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.

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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.

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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

Start trading now

All in on the Fixed Income Juggernaut

A -5.2 read (vs expectations of +6.2) in the Dallas Fed manufacturing read was also in play, suggesting downside risks for next Tuesday’s US national manufacturing ISM read, at a time when expectations are for a slight rebound in the index to 53.3. As mentioned yesterday, we wait in anticipation upon the details of China’s manufacturing PMI read (Friday at 11 am), and should that come in below 49.9 then I’d expect volatility to rise further from here.

Reaction from Asia based traders

The main news flow though has centred on trade tensions, although most of the headlines were known yesterday when we saw a surprisingly upbeat equity session. So, the fact we saw the S&P 500 closing -0.8%, with 87% stocks lower on the session, on volumes some 23% above the 30-day average, has seen Asia coming off fairly hard today, with the ASX 200 -0.8%, Nikkei 225 -1.4% and Hang Seng -0.6%. That said, watch China today as the PBoC has just announced it is injecting RMB250b of liquidity in China’s money markets (most since January 2017), so this may aid sentiment.

Sell USDJPY through 109

My focus has been on the S&P 500, as well as the Phili semiconductor index (SOX, closed 0.9%), and on the former, whether we see a break of the 2890-2800 range the index has held since 8 May break. Well, we are testing the lower limits of that now, and as expected we are seeing equity vol rise, with the VIX index now at 17.5%. It feels as though we could S&P 500 implied volatility into 20% on a break of 2800, and this will see a further rotation out of cyclical names and into defensive sectors and assets. It will likely resonate in FX markets, with short USDJPY one of my preferred plays here given the correlation with S&P 500 futures. If USDJPY moves through support seen between 109.25 to 109, then I’d be holding for 108 and below.

Orange – S&P 500 futures, white – USDJPY, Source: Bloomberg

I’m still holding AUDJPY shorts, although there is solid support between 75.50 and 75.25, so a daily close through here and the bear trend continues in earnest, even if Aussie swaps are already pricing in a sizeable 70bp of cuts, or nearly three cuts, in the coming 12 months. So, given the markets current pricing, the RBA cash rate is expected to be closer to 0.75% this time next year. It’s interesting that the Aussie 10yr Treasury sits -3 basis points lower on the day with a yield of 1.501%, and a whisker away from a discount to the current RBA cash setting of 1.50% – a fate we haven’t seen since January 2015.

Top pane – Aussie 10yr – RBA cash rate, lower pane – RBA cash rate

The bottom line: With the rate cut priced at a 100% probability and Aussie bond yields at a discount (to the cash rate) out to 10-year, if the RBA doesn’t ease next week then the markets are going to absolutely punish Aussie assets. The fact, then, AUDUSD 1-week implied volatility sits at 6.8125%, and a discount to the 30-day average of 7.55%, suggests the market is incredibly confident and comfortable at the prospect of a cut next week, and rightly so, it’s a done deal.

Global growth concerns at the heart of market moves

Global growth concerns are compelling inflows into fixed income, and while we can focus on Australia, let’s not forget the 10yr German bund now sits at -16bp, and the lowest since 2016. This notion of negative yields isn’t new though, and we can see the total value of all outstanding debt rising to a massive $10.828t and the highest since early 2015. In the US, we see the US10yr Treasury closing -5bp into 2.26%, and it’s always good to look this market on the weekly chart, where we see just a textbook downtrend and what is effectively a rampant bull market.

The total value of all outstanding bond with a negative yield – $10.828t

The outperformance from the long-end of the US Treasury curve has resulted in a further flattening, with much talk about the fact US 10yr Treasuries yield 8bp less than 3-month Treasuries. We can also look at the fact US5s command a lower yield than US 2s, and this inversion has been a solid precursor for future Fed easing cycles, which is what we see in the Bloomberg chart. Where aside from a period in 1995, we have seen inversion between 2s and 5s resulting in the Fed cutting rates, albeit with a lag effect. The fact we see 28.5bp of cuts now priced into US interest rate market by year-end backs this point, and in the eyes of the market it’s a matter of ‘when’ and not ‘if’.

There are so many worrying signals flying around in fixed income, and one questions how much lower yields can go if we get a poor China PMI report on Friday, and a US core PCE below 1.50%.

All eyes on inflation expectations

I flagged the idea of watching broad financial conditions yesterday, but we know the Fed (and all central banks really) are not just looking at inflation, but inflation expectations. We can measure and trade these in the bond market, through instruments known as ‘breakevens’, and if we focus on five-year expectations, we can inflation expectation’s heading lower, and this has to be a concern. In the US, we have seen this falling to 1.85% from 2.12% in April and eyeing the year-to-date lower of 1.77%.  A break here and I would expect the Fed’s language to shift markedly, especially if it marries with a broad tightening of financial conditions.

white – US 5-year inflation expectations, yellow – European 5yr expectations

The article was written by Chris Weston, Head of Research at Pepperstone

Aussie Dollar is Worst G10 Currency So Far in May, Leading Up to Weekend’s Elections

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After testing the 0.72 resistance level mid-April, the downward momentum for AUDUSD has gathered pace going into the current month, as the re-intensification of US-China trade tensions, coupled with the recent negative data in the domestic jobs market, have ramped up expectations for a rate cut by the Reserve Bank of Australia. Since enduring a massive leg down on April 24, AUDUSD has fallen further away from the 0.70 psychological level. As headwinds grow stronger surrounding the currency pair, a meaningful break below 0.68 may even open a path towards the 0.65 level.

AUDJPY testing 76 support level

Amid the risk aversion that has permeated the markets last week, demand for safe haven assets have surged, prompting AUDJPY to test the 76 support level. The bearish channel appears firmly entrenched for the time being, as another bout of risk-off sentiment may see the currency pair opening a path towards the 75 psychological mark and below.

EURAUD to register new 2019 high?

EURAUD is well on its way back towards its year-to-date high of 1.635, which came before the flash crash that took place on Jan 3. Even against the dismal Eurozone outlook, the Australian Dollar hasn’t been able to hold its own ground against the bloc’s currency. Should this bullish momentum take the currency pair past the 1.63 handle, a new high for the year then shouldn’t come as a surprise for traders.

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

AUD/JPY Possible Bounce Off the Monthly Support

Dear Traders,

The AUD/JPY has reached the final M L5 camarilla level so we might see a bounce in the form of a counter trend move–>

Trade War between the US and China could also result in a lot of positive trade to Australia, as China may stop purchasing US agricultural products and energy from the US. Who is gonna fulfil that surplus? AUS and NZ. If that happens the Australian Dollar should benefit.

At this point technically speaking the AUD/JPY is at the M L5 camarilla looking for a bounce. 76.00-15 is the zone. The first target is 76.48. A close above and we should see 77.42.  Of course, the AUD/JPY is a medium speed moving pair -ATR(5) is 72 pips so it might take some time to get there.  Watch for a continuation of bearish trend only below 75.65.

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

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Many green pips,
Nenad Kerkez aka Tarantula FX
Elite CurrenSea

EURJPY Sinks to Flash Crash Levels as Yen Welcomes Risk Aversion

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This unfavorable development has added another layer of uncertainty ahead of crucial negotiations between the two countries. With fears elevated over trade talks crumbling as Trump prepares to raise tariffs on Chinese goods, investors have scattered from riskier assets to safe-haven investments like the Japanese Yen.

The Yen has warmly welcomed the risk-off mood today, especially when considering how it has appreciated against all major currencies including the Dollar. Focusing on the technical picture, the USDJPY is under pressure on the daily charts with prices trading below 110.00 as of writing. A daily close below this level is seen opening a path toward 109.00.

EURJPY eyes 122.50 support level

Risk aversion has instilled Yen bulls with enough inspiration to drag the EURJPY towards flash crash levels witnessed in January 2019.

The currency pair fulfills the prerequisites of a bearish trend on the daily charts as there have been consistently lower lows and lower highs. A solid breakdown and daily close below 122.50 is likely to encourage a drop towards 121.00.

GBPJPY tumbles below 143.00

The combination of Pound weakness and Yen strength has excited GBPJPY bears this week with prices dipping below 143.00 as of writing. Prices are bearish with further downside on the cards amid the risk-off sentiment. The first key level of interest will be around the 141.50 point.

AUDJPY edges towards 76.00

We remain bearish on the AUDJPY below the 77.50 level. Should prices sink below the 76.00 level, this may open the gates towards 75.00 and lower.

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Yen Bulls gain Confidence

That is the case right now as tensions around the trade wars between China and US are increasing. All three setups are pretty similar to each other and the correlation between them is high.

First one is the CHFJPY, which on Monday, broke the crucial long-term support using the bearish gap. The breakout, from the technical point of view, was promoted by the descending triangle pattern. After the breakout, the price rushed to close the gap and created the pennant formation. Pennant was promoting a further slide and this is precisely what happened. The sentiment right now is definitely negative.

AUDJPY is the second one and here we also had a gap, which allowed to break a major support. In this case, the support is dynamic and connects higher lows since January. Traders managed to close the gap and after that, immediately started to sell. As long as we stay below the black line, bears have bigger chance for a success.

Last one is the GBPJPY loved for its volatility. Most recently, the price managed to break crucial horizontal support on the 143.8, which gave us a proper sell signal. Whole slide was initiated at the beginning of May with a very nice false breakout pattern. When you see this, tell me, how can you not love this kind of setups?

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