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Market summary

• Patrick Harker became the latest Fed member to call for a pause in June, despite inflation falling at a “disappointingly slow” rate
• Softer US economic data also saw odds of a June Fed hike fall to 21.6%
  • ISM manufacturing contracted for seventh month and fell below expectations, new orders contracted at a faster paces and prices paid declined (the S&P global US PMI read was also below expectations)
  • Jobless claims and layoffs were slightly higher

   

• Wall Street was higher thanks to the debt-ceiling bill being passed over to the senate, a soft data pointing towards a Fed pause
  • The S&P 500 printed a marginal YTD high, the Nasdaq is within a cats whisker of its 13-month high and the Dow Jones lifted itself further form its 8-week lows

   

• Gold rose for a third day and has now erased all of last week’s losses on bets the Fed are at (or very near) their terminal rate
• Commodity currencies (AUD, NZD and CAD) were the strongest FX majors with GBP and EUR close behind as the dollar US dollar correction comes in to play
• Softer inflation data for the Eurozone helped push EUR/GBP to the initial target around the daily S1 pivot
• Yet EUR/USD closed firmly higher with a bullish engulfing day as ECB President Lagarde hinted at another hike by saying inflation remained too high and further tightening is required
• A mixed manufacturing PMI report for China (Caixin) failed to fully revive sentiment following Wednesday’s gloomier report by a government agency (NBS)

Events in focus (AEDT):

• 08:45 – New Zealand terms of trade
• 11:30 – Australian lending (home loans, investment housing finance)
• 22:30 – US Nonfarm payroll report

ASX 200 at a glance:

• A small bullish candle formed at trend support and a 61.8% Fibonacci ratio
• A stronger lead from Wall Street and higher SPI futures suggest positive sentiment heading into the weekend
• A bullish RSI divergence has formed on RSI (2) daily chart
• Bias remains bullish above this week’s low and for an initial move to 7200

AUD/USD daily chart:

USD weakness has allowed AUD/USD (among others) to recoup some losses. But the fact a false break of 0.6500 was followed by such a strong bullish engulfing candle suggests there could be further gains to follow as it moves back into range. Furthermore, traders can now focus on the hot CPI print delivered earlier this week and the increased potential for an RBA hike on Tuesday. A potential bull flag is forming on the intraday timeframes, so we’re now looking for a break above yesterday’s high - which also takes it bac above the March and April lows – and see how far it can go within its prior range. Of course, a threat to the bull camp is if NFP numbers come in exceptionally strong tonight.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

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