Asian Open Dollar Higher on Fed Hawk Banter Equities Lower

Asian Futures:

• Australia's ASX 200 futures are down -7 points (-0.09%), the cash market is currently estimated to open at 7,484.20
• Japan's Nikkei 225 futures are down -40 points (-0.14%), the cash market is currently estimated to open at 27,702.29
• Hong Kong's Hang Seng futures are down -14 points (-0.06%), the cash market is currently estimated to open at 25,401.69

UK and Europe:

• UK's FTSE 100 index fell -25.14 points (-0.35%) to close at 7,124.98
• Europe's  Euro STOXX 50 index fell -11.25 points (-0.27%) to close at 4,169.87
• Germany's DAX index fell -67.04 points (-0.42%) to close at 15,793.62
• France's CAC 40 index fell -10.45 points (-0.16%) to close at 6,666.03

Thursday US Close:

• The Dow Jones Industrial rose 192.38 points (0.54%) to close at 35,213.12
• The S&P 500 index fell -26.19 points (-0.59%) to close at 4,470.00
• The Nasdaq 100 index fell -90.4 points (-0.59%) to close at 15,278.52

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US indices lower, ASX seen an interim top?

A combination of economic data and Fed members reiterating their hawkish views kept hopes of tapering alive overnight.

Employment claims were slightly mixed, with initial claims rising slightly by +4k yet continuing claims fell -3k. By historical standards these weekly changes are negligible, and retain the bigger picture view that employment claims are at or near 17-month lows.

Q2 GDP was upwardly revised by 0.1 percentage points to 6.6% QoQ (annualised) from 6.5%, although this was slightly below the 6.7% consensus. Consumer spending also beat expectations to rise 11.9%. All in all, data overnight was good decent enough and therefore not likely to change the Fed’s course of direction for Jerome Powell’s speech at midnight.

Therefore, the consensus remains for the Fed to announce tapering today, and that weighed on equity markets. All three large cap indices fell from their highs around -0.6%. The 10 of the 11 S&P 500 sectors closed lower, led by energy and consumer discretionary stocks, real estate investment trust sector was the only one to close marginally higher (+0.06%).

The VIX rose to a four-day high before settling at 18.84 as traders hedged exposure ahead of Powell’s speech.

The ASX 200 broke a three-day countertrend rally with a bearish engulfing candle. It formed around the 50% retracement level to suggest the corrective high was seen on Wednesday, although we could also use the 61.8% Fibonacci level to allow extra wiggle room for any potential volatility. The support zone around 7430/50 makes a viable interim bearish target, alongside the bullish trendline. If it reaches such levels we can reassess its potential to revert to the longer-term bullish trend.

ASX 200 Market Internals:

ASX 200: 7491.2 (-0.54%), 26 August 2021

• Telecomm Services (0.56%) was the strongest sector and Utilities (-2.24%) was the weakest
• 2 out of the 11 sectors closed higher
• 10 out of the 11 sectors closed lower
• 5 out of the 11 sectors outperformed the index
• 61 (30.50%) stocks advanced, 131 (65.50%) stocks declined
• 69% of stocks closed above their 200-day average
• 87% of stocks closed above their 50-day average
• 55% of stocks closed above their 20-day average

Outperformers:

• + 15.4%   -  Blackmores Ltd  (BKL.AX) 
• + 4.95%   -  Whitehaven Coal Ltd  (WHC.AX) 
• + 4.04%   -  Flight Centre Travel Group Ltd  (FLT.AX) 

Underperformers:

• -21.42%   -  Appen Ltd  (APX.AX) 
• -12.62%   -  Link Administration Holdings Ltd  (LNK.AX) 
• -11.81%   -  A2 Milk Company Ltd  (A2M.AX) 

Forex: USD and JPY strongest majors

The US dollar was the strongest major, which saw the dollar index (DXY) form a bullish engulfing candle as part of the three-day bearish reversal pattern (morning star reversal). From here it appears dollar bulls are simply waiting for the green light from Powell to confirm tapering. The yen a close second as traders presumably used it as a hedge ahead of tonight’s event

EUR/USD respected a tight one of resistance around 1.1780 which comprises of the monthly S1 and weekly R1 pivots.

AUD/USD printed a bearish engulfing candle as part of a two-bar reversal below the 73c resistance cluster. Our bias remains bearish beneath that key level, so we’re waiting for momentum to fully realign with its bearish trend.

AUD/NZD is probing its 16-month low ahead of the release so may be a good cross to monitor around retail sales as it is effectively shielded from the Jerome Powell hype.

Jerome Powell is scheduled to deliver his keynote speech midnight AEST (15:00 BST), which is the event of the day, week and month. Although Australian retail sales is released at 11:30 and expected to have fallen -2.3% in July, down from -1.8% as lockdowns have been extended and more stringent measures imposed.

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Commodities:

Gold prices were flat and formed a Rikshaw Man Doji on the daily chart. This places a higher low at 1778.90, although bulls now need to break trend resistance and the 200-day eMA to get their trend going. A break beneath 1773.20 assumes gold has topped.

Silver printed a bearish outside day after its recent rebound failed to reach the 24.0 resistance level. And it remains our preferred short bias over gold, should tapering be confirmed.

WTI printed a slightly bearish inside day (and Doji). We don’t need to read too much into this though as it’s clearly waiting for Powell to hit the wires at midnight.

Up Next (Times in AEST)

You can view all the scheduled events for today using our economic calendar, and keep up to date with the latest market news and analysis here.

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