AUD/USD, WTI crude oil hint at bounce: Asian Open – 17/10/23

Market Summary:

• Any concerns that European and US share markets had on Friday surrounding the Middle East conflict were seemingly forgotten on Monday, despite a weak lead from Asian markets yesterday
• Earnings optimism helped Wall Street indices such as the S&P 500 and Dow Jones rise 1% and the Nasdaq 100 by 1.2%
• The Volatility index (VIX) also retreated by 2 points after reaching its long-term if 19.8 points last week. It remains a market to keep an eye on given large speculators were their least bearish in the ‘fear index’ since January 2019, according to COT data
• The US dollar also retreated from Friday’s highs despite broad rise in US bond yields and gold pulled back to 1910
• Near the end of the US session, Fed members Harker reiterated that the Fed’s tightening cycle is likely done. And whilst the Middle East conflict makes it likely that we’ll get another ‘hold’ at their next meeting in two weeks, I doubt they’ll telegraph to markets that the peak rate has been achieved at that meeting
• Overall, Monday’s moves appeared to be mere retracements against last week’s volatile moves ahead of a busy week for the economic calendar which includes China data, a Powell speech and a long line up of other Fed speakers amid headline risk from the Middle East conflict
• NZD/USD was the strongest forex major on Monday thanks to a business friendly PM being elected over the weekend, although PM-elect Luxon now needs to build a coalition. New Zealand’s services sector expanded according to the monthly PIS report.
• The Bank of Canada’s quarterly business outlook survey showed that demand, growth prospects and hiring intentions continued to falter, although pricing remained ‘abnormal’. It’s unlikely to force the BOC to hike at their next meeting, but neither will it remove the potential to hike further.

Events in focus (AEDT):

• Public holiday
• 08:45 – New Zealand CPI
• 11:30 – RBA meeting minutes
• 17:00 – UK wages, earnings
• 20:00 – German ZEW economic sentiment
• 23:00 – FOMC Williams speaks
• 23:30 – US retail sales
• 23:30 – Canda CPI
• 00:15 – US industrial production, capacity utilisation, manufacturing production
• 00:20 – FOMC Bowman
• 01:00 – NAHB US housing market index

ASX 200 at a glance:

• The ASX 200 cash market retraced for a second consecutive day on Monday, although prices held above Friday’s low which was itself 18 points above 7,000
• The positive lead from Wall Street helped send SPI 200 futures higher overnight and points to a positive lead today
• It possible we could test last week’s highs or eve break above them if sentiment remains resilient today

WTI crude oil technical analysis (4-hour chart):

Oil prices consolidated on Monday and retraced slightly lower against Friday’s strong gains. Yet the 4-hour chart shows that prices are holding above a support cluster which includes the weekly pivot point, 200-bar EMA and small consolidation which formed following last Monday’s gap higher.

Given volatility has also declined above its support cluster, I’m now in the lookout for evidence of its next leg higher. An obvious sign would be momentum turning higher from current levels, but I’m also on guard for some ‘false moves’ such as spikes lower which ultimately see candles close back above the 86 area, such as bullish pinbars and the like.

If momentum can turn higher, the next stop could be the 89.40 – 90.0 area which houses the weekly R1, high-volume node from the prior decline and the 90 handle.

AUD/USD technical analysis (4-hour chart):

The Aussie rose cautiously from its cycle lows on Monday, which didn’t come as a great surprise as it did well to hold above the November low / 63c on Friday. The lack of news flow likely spurred some to short cover. So where from here? Assuming sentiment is allowed to flourish, perhaps there is some further upside potential for ‘the batter’.

If you look at the decline from 0.6400, there was very little trading activity during the rapid decline through 0.6400 to 0.6340, which means there are liquidity gaps that may try to get filled.

From here, I’m looking for prices to hold above the 4-hour bullish engulfing low ~0.6310 and head for the 0.6380 area as part of a countertrend move, based around the apparent liquidity gap and AUD/USD ability to hold above 63c during risk-off trade.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

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