Main Market Themes
- key equity indices all ended in the green globally in a day where markets anxiously await ECB policy announcement later today, while Brexit and trade tension somewhat receded.
- It was a rather quiet and listless day punctuated by President Trump’s tweet lambasting the Fed again, calling for the Fed to lower rates to zero or below referring to their “bonehead” decisions of late.
- Meanwhile, global bond markets traded mixed and mainly flat. Both the 2Y and 10Y UST yields ended little changed at 1.67% and 1.74% respectively.
- The Dollar Index climbed steadily through the day to settle marginally higher at 98.65 amid weaknesses in the EUR and GBP.
- Crude oil was down nearly 3.0% as a result of easing US-Iran tension with the WTI and Brent last settled at $55.75 and $60.81/ barrel.
- Markets are expected to be cautious ahead of ECB announcement As things stand, markets are expecting a rate cut, tiering on excess reserves, some form of QE (the exact duration and size is uncertain potentially EUR30bn/month over 12m most likely) and new guidance, the delay in 5% US tariff hikes from 1-October to 15-October on $250bn of Chinese goods is expected to somewhat soothe market jitters.
EURUSD (Intraday bias: Bullish, as 1.0970 survives)
From a technical and trading perspective last weeks move higher on the intraday charts demonstrated impulsive qualities as such today I am bullish above the weekly pivot 1.1010 with a stop just below 1.0970 targeting a move to test the monthly R1 at 1.1160/80
UPDATE …EURUSD traded to the support zone yesterday and buyers duly arrested the decline sub 1.10, ECB battle lines are drawn, offers resting 1.1050/60, if these fail to contain then we should see a quick test of 1.11, bids currently 1.0985/75 a breach of these will likely see retest of last weeks lows 1.0940/20. Note EUR 3.7bn of 1.1000 option strikes maturing today and tomorrow, Options trading desks note a lot of demand for EURUSD gamma in the overnight sessions.
GBPUSD (Intraday bias: Bullish, scope to test 1.2450 as 1.23 supports)
From a technical and trading perspective headline risk weighs with the potential for the pair to retest support towards 1.22 watch for bullish reversal patterns to 1.2185 to set a base for the next leg of the corrective recovery to target 1.26
UPDATE …GBPUSD two key levels of interest, I am looking for a test of 1.2450 where I anticipate offers to cap on an initial test, with the potential for a pullback to test bids towards 1.22, An early breach of 1.23 would open a test of the pivotal 1.22 support, where I will be watching for intraday bullish reversal patterns to set long positions targeting a test of 1.26. Below 1.12150 negates this view.
USDJPY (intraday bias:Bullish,108 achieved as 107.50 supports 109 next)
From a technical and trading perspective the pair retains a bid tone supported by the reversal in US treasury yields, the pair looks poised to test offers above 108, where i will be looking for a tradable pullback to test bids towards 107, as these contain the correction there is the potential to set a base to make a sustained push through 108
UPDATE…USDJPY 1.08 objective achieved, as 107.50 contains the correction there is scope for the current grind higher to test offers above 109 where I will be watching for momentum and sentiment divergence to complete the current sequence and present an opportunity to initiate short exposure targeting a move back through 108 and a retest of bids at 107.50
AUDUSD (Intraday bias: Bullish, offers ahead of .6900 to be tested)
From a technical and trading perspective last weeks intraday price pattern has impulsive qualities suggesting pullback should be bought for another leg of corrective upside, on the day I am looking for the pair to trade with a bid tone, any pullbacks towards the .6800 level will be buying opportunities as the pair should find support setting a base for the next leg higher to target offers above 0.6900
UPDATE …AUDUSD remains buoyant supported by positive news flow on the US/China trade front. As .6840 supports it seems we can make an early challenge on the offers towards .6900 which I anticipate will cap on the initial test, setting a short term top and a tradable correction back to test bids towards .6800. The increasing momentum divergence supports this view and I will be watching for intraday bearish reversal patterns to initiate short positions targeting a .6800 retest from above. Note there are a total of AUD 2.25bn of strikes 0.6890-0.6900 due next week Sept 18.
Please note that this material is provided for informational purposes only and should not be considered as investment advice. Trading in the financial markets is very risky.