Daily Market Report

[FOREX.com]

ASX 200, Nikkei 225 futures diverge from Wall Street: Asian Open May 31, 2024​

By : Matt Simpson, Market Analyst

The US economy grew slower than originally estimated and prices remained elevated in the first quarter, according to a revised GDP report. Q1 growth was downwardly revised to 1.3% from 1.6% (3.5% in Q4), consumer spending was lowered to 2% from 2.5% (3.5% previously). Core PCE prices were a touch softer at an elevated level of 3.6%, down from 3.7% (3.7% previously).


Markets looked past the higher prices on the eve of a key PCE inflation report, focussing on the likelihood that weaker growth and consumption could prompt the Fed to cut rates sooner. US yields dragged the US dollar lower which was the weakest FX major on Wednesday, seeing the USD index hand back most of Tuesday’s gains. The 2-year now trades at 4.92 after meeting resistance at 5% on Tuesday.

Gold recovered back above Friday’s low after falling to a 3-week low ahead of the European open. Copper prices remain near its daily low after reaching a 3-week low of its own. The Bloomberg commodity index tracked Wall Street indices lower for a second day on demand concerns. Crude oil also down for a second day on oversupply concerns, with the 1-day Brent timespread moving into contango for the first time since January. Traders shrugged off lower stockpiles, and WTI reversed Tuesday's gains made on reports that OPEC+ planned to extend their oil production cut at Sunday's meeting.


Click the website link below to get our exclusive Guide to index trading in Q2 2024.

https://www.forex.com/en-us/market-outlooks-2024/q2-indices-outlook/

Nikkei 225 technical analysis:​

Earlier this week I outlined a bearish scenario for the Nikkei 225, based on price action on market positioning of asset managers from the commitment of trader report (COT report). I’ll admit that momentum turned lower than I expected. In fact it was within hours of the article being publish, so a bit of luck was on my side this week. You can view the article below.


The daily chart shows a clean break out of the correction pattern (wave B), which suggest a move at least to the cycle lows around 37k. Although wave equality projects a downside target around 35k. However, the daily RSI (2) reached oversold on Thursday and support was found at the 100-day EMA. The market is now trying to carve out an inside day, although so far respecting the 38,360 low as resistance. Ultimately, the core bias remains for a move to at least 37k and to fade into rallies below 38,500.


The 1-hour chart also shows RSI (2) reached oversold, so perhaps bears will be treated to another leg higher before momentum rolls over once more. Notice the high-volume node at 38,450 and the 100-bar EMA, which could provide resistance should prices break above Friday’s low.

Related analysis:​

The Nikkei 225 has been added to my watch (out below) list

ASX 200 at a glance:​

• 7 of the last 8 days have been losses for the ASX 200 (the last 3 days have also been lower)
• The ASX 200 is on track for a second bearish week and month
• Perhaps this points to some overdue mean reversion higher to prompt a bounce

ASX 200 futures (SPI 200) technical analysis:​

The daily chart shows that the ASX 200 futures market found support around the 100-day EMA on Thursday before reverting higher overnight. A bullish divergence has also formed on the daily RSI (2) within the oversold zone. Odds seem to favour at least another leg higher towards the 7730/40 resistance zone over the near-term.


The 1-hour chart shows heavy volumes at the cycle low, near the weekly S2 pivot point. Prices have since recovered back above the weekly S1 pivot which is now provide support.


Today’s bias is for a move towards trend resistance / 7340 area. Whether it can break higher or simply roll over is likely down to sentiment towards Wall Street and the outcome of the PCE report released later (hot inflation figures likely send indices lower, whereas a weak set of figures could be bullish for sentiment).

Economic events (times in AEST)​

• 09:30 – Japan’s CPI
• 11:30 – Australian housing credit (ABS)
• 11:30 – China’s PMIs (NBS)
• 12:00 – New Zealand annual budget release
• 15:00 – Japan’s construction orders
• 19:00 – European CPI
• 22:30 – US PCE inflation
• 22:30 – Canada’s GDP

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex, commodity futures, or digital assets, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to FOREX.com or GAIN Capital refer to StoneX Group Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

 

[FOREX.com]

AUD/USD weekly outlook: June 3rd 2024​

Q1 GDP is the main domestic event for AUD/USD, although it is likely to be overshadowed by key ISM and NFP reports from the US regarding the Australia dollar's next directional move.

By : Matt Simpson, Market Analyst

Q1 figures for Australian GDP are released on Wednesday, and if Q4 figures are anything to go by, it could be a lacklustre affair. If growth continues to soften, it further cements the case for the RBA to not hike, but we still seem no closer to them discussing cuts unless we see a material breakdown of incoming data. AUD/USD went on to rally 1.8% over the next two days after March’s GDP report, but that was thanks to dovish comments from Jerome Powell during his testimony to congress.

US data remains a key driver for AUD/USD traders, as it directly influences expectations for potential Fed rate cuts, and the AUD tends to move inversely to those expectations. The ISM reports serve as a prelude to Friday's nonfarm payroll report, with the services report arguably being the more important of the two. While last month's reports indicated contraction in both manufacturing and services PMIs, the 'prices paid' component grew at a faster pace, highlighting persistent inflationary pressures. Given that the S&P global flash PMIs expanded at a quicker rate, there's a possibility that the ISM PMIs will also expand. Should this be coupled with higher prices paid, it could once again dampen hopes of Fed rate cuts, support US yields and the dollar, and negatively impact AUD/USD (and broader risk sentiment).



Friday’s Nonfarm payrolls report will get the final say for how AUD/USD finishes the week. Expect traders to be on high alert for even the slightest whiff of softer jobs figures, especially if the ISM PMIs disappoint. Last month’s NFP report revealed slowest job growth in 6 months, softer earnings and an unemployment



The ECB is expected to cut interest rates by 25 basis points (bp) next week, which should mark their first cut in eight years. However, given mixed messages from ECB speakers and small signs of a strengthening economy, I doubt they will signal any further cuts. Therefore, I suspect they’ll remain tight-lipped over any future action and cling on to ‘data dependency’.



There has been speculation that the Bank of Canada (BoC) might also cut rates next week, with approximately 62% of economists polled by Bloomberg backing the move, compared to a 44% chance implied by money markets. All three of the BoC's preferred inflation measures are now within their 1-3% target band, so the case for a cut is certainly there. Personally, I'm leaning towards a dovish hold. And if they do cut, I very much doubt they'll feel the need to signal any further cuts at the meeting, given they would be the first major central bank to cut rates this cycle.

AUD/USD 20-day rolling correlation​

• The inverted relationship with the US dollar remains strong with a 20-day rolling correlation of -0.95 for AUD/USD to the USD index.
• Gold and copper are the next strongest correlations, at 0.75 and 0.68 respectively.
• Although we can see that AUD/USD actually rose into the back of the week whilst gold and copper were lower following a softer PCE inflation report from the US.
• The yield differentials remains seemingly irrelevant with rolling correlation of -0.1 (zero means there is no correlation).

Click the website link below to get our exclusive Guide to AUD/USD trading in Q2 2024.

https://www.forex.com/en-us/market-outlooks-2024/q2-aud-usd-outlook/

AUD/USD futures – market positioning from the COT report:

COT data has been delayed due to the public holiday in the US last week, so updated data will arrive tomorrow.



As a reminder:

• Net-short exposure to AUD/USD futures has declined five of the past six weeks among large speculators
• Their net-short exposure is at the least bearish level since late January and gross longs rose to a 2-month high
• However, positioning of asset managers (real money accounts) remained effectively flat, with net-short exposure remaining near its least bearish level since late January

AUD/USD technical analysis​

A bullish inside week formed on AUD/USD, which provides little in the way of clues for its next directional move. Although we have seen a 2-bar reversal on the weekly chart around 67c (dark cloud cover) and 100-week EMA. And as the US dollar index is holding above its December trendline, it seems upside potential for AUD/USD may remain limited. But the same could be said for downside with net-short exposure seemingly on the decline.



The daily chart shows prices are oscillating between 0.6600 – 0.6670 for the past eight days. Moving averages reside around the lower 1-week implied volatility level ~0.6580 and the 100-week EMA and trend resistance loom overhead. For AUD/USD to rally likely requires soft PMIs and NFP reports from the US, but my inkling is that we may be on for another choppy week of trader that is better suited to intraday traders.



The 1-week implied range suggests ~66% chance that AUD/USD could close between 0.6582 – 0.6722, or between 65c and 68c over the next month.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge


The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex, commodity futures, or digital assets, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to FOREX.com or GAIN Capital refer to StoneX Group Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.