- Australia's ASX 200 index rose by 103.9 points (1.44%) and currently trades at 7,314.40
- Japan's Nikkei 225 index has risen by 227.7 points (0.0071%) and currently trades at 32,454.67
- Hong Kong's Hang Seng index has risen by 109.46 points (0.59%) and currently trades at 18,593.49
- China's A50 Index has fallen by -32.96 points (-0.26%) and currently trades at 12,673.53
UK and Europe:
- UK's FTSE 100 futures are currently up 23.5 points (0.31%), the cash market is currently estimated to open at 7,488.49
- Euro STOXX 50 futures are currently up 17 points (0.39%), the cash market is currently estimated to open at 4,343.47
- Germany's DAX futures are currently up 46 points (0.29%), the cash market is currently estimated to open at 15,976.88
- DJI futures are currently up 48 points (0.14%)
- S&P 500 futures are currently up 7.75 points (0.17%)
- Nasdaq 100 futures are currently up 41.5 points (0.27%)
Australian inflation was softer than expected
Australia’s weighted CPI slowed to a 17-month low of 4.9%, beating estimates of 5.2% y/y and lower than the 5.4% prior. And that’s exactly what the RBA, and pretty much every mortgage holder wants to see. Inflation decelerating, faster than expected. For now this further solidifies the case for the RBA to hold rates at 4.1% in September, given the falls in job growth and participation rate alongside rising unemployment. Although some are quick to point out the risks of rising wages in the coming months and higher petrol prices, which are yet to show up in the data.
The US dollar and yields remain the bigger theme
Whilst this has seen AUD/USD knocked from its perch, the bigger story remain lower US yields. And if US data continues to come in soft, the Aussie still looks oversold to my eyes and bears may still get squeezed.
The JOLTS report reignited hopes that the Fed’s peak rate is already in place, which made bond bears nervous and sent yields lower. And that means it is all about the US dollar and yields, and if US data continues to soften we can expect higher gold prices on the back of reduced bets of another Fed hike. Of course, the risk here is that the JOLTS report was a lone wolf and that US GDP and NFP data comes in hot, in which case hold on to your hats as we could easily see Tuesday’s moves reverse if incoming data disappoints.
But first we have a host of inflation prints from parts of Europe. Spanish CPI kicks of at 08:00 GMT, with German state CPIs at 09:00. Eurozone business and consumer surveys are scheduled for 10:00, ahead of Germany’s nationwide inflation report at 13:00. Attention then shifts over to US data, including the ADP employment report at 13:15 then preliminary GDP data for Q2 at 13:30.
- 1-day implied volatility has risen above its 20-day averages for all forex majors, although not by am extreme amount. EUR/USD has risen the most, at 151% of its 20-day MA.
- A noteworthy pattern in recent days is that weaker-than-expected US economic data has seen several of the CESI spreads we track converge, which basically points to a weaker case for the US dollar in favour of the currencies it trades against
- The negative CESI spread on EUR/USD continues to diminish in a prominent fashion, with a similar pattern emerging on NZD/USD and USD/JPY
- USD/CAD formed a double top on the daily chart just beneath the April and May highs, which suggest a near-term top (at the minimum) has been set
- USD/JPY has retraced to the 146.26 lows as suspected in an earlier report, and given the magnitude of losses yesterday it is still possible we could see another high as prices try to fill liquidity gas.
- But take note of the potential key reversal bar which formed on the daily charts, even if it was exclusively driven by the weaker US dollar.
EUR/USD technical analysis (daily chart):
Have we finally seen the low? We’ve certainly been waiting enough for it to happen if it is. A large bullish candle formed which rallied from the 200-day EMA on Tuesday, although it found resistance at the 100-day EMA and 1.0900 handle. Still, any low volatility pullback towards the July low is of interest, in anticipation of its next leg higher. A break above 1.0900 assumes a run for 1.1000.
DAX technical analysis (daily chart):
The DAX may have invalidated its bullish channel on the daily chart, but it does now show the potential to continue high over the near-term. The decline from the all-time high (ATH) found support just above the 200-day EMA and July low, and has since formed a higher low and broken above last week’s high. RSI (14) also dipped into oversold territory, which is deemed as below 40 as the market is within an uptrend.
With a host of economic data due over the next three days, it leaves the potential for a pullback towards the 100-day EMA or slightly deeper. But whilst prices remain above Friday’s low, dips could be welcomed to better position bulls for its next potential leg higher.
Gold technical analysis (daily chart):
I noted the potential for spot gold prices to find support whilst futures remained above 1900. Spot gold prices have now risen over 2.8% in six days, although met resistance around the 1938 – 1940 zone, which was a high-volume-node (HVN) from the current decline, a level which can act as a magnet and resistance for prices.
A retracement from current levels would be welcomed as it could help improve the potential reward to risk ration for bulls.
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