AUD/USD bears seek a fresh YTD low: Asian Open – 14th August 2023

Market Summary:

• US producer prices were hotter than expected on Friday, with core PPI rising 0.3% m/m versus 0.2% forecast and -0.1% previously. Core CPI also rose 2.4% y/y, above 2.3% expected.
• US consumer inflation expectations fell and were below expectations according to the Michigan University consumer sentiment report. 1-year expectations pulled back to 3.4%, from 3.4% previously and beneath 3.8% expected whilst the 5-year fell to 2.9%, beneath 3% previously and expected.
• A strong set of UK economic data keeps the pressure on the BOE to continue hiking, and dare I say increases the odds of another 50bp hike. GDP, industrial production, manufacturing production, index of services and trade balance all beat expectations.
• New loans in China were well below expectations, rising just 345.9 billion yuan compared with 3,050 previously and 800 expected. The lac of demand is not what the government wants to see, given their desire to be driven by demand over exports. It was the slowest level since November 2009 and 60% beneath the 5-year seasonal average.
• USD/JPY reached 145 for the first time in six weeks, a level the market seemingly wants to break yet traders remain wary of potential verbal (or actual) intervention by the BOJ (Bank of Japan) and MOF (Ministry of Finance)
• Previous comments from officials tend to go along the lines of not wanting to see “one-sided moved”, closely watching forex movements, volatility or forex is not reflecting fundamentals. So far, officials have remained strangely quiet, but the risks of verbal intervention rise if prices do from here.
• On Friday RBA Governor Philip Lowe warned that services inflation may remain high and prolong the period it will take for inflation to remain to target (higher rates for longer). However, he also said that the worst is likely over for inflation, although some further tightening may be required.
• Rumours that private equity groups in China were facing a ‘huge liquidity crisis’ and suspending payments weighed on China’s equity markets, sending the China A50 below its 200-day EMA to a 13-day low, during its worst day since October
• Wall Street closed lower for a second week, although bearish volatility on the S&P 500 was relatively low and the market held above the June highs
• US bond yields continued to rise last week, 30-year yield closing at its highest level in 12 years and the 10-year closing at a 15-year high
• The Japanese yen (JPY) was the weakest forex major currency last week, the US dollar was the strongest

Events in focus (AEDT):

• There is no major economic news in today’s Asian session
• 16:00 – Germany’s Wholesale Price Index (WPI) MoM

Technically Speaking:

• NZD/USD fell to a fresh YTD low on Friday and now trades beneath 60c for the first time since November. Is this a prelude for AUD/USD?
• USD/CNH rose to a 5-week high as Beijing are seemingly happy to het the yuan slide in response to weak economic data
• The China A50 produced a strong bearish engulfing candle and closed beneath its 200-day EMA to a 13-day low
• WTI crude oil remains in a bullish channel on the 4-hour chart. A small bullish day formed on Friday, so bulls may want to seek dips above Friday’s low for a potential move to $85.
• Gold fell for a third week, with bearish momentum increasing to post its worst week in seven.
• AUD/USD is trading just 0.57% above its YTD low, a level it appears the markets want to at least test whilst prices remain beneath 0.6535

ASX 200 at a glance:

• It was a very narrow-ranged week for the ASX 200, with a high to low range of just 0.9% and closing the week up just 0.2%
• This reinforces our view that intraday traders ay be preferable until volatility picks up
• However, a bullish outside candle formed on the 4-hour chart which held above trend support, so perhaps it will try to carve out a swing low today
• 7340 and 7360 are potential resistance levels, support sits around 7320, 7307 and 7300

AUD/USD daily chart:

I had been looking for a swing low to form on AUD/USD, although it now seems as though the market wants to at least test its YTD low (if not, break beneath it if NZD/USD’s price action is anything to go by). I’d expect some volatility around the YTD low and the potential for a bounce higher, but as long as it remains beneath Friday’s high then I’m on the lookout for a bearish breakout and for a move down to 64c. It will take a break above Thursday’s bearish pinbar high for the bias to revert back to a swing low and rally towards 68c.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

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