11 Sept: Stocks down again; US$ firm. ECB on hold, and Sterling crisis grows as Brexit chaos looms. German/US CPI in focus, Friday.

11 Sept: Stocks down again; US$ firm. ECB on hold, and Sterling crisis grows as Brexit chaos looms. German/US CPI in focus, Friday.

It was a tale of two halves on Thursday, with early gains in the stock markets and the initial moves in the FX markets both being reversed, with the US$ losing early ground but then later making it back to finish the day near its highs against most counterpart currencies.

 US stocks ended the day down by 1.5%-2.0%, where the declines were led once again by the Nasdaq, as the tech sector continues to trade with a heavy tone, and  saw each of Amazon, Apple and Netflix fall by 3+%. Sentiment was not helped by the release of the weekly jobless claims, in which initial claims came in unchanged at 884k in the week ending September 5, albeit above expectation of 838k. Continuing claims rose 93k to 13,385k in the week ending August 29.

In the FX markets, the US$ regained its lost ground to finish strongly after the ECB left rates on hold, which, with steep losses in Sterling  – to a two-month low as Brexit tensions between the UK and EU escalated, ensured that the dollar retained an overall bid tone.

The ECB left all of its policy settings unchanged, as was widely expected. The interest lay mainly in President Lagarde’s press conference but that revealed little apart from disappointing some dovish expectations. Noteworthy for traders, was disappointment for those who had hoped that the ECB would signal its concern at the level of the Euro. This did not eventuate, as the Bank showed little apparent concern on the level of the currency, causing the Euro to briefly spike above 1.1900. That did not last long, and from there, the defensive dollar has recovered in line with the stock-market declines and the Euro currently sits above the day’s lows, just hanging on above 1.1800.

Sterling continues its freefall, now down over 5% against the US$ from the Sept 1st trend high, and by around 3% against the Euro, as the UK appears to be heading for an increasingly chaotic Brexit.

The commodity currencies were equally volatile, with the Aud$ and the NZ$ both reversing a sharp rally seen after the ECB announcement to end at levels in line with those seen on Wednesday.

In the commodities sector, the metals were choppy but ended the day unchanged, while WTI reversed the bounce seen on Thursday as the first US stockpile build in seven weeks pushed  the price back into negative territory. The EIA Weekly Crude Stocks Change reported a build of 2 million barrels, above the 1.3million barrels expected, and weighed heavily on the price.

Looking ahead, Friday will wind the week up with the August NZ Business PMI (exp 66.8; prior 58.8) and the Food Price Index (exp +0.2%mm; prior +1.2%mm).  Europe will have the UK July GDP (exp +6.7%mm; prior +8.7%mm), Goods Trade Balance (exp £-6.9bio)and Manufacturing/Industrial Production data for July. The most important events of the day will be the August Inflation data which will come from both Germany and the US. Germany (CPI, exp -0.1%mm, 0.0%yy; HICP, exp -0.1%yy); US (CPI, exp +0.3%mm, +1.2%yy; CPI Ex F/E, exp +0.2%mm, +1.6%yy) . There will also be a couple of ECB Speakers: Lane, Schnabel.

Further out, the September FOMC Meeting – Interest Rate Decision takes place next week, on September 16/17 and will quickly come into focus, and the blackout period for Fed officials ahead of the meeting begins on Saturday.  Have a good weekend.

Have a good weekend.

Economic data highlights will include:                                      

Fri: NZ Business PMI, Food Price Index, Japan PPI, EU Eurogroup Meeting, UK Goods Trade Balance, GDP, Consumer Inflation Expectation, Manufacturing/Industrial Production, German CPI,  US CPI, Monthly Budget Statement

Market moves, in brief:

FX: DXY 93.36 (+0.13%)

Bonds: US10Y; 0.683% (-3.26%), German 10Y; -0.432% (+6.35%), UK 10Y; 0.230% (-2.92%), Australian 10Y; 0.945% (+0.45%), NZ 10Y; 0.626% (+0.38 %), China 10Y; 3.110% (+0.65%)

Stock Indices: DJI; -1.45%, S+P; -1.76%, NASDAQ; -1.99%, EUStoxx50; -0.36%, FTSE100; -0.16%, Shanghai Composite; -0.61%, ASX200SPI: -1.3%

Metals: Gold $1946 oz (-0.01%), Silver $26.88 oz (-0.34%), Copper $2.9745 lb (-2.52%), Iron Ore $125.42 per tonne (NYMEX) (-0.40%),

Oil: WTI $36.98 pb (-2.10%)

CURRENCIES
EURUSD: 1.1810
Res  1.1840  1.1875  1.1910
Sup  1.1790  1.1755  1.1720
USDJPY: 106.11
Res  106.30  106.55  106.80
Sup  105.90  105.65  105.40
GBPUSD: 1.2799
Res  1.2835  1.2870  1.2905
Sup  1.2770  1.2735  1.2700
USDCHF: 0.9106
Res  0.9125  0.9145  0.9165
Sup  0.9090  0.9070  0.9050
AUDUSD: 0.7255
Res  0.7280  0.7305  0.7330
Sup  0.7240  0.7215  0.7190
NZDUSD: 0.6645
Res  0.6660  0.6675  0.6690
Sup  0.6630  0.6615  0.6600
INDICES / COMMODITIES
S&P.fs: 3339.30
Res  3365.00  3390.00  3415.00
Sup  3315.00  3295.00  3275.00
DJ30.fs: 27538.00
Res  27680.00  27855.00  28025.00
Sup  27425.00  27245.00  27055.00
SPI200.fs: 5831
Res  5855  5880  5905
Sup  5810  5785  5760
XAUUSD: 1944.16
Res  1955.00  1970.00  1985.00
Sup  1935.00  1920.00  1905.00
XAGUSD: 26.81
Res  27.10  27.30  27.50
Sup  26.55  26.35  26.15
WTI.fs: 37.00
Res  37.85  38.65  39.45
Sup  36.15  35.30  34.50

Trend Table: September 11, 2020

It looks as though it is going to be a choppy end to the week as traders turn their attention towards next week’s FOMC Meeting – Interest Rate Decision/Press Conference/Statement/Projections.

The table does suggest further stock market weaken and US$ strength, particularly against Sterling, but also possibly the Euro. For those not wishing to have US$ exposure, buying dips in EurGbp may be a plan.

Outlook/charts below.

EURUSD USDJPY GBPUSD USDCHF AUDUSD NZDUSD
1 Hour Turning Lower Turning Neutral Down Turning Higher Turning Lower? Neutral – Turning Lower?
4 Hour Neutral – Turning Higher? Turning Neutral Turning Lower Neutral – Turning Lower? Turning Higher? Turning Neutral
1 Day Turning Lower? Turning Neutral Turning Lower Turning Higher Neutral – Turning Lower? Turning Neutral
1 Week Possible Topping Formation Turning Neutral Possible Topping Formation Possible Basing Formation Up Possible Topping Formation
DXY S+P ASX200 GOLD SILVER OIL_WTI
1 Hour Turning Higher Turning Lower? Turning Lower Turning Lower? Turning Lower? Neutral – Turning Lower?
4 Hour Turning Neutral Turning Lower? Turning Lower Turning Neutral Turning Neutral Turning Higher
1 Day Turning Higher Turning Lower Neutral Turning Lower Turning Lower Neutral – Turning Lower?
1 Week Possible Basing Formation Overbought – Turning Lower? Turning Neutral Overbought – Turning Lower? Up Turning Neutral
EURJPY EURGBP GBPAUD AUDJPY EURAUD AUDNZD
1 Hour Down Up – Overbought Down – Oversold Turning Lower? Turning Neutral Turning Neutral
4 Hour Turning Higher Up – Overbought Up – Bearish Divergence Turning Neutral Turning Neutral Turning Neutral
1 Day Turning Lower Neutral – Turning Higher? Neutral – Turning Lower? Turning Neutral Turning Neutral Turning Neutral
1 Week Turning Higher Turning Neutral Turning Neutral Possible Topping Formation Turning Neutral Possible Topping Formation

S+P: Is lower again on Friday after making a minor double top at 3423, but now at 3340,and as before I prefer to look for levels to sell into for the time being. Below 3300, the target would be at 3247 (23.6% of 2165/3586).The momentum indicators generally point lower and while we may be in for some choppy trade around current levels, I suspect that the downside correction is not yet over. Above 3425 would make me wrong, but at this stage I do not see that happening ahead of the weekend.

EurUsd: The Euro did briefly squeeze back above 1.1900 but reversed sharply from the 1.1917 to currently sit at 1.1815. On the basis that I think stocks are going lower and that the US$ will act as a defensive hedge, I suspect that we could yet break back below 1.1800 and head towards the greater support level at 1.1750/60, with a downside break of 1.1750, targeting 1.1690/1.1700. Below that sees a bigger decline towards 1.1600 and possibly to 1.1535. Back above 1.1850 (200 HMA) would then probably see a return to levels above 1.1900 but the short term momentum indicators do not hint at that today.

GbpUsd: Sterling had another rough day in falling from a high of 1.3034 to a low of 1.2772 ahead of a dead cat bounce to 1.2800. Having now broken below the 6 month uptrend, a test of the 100 WMA (1.2750) and the 200/100 DMAs, converging at around 1.2715 would seem possible. The hourlies are oversold so a bounce is possible but I think I would be looking to sell towards 1.2840/50, with a 50 point SL.

EurGbp:  The cross has already rallied sharply but does seem to be building the momentum for further moves higher. Buying dips is favoured although it is highly volatile and reliant on good/bad Brexit headlines.  The next Fibo  target (76.4%), as per the chart below, is at 0.9315. Support should arrive at the 29 June high, at 0.9175.

AudUsd: The Aud did as we expected and reached levels above 0.7300 (high; 0.7324) allowing us to get short at decent levels while narrowly missing our SL level above 0.7330  On the downside for Friday, support will again be seen at 0.7240 and then at 0.7190/0.7200, a break would open the way to 0.7165 (38.2% of 0.6808/0.7413). It may end up being a choppy session near current levels, but any direction will be taken from the stock markets.

Oil: WTI has reversed the gains seen yesterday, leaving our SL at 38.50 intact, and the short term momentum indicators now look mixed, and so it may end up being a choppy but directionless end to the week.  The daily momentum indicators continue to look heavy  though and a return to the downside should not be ruled out, where support at 37.00 sits nearby, a break of which could lead to the next area of support at 36.00/10, beyond which  would hint at a run back to the neckline support, seen on the daily charts, at 34.50.

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