently from the RBA has seen the Aussie depreciate significantly, with the AUDUSD posting a new more than 10-year low this week at 0.6670. AUDJPY, a proxy for China’s economic resilience and wider Asian economic performance, moved under the 20 SMA September 20, spending 6 days supported at 72.75 and the 38.2 Fibonacci level before moving lower on Tuesday under 72.00 to test the 61.8 Fibonacci at 71.67, below that is the floor of the recent consolidation zone at 70.75. The Oscillators remain negative and the bias in the higher timeframes is mixed with the weekly chart positive and the monthly chart still negative.

 

CAD, CHF & NZD Yen crosses also all remain below the key 20 SMA, having broken below on October 2, September 30 and September 19, respectively.

 

As Q419 completes its first week the Japanese Yen remains in demand as economic data continues to underwhelm, the “R” word (Recession) appears in the literature more frequently and the spectre of the inverted yield curve persists.

Stuart Cowell, Head Market Analyst at HotForex

(read our HotForex Review)

AUD/JPY Bears Are in Control if The Price Stays Below Wizz 0 & Camarilla WH3 Confluence

Dear Traders,

The AUD/JPY has formed a bearish pattern on MTF. We should see a downward move if the price stays below 73.25

The AUD/JPY is supported around 72.50 but the latest RBA move failed to instill bullish impulse in the price. The cut was expected and the RBA cut the rate but the statement was neutral. Technically, the AUD/JPY should reject from 72.80 zone, staying below 73.35. Continuation will happen at the 4h close below 72.50 towards 71.99. Below 71.90, 71.05 is the target.

The analysis has been done with the CAMMACD.MTF template.

For more daily technical and wave analysis and updates, sign-up up to our ecs.LIVE channel.

Many green pips,
Nenad Kerkez aka Tarantula FX
Elite CurrenSea

AUD/JPY Could Go Higher on a New Trend

Dear Traders,

The AUD/JPY has a trend change and we could see the W H3 as the first target. However, the scope of a full move is also a bit higher.

72.60-90 is the POC zone where we should the price to bounce if it gets a retracement. It is supported by the bullish order block too (red line). The bullish bounce above the POC zone is targeting 73.80. A close above 73.80 should target M/W H4 Camarilla pivot and Wizz tool confluence between 74.26and 74.60.  72.00 is the strong support now and bulls should be safe as long as the price is above that level.

The analysis has been done with the CAMMACD.MTF template.

For more daily technical and wave analysis and updates, sign-up up to our ecs.LIVE channel.

Many green pips,
Nenad Kerkez aka Tarantula FX
Elite CurrenSea

Daily Fix – The USD Breakout Continues

I’ve focused on positioning, where I have looked at the weekly Commitment of Traders (CoT) futures report. Skew, which is the demand for put option volatility over call volatility, which, for me, is the best guide around sentiment – the more negative the number the greater the expected move to the downside and vice versa. And volatility, where I have looked at both realised and implied volatility, which I use for risk management and position sizing. For more instruction, do watch the webinar recent conducted as part of TraderFest –

It’s the USD that interest us most this morning, as the rate of change is moving into the top of its range, and it’s attracting just as much attention from the US President, as it is momentum-focused traders.

JPY the place to be on open

At this stage, we can key off the FX open, where the USD has weakened 0.2% against the JPY, but this is not the USD finding fault, as the greenback is up against the higher beta AUD and NZD, and finding buyers against the CNH, although todays CNY fix was far stronger than the street expected – a risk positive function.

The move into the JPY a reflection that Trump’s 15% tariffs have formally kicked in on around $110b of Chinese exports (to the US), and we’ve seen China come back placing tariffs up on $75b of US exports, and one questions if there was an element of the market expecting the implementation of tariffs to be put on ice, given the positive noises from both camps of late. It seems not.

The news flow from Hong Kong would not have gone unnoticed, and we watch to see if there is an increased response from the Chinese authorities. A Chinese manufacturing PMI print of 49.5 (vs expectations of 49.6) has also been a consideration for AUD and NZD sellers here, where we see NZDJPY and AUDJPY lower by 0.6% and 0.3% respectively. It won’t surprise then the S&P 500 and NASDAQ futures have re-opened and currently sit 0.5% and 0.7% lower respectively, with Asia markets down smalls. Here, we see the ASX 200 -0.1%, Nikkei 225 -0.3%, and the Hang Seng -1%.

EURUSD moves in focus

Despite a whole barrage of ECB speakers last week, including somewhat hawkish commentary from Knot, Lautenschlager and Weidmann, throwing some uncertainty into the” kitchen sink” approach expected from the bank at the 12 September ECB meeting. The focus has been specifically on the break of 1.10 in EURUSD, and certainly, it was significant enough to garner the attention of Trump, who said the EUR is dropping “like crazy, giving them a big export and manufacturing advantage”. Let’s see how things stand on Wednesday when ECB chief economist Lane speaks in London (21:00aest), and he could really move the dial in a market which currently places a 47.7% probability that the ECB’s deposit rate is taken to -60bp and 52.3% to -50bp. The argument, like it is in many other nations, seems to be a growing call on fiscal policy as a support driver for economic fragility.

The fact Trump said the USD is the “strongest in history”, highlights the weight he puts on the trade-weighted USD, which sits at 130.66, and at an all-time high. We trade the USD index (DXY) though and whether we are looking at the feel and structure on the daily or weekly timeframe the set-up looks so bullish.

The interesting aspect is, that while we will likely to see a better feel to this week’s US ISM manufacturing print, amid robust payrolls data, on Friday we saw a huge drop off in Friday’s University of Michigan consumer sentiment report, with around a third of respondents highlighting concerns around trade tariffs. If the soft data goes lower, then the Fed will try and get ahead of the curve. Let’s hear what NY Fed president Williams and Chair Powell make of the data this week, with keynote speeches due.

USD intervention grows a touch

However, with the USD strong and Trump making more noises on his disdain here. The question is, at what stage do we genuinely start to consider US Treasury intervention? The US really is the missing link to higher FX volatility, and if the US Treasury team, perhaps alongside the Fed, intervene then we can start talking currency wars with increased conviction, and this is where gold and silver go wild. And, not just because these metals are a clear hedge against negative real or nominal rates, but would stick out as a currency in its own right, with EM FX also working well in this environment.

We are not there yet, and the first port of call would be Steven Mnuchin putting intervention on the radar to scare off speculators. But for now, we look at the trigger points, and a trade-weighted USD 3-5% higher, with an increased rate of change, or, a USD index above 100,00 and eyeing a test of the January 2017 highs of 103.82 would raise FX vols. These levels would suggest we see the EUR/USD into 1.0500, with USDCNY into 7.25 and that would not go down well at the White House.

EURUSD

EUR/USD is tracking a few pips lower this morning, but, for now, the pair is holding below the 1.10 handle and the 1 August low of 1.1027. The technical traders are focused on the 1.0960 area, representing trend support drawn from November 2017 low, and a move through here would only encourage the market to increase short exposures.

Trading the range in the S&P 500

The futures open will offer insights, and the lack of any inspiring news flow over the weekend offers no real bullish catalysts in a market which saw the S&P 500 close unchanged, with the market, yet again finding sellers into 2940/5 zone. The 2945 to 2822 range is clear and defined, and when this breaks, it will get great attention.

US Treasury’s found small buyers in the front-end, and 10s and 30s unchanged at 1.49% and 1.96% respectively, but we expect a stronger move lower on the re-open. The 2s 10s curve remains inverted, and that suggests staying cautious, even if we are coming into a seasonally strong period for risk, with the S&P 500 historically working well in the period up to 19 September, where we tend to fade the strength into options exportation, with gamma sellers and corporate buy-back blackout a driver.

Here, I have aggregated all the moves over the past 10 years into one index, to best show the seasonality of the index. The (small) white circle where we are today.

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Chris Weston, Head of Research at Pepperstone.

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What is happening on the AUD and NZD?

Unemployment rate rose, which is bad but the Unemployment change was higher than expected. That was an information, which could have been perceived as a positive one. Despite that, AUD dropped, why? The reason for that was that this data was only partially good as most of those gains were coming from the part-time jobs. Those numbers increased the chances for a further rate cut in Australia, which is negatively affecting local currency.

First, we will show You the AUDUSD, where the bearish flag is a fact. The price broke its lower line and went down. The latest development here is the price successfully testing 0.694 as a resistance. That is a confirmation of a negative sentiment, that we mentioned yesterday.

Negative sentiment can be also seen on the AUDJPY, where instead of the double bottom formation and an upswing, the price created the pennant resulting in a downswing. Sell signal is ON.

Few words about the NZDCAD, which was on our radar for a long time. After heave drop, the correction time came and the price created the flag formation (red lines). This kind of patter, as you know, should bring us a further decline but the sell signal will be created, when the price will break its lower line.

This article is written by Tomasz Wisniewski, a senior analyst at Alpari Research & Analysis

A question ‘when’, not ‘if’ the Fed cut

It has also resulted in S&P 500 futures opening 0.5% lower this morning, with the ASX 200 unwinding -0.5%, building on ever-growing calls that a recession, perhaps more specifically in Europe and the US, is fast becoming the base case if Trump continues with his current trade policies. The message portrayed in the developed bond markets is absolutely telling and that many have suggested portrays a view that we are headed for far tougher economic times that will require a punchier response from central banks – it seems this near-term tightening of financial conditions could well be the catalyst now. 

NY fed recession probability model. Source: Bloomberg

Fair play to rates and bond traders, as when equities were trending higher through May, rate cuts were never really priced out, and the dovish message never wavered.

Front loaded rate cuts

The moves on Friday were huge though, with UST 2s and 5s falling 14bp and 11bp respectively. The longer end of the curve underperformed, with the 2s10s curve gaining 5bp to 20bp, and this is a function of what we have seen front and centre in US rates pricing, where we see 46bp of cuts priced in between June and December, with a further 13bp (of cuts) priced in on Friday alone. Interestingly, we can now see more aggressive easing (from the Fed) priced for this year, than 2020 (40bp), which is new and reeks of a market that understands the need to front-load cuts. 

The fact that we now see JP Morgan, Barclays and Credit Suisse all calling for easing as their base case and we are seeing economists call for easing is a theme I had suggested to look out for last week and is now playing out. Now we can caveat this by saying the degree of cuts is largely conditional on the US trade administration actually rolling out 25% tariffs on the $300b of Chinese exports, and implementing the starting rate tariffs of 5% on Mexican imports on 10 June, and potentially towards 25% after incremental rises.

A war on two fronts

Now, some have argued these measures against Mexico are a tool to get the Democrats to push through USMCA (United States–Mexico–Canada Agreement), but this agreement is looking more and more like a non-starter now. The bigger issue for markets is that firstly Trump is sending a message that perhaps he is prepared to tolerate a lower stock market .

Secondly, China and Mexico have accounted for some 30% of total US imports, and should we see all Mexican and Chinese imports taxed at 25% that’s $225.5b of new income for the US Treasury, however, these goods could cost US businesses 25% more. So, while US corporates doing business with China have had a while to review their supply chains and adapt, one could argue the moves against Mexico were not as well telegraphed, and for US businesses dealing with Mexico, this may become a more significant headwind. 

We know sentiment towards the global bond market is at an extreme, not just through assessing traditional oscillators such as RSIs, which can give us a rough idea on the risk to reward trade-off, but also through options pricing. Here, we see the demand for call volatility (in US Treasury futures) pulling away from put vols (see the lower pane in the Bloomberg chart below), with the spread moving to the widest seen in 2019. This tells me that traders are positioned for further gains in bonds and that we are going to see a dovish turn from the Fed soon.

This flow could even accelerate if financial conditions tighten sufficiently this week, and we see a weaker China Caixan manufacturing PMI print (11:45aest – 50.0 consensus) and US manufacturing PMI (00:00 aest – consensus at 53.0.). With all eyes then on Fed governor Powell’s speech at the Chicago Fed conference tomorrow (23:55aest).

This all suggests staying cautious, and further de-risking seems the higher probability. Again, we have to consider the notion that when we have this level of uncertainty, we want answers and a circuit breaker to inspire, cover shorts and put on risk. Well, aside from incoming rate cuts from central banks, which, as detailed, is a question of ‘when’ not ‘if’, what will promote more stable growth and inflation? The answers don’t seem readily available.

Whats on the radar

AUDJPY – A trade I’ve been flagging for a while now and is working well as a hedge against slower global growth. A big move on Friday with price breaking below the consolidation range and I am happy to stay short, with a view that this could trend soon, which is where I will add. There are risks to holding AUD shorts of course, given tomorrows cut (from the RBA) is 100% priced, and the bank needs to be dovish enough to justify the three cuts priced into markets over the coming 12 months. 
 
 
USDJPY – Again, happy to stay short here, with the 108-handle likely to be in play soon, it seems. 
 
 
WTI crude – as detailed on Friday, the bid has come out of the oil market with price having dropped 21% from its April high – therefore the price is now in a technical bear market. Rallies are to be sold, in my opinion.

 
US500 – Price has gapped lower this morning, and the risk is we close this gap, but all signs suggest this index trades lower. Price has closed through the 200-day MA and 55-week MA (2772), but flip to the monthly, and we saw a bearish outside monthly reversal at the all-time high. It all suggests we head towards 2650. 
 
Chris Weston, Head of Research at Pepperstone

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