Daily Market Report

FOREX.com · Oct 4, 2023

WTI crude oil plunges, USD, yields retrace: Asian Open – 05/10/2023

The combination of softer US economic data and yields pulling back from their highs allowed risk assets to sigh in relief and lift themselves cautiously from their cycle lows. The ISM services PMI expanded at a slower pace and the rate of US job growth slowed for a third month according to the ADP employment report. At 89k, it was the slowest rate of job growth since the data was last negative in January 2021. And whilst its m/m correlation with NFP can be at times spurious, their trends tend to follow one another over the long term so helps to set the tone for NFP on Friday to a degree. The ISM pulled back to 53.6 from 65.4 and new orders expanded at their slowest pace in nine months.

Wall Street was cautiously higher with the S&P 500 and Nasdaq erasing all of most of Tuesday’s losses, whilst the bounce on the Dow Jones only retrieved around half of the prior days selloff. But in all cases the recoveries are meek in the grand scheme of things.

Oil prices stole the show with WTI crude oil plunging around 5.4% during its worst day since September. Weak employment is clearly a red flag for oil prices, and its acceleration to the downside below $80 brings $100 back into question. Separately, OPEC+ kept their oil output policy unchanged as widely expected and are not set to meet again until November 26.

The RBNZ held interest rates at 5.5%, although the meeting was seen as a dovish hold as they continue to expect growth to soften despite GDP surpassing expectations. NZD closed flat after recovering from its 18-bar low, AUD/USD printed a small bullish inside day around its 10-month low thanks to a softer US dollar.

The Bank of Japan have taken a ‘neither confirmed nor denied’ approach when asked about whether they intervened in the currency markets. If anything, they may have at least tested the waters, but in either case USD/JPY trades in a shell-shocked state well within Tuesday’s range around 149, making it a less exciting pair to trade.

Events in focus (AEDT):

Public holiday in China
10:00 – South Korean CPI
11:30 – Australian trade balance
11:30 – Hong Kong manufacturing PMI
17:00 – German trade balance
18:30 – German S&P Global construction PMI
19:30 – UK construction PMI
20:45 – ECB Lane speaks
22:30 - US Challenger Job cuts
23:30 – US jobless claims, trade balance
23:30 – Canada trade balance
01:00 – Canada IVEY PMI
02:30 – FOMC Member Barkin Speaks
03:00 – FOMC Member Daly speaks
03:15 – Fed Vice Chair for Supervision Barr Speaks

ASX 200 at a glance:

The ASX 200 printed a fresh YTD low and closed marginally beneath key support around 6900
However, it has not closed sufficiently enough below 6900 to call it an outright breakout in my books
SPI futures rose 0.45% and Wall Street lifted itself from its lows, meaning the ASX cash index is expected to open around 6920 today
However, energy stocks could be in for a nasty open due to plunging oil prices on Wednesday
Overall the bias remains as outlined in yesterday’s report; we’d prefer to seek bearish opportunities around resistance levels or bearish

WTI crude oil technical analysis (1-hour chart):

A Marabuzo candle formed on the daily chart of WTI crude oil, which means it is a elongated engulfing candle with little or now wicks. In this case, it close at the ow of the day and as WTI’s worst day since September, and closed beneath the lower trendline of its bullish channel. Delta volume for the day (bids – asks) were highly negative to show bears aggressively entered. And those positions are likely to be defended and even added to if economic data for the week continues to point to a soft economy.

However, with the January and April highs Nearby for potential support, bears may want to be cautious around these lows. In fact, if economic data pics up for the US (and in particular tomorrow’s nonfarm payroll report) then WTI may provide a bounce. IN which case we’d look for a near-term upside target around $87, at the Marabuzo line (50% retracement of the bearish candle’s open to close range). Bears could also seek evidence of a swing high to see if the market wants to turn lower. But with volatility picking up as it has, traders may want to remain nimble and be prepared for volatile moves in either direction.

USD index technical analysis (daily chart):

As exciting as it was to see the US dollar retrace from its highs along with yields, the pullback is a drop in the ocean compared to their prior rallies. It’s possible that the dollar’s retracement could deepen, but there’s no immediate threat to its bullish trend whilst prices remain above the 105.65 low. The March high is also within the vicinity to provide potential support, and unless we see a notably weak nonfarm payroll report with refreshingly dovish comments from the Fed. And that seems unlikely at present.

FOREX.com · Oct 5, 2023

EUR/USD claws its way up from its lows: European open – 05/10/2023

Asian Indices:

Australia's ASX 200 index rose by 41.7 points (0.61%) and currently trades at 6,931.90
Japan's Nikkei 225 index has risen by 499.28 points (1.64%) and currently trades at 31,026.16
Hong Kong's Hang Seng index has risen by 130.35 points (0.76%) and currently trades at 17,326.19
China's A50 Index has fallen by -72.69 points (-0.58%) and currently trades at 12,398.05

UK and Europe:

UK's FTSE 100 futures are currently up 38.5 points (0.52%), the cash market is currently estimated to open at 7,450.95
Euro STOXX 50 futures are currently up 26 points (0.63%), the cash market is currently estimated to open at 4,125.85
Germany's DAX futures are currently up 78 points (0.51%), the cash market is currently estimated to open at 15,177.92

US Futures:

DJI futures are currently up 13 points (0.04%)
S&P 500 futures are currently up 2.25 points (0.05%)
Nasdaq 100 futures are currently up 11.25 points (0.08%)

We saw some movement in yen pairs which prompted some to question whether the BOJ had once again intervened. If they had it was slightly underwhelming by historical standards, although worth noting the USD/JPY’s daily range was around 120% of its 10-day average in just a couple of hours. I suspect it’s more likely large funds are changing their risk tolerance given the negative sentiment around bond markets and upcoming data such as Friday’s NFP and next week’s US inflation report.

The Australian dollar was the strongest FX major during Thursday’s Asian session due to a combination of strong trade data and a slight bounce on risk markets the day prior. Australian exports rose 4% y/y and imports were flat at 0%, helping the trade surplus to rise to a 2-month high. AUD/USD rose around 0.8%, gold and oil tracked Asian indices slightly higher from their cycle lows.

Events in focus (GMT+1):

07:00 – German trade balance
08:30 – German S&P Global construction PMI
09:30 – UK construction PMI
10:45 – ECB Lane speaks
12:30 - US Challenger Job cuts
13:30 – US jobless claims, trade balance
13:30 – Canada trade balance
15:00 – Canada IVEY PMI
16:30 – FOMC Member Barkin Speaks
17:00 – FOMC Member Daly speaks
17:15 – Fed Vice Chair for Supervision Barr Speaks

US employment data remains key for sentiment, so it’s good to see jobless claims and job cuts fresh scheduled today, fresh on the back of yesterday’s weak ADP employment print. If we see the cracks widen with rising claims and job cuts, then it sets the stage for a weak nonfarm payroll report tomorrow. And whilst that would clearly be bad news for the economy, it could further stimmy the bond rout to send prices higher and yields lower. And provide another leg higher for risk assets today.

Take note that the 1-day implied volatility level for EUR/USD is 183% of its 20-day EMA, and that makes sense due to the importance of today’s employment figures, speeches from the Fed and ECB and data from Europe.

EUR/USD technical analysis (1-hour chart):

The weaker US dollar helped EUR/USD move higher in line with the near-term bias on Wednesday, although its pullback as higher than expected. And given bullish divergence on RSI (14) and the clues on the bond market that yields may pull back at least a little further, I suspect the euro may have some more upside potential up its sleeve.

From here I like dips towards the 1.0500 / Jan low area, and for a move to the weekly pivot point / +IV 1-day level. At which point I’d reassess its potential to extend higher or form a swing high and revert to its established bearish trend.

FOREX.com · Oct 5, 2023

Gold and AUD/JPY hint at reversals: Asian Open – 06/10/2023

Market Summary:

There were no surprises in Thursday’s US employment figures to provide much of a lead for today’s nonfarm payroll report, with jobless claims rising a modest 2,000, continuing claims down -1,000. Although layoff rose 47.5k, down from 75.2k previously.
Fed’s Daly warned there are “real risks” with the Fed’s inflation projection, and that the Fed need to see progress on super-core inflation to be sure they are on target for 2% (super core CPI is services less energy and housing)
Bank of England’s (BOE’s) deputy governor Ben Broadbent said that it remains an open question as to whether further interest rate hikes are required
Bond prices stabilised for a second day, helping yields moderate and send the US dollar lower again on Thursday.
This allowed Wall Street indices to hold their ground again, and while they fell far short from any sort of rebound the S&P 500, Dow Jones and Nasdaq 100 held above their recent cycle lows
If there were any signs of risk-on it could be seen on NZD/USD and AUD/USD, which rose 0.9% and 0.7% respectively and were the day’s strongest forex majors. USD was the weakest FX major.
The Nikkei 225 rallied from its 200-day EMA in line with yesterday’s bias, although its upside potential from here depends on sentiment today across the APAC region ahead of the NFP report (so we may find its upside potential is limited if investors de-risk)
WTI crude oil extended its slide and closed beneath the January and April highs, which brings the 200-day EMA into focus just above the $80 handle

Events in focus (AEDT):

Public holiday in China
10:30 – Japan wage data, Japan household spending, wages
11:30 – RBA Financial Stability Review
23:30 – Nonfarm payroll
23:30 – Canadian employment report

ASX 200 at a glance:

The ASX 200 formed a small bullish inside day on Thursday, and managed to close back above key support around 6900
SPI futures were flat and the underwhelming close on Wall Street makes for an uninspiring open
Due to the lack of relevant data and NFP hanging in the air, happy to have a neutral bias for the day and wait for better clues next week
If I had to pick a direction, perhaps it can move higher as it reclaimed key support on Thursday – but just how far depends on sentiment across the APAC region today

Gold technical analysis (daily chart):

I’ll admit that the decline in gold towards 1800 unfolded much faster than I expected. But after nine consecutive bearish days, the last three of which have been much smaller ranges with higher and lower wicks, perhaps it is time to mean revert higher. 1800 is a level of support I suspect to be vigorously defended, at least initially. Therefore bulls could seek dips towards that level, wait for a break above the current consolidation highs or simply enter at market within the consolidation if confident an inflection point is near. The 1850 – 1858 zone makes a likely resistance area, where I’ll reassess its potential for a swing high or breakout towards the upper trendline of the channel if it rallies from current levels.

AUD/JPY technical analysis (daily chart):

A classic barometer of risk for currency traders, AUD/JPY saw a -4% decline from Friday’s shooting star high and Tuesday’s low before the 200-day EMA and February high came to the rescue. We have since seen two modest up days, which raises the question as to whether we’re approaching an inflection point for its next leg lower – which would make this a dead-cat bounce (DCB). A true DCB would require a break of Tuesday’s low, and that would assume another round of large-scale risk-off. The reality is that I have no idea as to if that will occur, but I do suspect the pair will at least move lower initially and try and retest those lows – which itself could provide an opportunity to enter short.

The key, if ever there was one, is to monitor lower timeframes and seek clear evidence of a momentum shift lower (for example, a bearish engulfing candle on the 1-hour,). If this occurs around resistance it can provide greater confidence a swing high is in place). Take note that the weekly S1, 50% retracement level, broken trendline and prior swing highs land around 95.0, which make it an area of interest for bearish setups.

FOREX.com · Oct 5, 2023

EUR/USD tries to snap its record losing streak: The Week Ahead – 06/10/2023

EUR/USD tries to snap its record losing streak: The Week Ahead

EUR/USD is on track for a record 12th consecutive losing steak. But given its hesitancy to test 1.04 and the potential for a false break of the January low, perhaps we’re finally nearing an inflection point for the battered EUR/USD.

Of course, to see this tide turn we’ll likely need to see a weaker US dollar. And that likely needs to see bond investors step up their game and suppressing worryingly high yields. And that means that for another week the performance of bond markets takes precedence over economic data, although next week’s US inflation report could exacerbate the bond rout if it comes in uncomfortably hot. We also have inflation data from China, along with key loan data and a trade balance report.

The week that was:

It has not been an enjoyable start to the quarter for investors long risk so far, with rising bond yields continuing to choke sentiment
A strong JOLTS job openings report alongside further hawkish comments from Fed members saw bets of another 25bpp Fed hike in November rise to around 30%, up from 16% according to Fed Fund futures
Although a weak ADP job growth report generated some excitement that NFP could disappoint
The bond market rout subsided by midweek, which allowed yields and the US dollar to pull back and let investors catch their breath and Wall Street find its footing ahead of NFP
EUR/USD and AUD/USD lifted themselves from their cycle lows and gold is considering following them at the time of writing
Plunging oil prices were met with mixed feelings, because whilst lower oil is deflationary the reason they were falling were due to concerns of a recession
OPEC+ kept their oil output policy unchanged, although the risks of further output cuts are apparent if oil prices keep falling
Bank of England’s deputy governor warned that whether they hike further remains an open question
The ISM manufacturing showed signs of improvement with the main index contracting at its slowest pace in 10 months
Rumours of a Bank of Japan (BOJ) intervention were rekindled with a 300-pip slide on USD/JPY shortly after it broke above 150
The BOJ have remained silent on the topic, so we may need to wait until their November minutes to find out if they had indeed intervened

The week ahead (calendar):

The week ahead (key events and themes):

Global bond rout, USD rally
US inflation, producer prices
China inflation, trade balance, loan data
UK data dump (GDP, industrial production, manufacturing production)
US consumer sentiment

Global bond rout

This week I noticed a rise of alarms bells being rung across social media, from veteran traders who are not usually over sensational. And I’ll admit to it making me a tad worried. When I pulled up a 10-year bond price chart and noted a lack of support for the 10-year prices, I had to ask myself if bondcano really is just getting started. Either way, the plunge in bond prices and its drastic impact on rising yields remains a key driver for market sentiment. And if they pull back from their highs, it could provide breathing room for appetite for risk to make a return.

Market to watch: Yields, EURUSD, USD/JPY, WTI Crude Oil, Gold, S&P 500, Nasdaq 100, Dow Jones, VIX, AUD/JPY

US inflation, producer prices

Whilst the bond rout takes centre stage, next week’s inflation data is the next in line as it could have a direct impact on bonds (and therefore global assets). We saw the monthly gauge of CPI and core CPI rise in August, and if they continue to accelerate it could exacerbate the bond rout to send yields and the US dollar higher, to the detriment of risk appetite. It would likely take a particularly soft inflation report to restore appetite for risk, but right now I think battered investors would be happy with a pause from rising yields.
Also note that producer prices are released for the US, which are a key inflationary input for consumer prices.

Market to watch: EURUSD, USD/JPY, WTI Crude Oil, Gold, S&P 500, Nasdaq 100, Dow Jones

China inflation, trade data, investment, loans

A little scenario planning can go a long way, especially when it comes to trading. But if we are to find that consumer prices for the US and China are rising in tandem next week, it could have a huge knock-on effect for markets. And that is not particularly so far fetched given China’s producer prices have seemingly troughed and CPI rose 0.1% y/y after a since month of deflation.
Loan data will also reveal if the pickup in loan demand is sustained, but failure to do so points to softer growth prospects. We’ll also keep an eye on trade data to see if there’s been a pickup in domestic and overseas demand.

Market to watch: USD/CNH, USD/JPY, S&P 500, Nasdaq 100, Dow Jones, VIX, AUD/JPY

EUR/USD weekly chart:

At the time of writing, EUR/USD is on track for its 12th consecutive bearish week. According to data from ICE (intercontinental Exchange), the previous record for losing weeks was 10 – so it set a record last week. If I look at the bond rout and rising yields, it is one of those macro moves that simply makes a mockery of traditional technical analysis and their ‘overbought’ or ‘oversold’ levels. But then I look at the EUR/USD weekly chart and seriously question if we’re at or near an inflection point for the US dollar. And if so, that also assumes bond yields are also near or at an inflection point.

Unless today’s nonfarm payroll report is outrageously strong, EUR/USD might be able to close the week above the January low and deem the initial break as a ‘fakeout’. If it closes at or above current levels, EUR/USD would also have a bullish hammer week up its sleeve. And whilst that doesn’t guarantee we’ll see a sharp rebound from current levels, it should at least serve as a warning for EUR/USD bears, and excite EUR/USD bulls who want to quietly load up at these lows in hope of an eventual rally – which assumes a weaker US dollar and bond yields.

FOREX.com · Oct 8, 2023

WTI crude oil suffered its worst week in 6 months: Asian Open – 09/10/2023

Market Summary:

Nonfarm payroll job growth blew past expectations on Friday, rising 336k versus 170 forecast and 227k previously. August’s figure was also upwardly revised from 180k.
Unemployment rose to 3.8% from 3.7%, and average hourly earnings (and inflation input) rose just 0.2% compared with 0.3% expected. This took the edge off of the strong job growth figure, and Fed Fund futures continue to imply that the Fed will hold rates at their next meeting in November
Canada’s strong employment report upped the odds of another Bank of Canada interest rate hike, with 63.8k jobs added and average hourly earnings rising to 5.3%
The US dollar snapped an 11-week winning streak and formed a bearish pinbar week to warn that its 7.8% rally is in need of a pause or retracement
Oil suffered its worst week in six months, with WTI crude oil falling over -8% due to demand concerns. However, oil prices found stability on Friday and traders are now watching developments in the Middle East to see if Iran’s declaration of war with Palestine will escalate and effect supply.
Gold fell for a third week, although bearish volatility was around a third of the prior week’s and prices are showing signs of stability above the YTD low and $1800
AUD/USD fell for a third week, although it found support above 63c and closed back within its 110-pip range that the open to close has finished in over the past seven weeks
Volumes should pick up in Asia this week with China returning from a 1-week public holiday

Events in focus (AEDT):

Public holiday in Japan and Canada
No major economic new is schedule in today’s Asian session
17:00 – German industrial production
19:30 – EU Sentix investor confidence
00:00 – Fed Logan speaks
00:15 – Fed Vice Chair for Supervision Barr speaks
01:00 – US employment trends index
03:50 – Fed Governor Jefferson speaks

ASX 200 at a glance:

The ASX 200 rallied for a second day on Friday as it recovered from its false break of key support around 6,900
7,000 remains a likely level for bears to fade into, but it would also be an important level for bulls to conquer and open up a run for 7,100
Global sentiment remains a key driver for the ASX, and the best bet of the ASX staging a recovery rally is if yields were to retrace meaningfully. But as of yet there are no obvious signs of a top.

WTI crude oil technical analysis (1-hour chart):

Oil prices stabilized on Friday, with WTI crude oil posting a small bullish candle and helping RSI (2) move higher from oversold to hint at a swing low on the daily chart. The 4-hour chart shows that the decline is trying to form a base above $80, and that several upper and lower wicks coincide with a loss of bearish momentum. This suggests that prices are trying to form a base and may try to bounce higher. $85 is an initial target for bulls to target, a break above which opens up a run for $88 as there is little in the way of resistance above this level. If bears maintain control, $80 is the next major level to focus upon.

FOREX.com · Oct 9, 2023