US job openings sparked renewed hopes that the Fed’s tightening cycle is done. With layoffs estimated to be 8.8 million, it is still ~70% above its long-term average, but markets don’t care about that! It’s the rate of change that matters. And with job openings falling to a 28-month low, it suggests the labour market is indeed softening, at a time large speculators are irresponsibly short the 2-year bond bills. Needless to say, US yields plunged and the 2-year yield suffered its worst day in 3 months.
It is worth noting that large speculators reached yet another fresh record of net-short exposure to the US 2-year bond note. So yes, they’re now irresponsibly short a market that wants to rise (and send yields lower which move inversely to bond prices).
And with markets ready to pounce on softer US data, any signs of weakness is likely to weigh further on yields and the US dollar. And that could be great for equity market sentiment.
- Wall Street wasted no time in rejoicing at the potential of a peak rate, with the S&P 500 rising to a 13-day high during its best day in nearly four months, the Nasdaq 100 above last week’s high and the Dow Jones rising for a third day
- With SPI 2300 futures rising 0.6% overnight, the ASX 200 could get comfortable above 7200 today and head for 7285-7300
- China’s national team (aka plunge protection team) finally came to the rescue with reports that they were active in the market, helping the China A50 closer to a 13-day high ad the Hang Seng and CSI 200 recoup some of Monday’s late-session losses
- The US dollar was an obvious casualty is US yields fell across the curve
- USD/JPY printed an ominous bearish outside day with a false break above 147 – a level we warned about yesterday
- And it looks like the bearish squeeze on AUD/USD is finally underway, having used 64c as a spring boas yesterday and sending further signals that a countertrend rally from key support levels could be due
Events in focus (AEDT):
After a slow start to the week, economic data is finally picking up. We may need a soft Australian inflation report to keep expectations of an RBA peak rate at 4.1% in check, although right now lower US yields are the bigger driver for currency markets. Of course, a hot inflation print would be the icing on the cake for Aussie bulls today, given the desire for traders to offload their USD yesterday.
But we’ll also keep an ear out for what the BOJ’s Tamura might say at 11:30 AEDT, given the further weakness of the yen. It’s then over to inflation reports from parts of Europe which can provide a lead on the eurozone’s broader CPI report later this week. Eyes then move over to US data, which includes the ADP employment report and preliminary release of Q2 GDP.
- 09:45 – New Zealand’s building consents
- 11:30 – Australian CPI, construction work done, building approvals
- 11:30 – Bank of Japan’s Tamura speaks
- 15:00 – Japan’s household confidence
- 17:00 – Spanish CPI
- 18:00 – Italian CPI, German state CPIs
- 19:00 – European consumer confidence, business climate, CPI expectations
- 22:15 – US ADP employment
- 22:30 – USD preliminary GDP
ASX 200 at a glance:
- The ASX 200 s expected to open around 7250 today, and with the strong lead from Wall Street and SPI futures a move towards 7300 seems achievable
- Intraday support sits around 7250, 7220, 7200
- Intraday resistance sits resistance around 7260, 7285 and 7300
AUD/USD technical analysis (daily chart):
In yesterday’s report I noted that given the “scrappy nature of price action I am a little sceptical of traditional breakouts, and would prefer to seek long opportunities at lower support levels if we see prices pull back and form another higher low”. Well, we saw the initial fake move higher in the Asian session before prices pulled back to 64c abruptly then took off. And this has left a convincing bullish candle on the daily chart - further backs up the hunch that AUD/USD is more likely to produce a countertrend bounce from key support around the 0.6385 – 0.6400 area than simply roll over beneath it. Is a move to 66c now on the cards?
AUD/USD technical analysis (1-hour chart):
A double bottom formed just above 64c, with a high-volume candle forming at the early stages of yesterday’s rally from that key level. I suspect a break of cycle highs and move to 65c seems achievable, although the question now is whether we’ll see a pullback due to AU inflation (if soft) or direct gains if it comes in hotter than preferred. Either way, price action on the weekly and daily charts suggest decent support around 64c, hence the bias to either seek dips or even breakouts higher.
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