It is a sea of red once again on Wednesday as the S&P and Nasdaq fell for the 5th time in 6 days, with the S+P down by 2.4% and the Nasdaq by -3%. As has regularly been the case recently, the tech sector has led the way lower, with Tesla being a standout, down by 10%, but the energy sector was also generally down by around 2% as traders begin to grow increasingly concerned about the prospect of any further economic recovery in the US. Fed Chair Jay Powell was speaking again, and reiterated that the Fed is not planning any “major” changes to its lending program, adding that both the Fed and Congress need to “stay with it” in working to bolster the economic recovery. The problem here is that Congress seems to be no closer to agreement of any rescue package and all the while the pandemic seems to be getting increasingly out of control in the US. Aside from Powell, the Fed Vice Chair, Clarida said that the Fed will not raise rates until inflation hits 2% – a long way off. Other Fed speakers were ; Rosengren, Evans and Mester , all of whom were dovish, signalling that more fiscal stimulus is needed.
The US$ was a beneficiary of the “risk-off” sentiment, and has made strong gains on Wednesday against the commodity currencies, particularly the Aud$ which is a victim of the economic growth concerns and not helped at all by the increasingly dovish policy expectations outlined this week by the RBA. The Aud$ is also not being assisted by the lower metals prices, where Gold and Silver both saw strong declines on Wednesday, while Iron Ore has recently given up about 10% from its recent highs and Copper had a tough session, down by around 3.7%. The US$ was strong against the other majors as well although Sterling managed to stabilise somewhat due to some profit taking on short positions after the relatively decent UK PMIs, which point to a decent bounce in the Q3 GDP following on from the collapse seen in Q2. The Euro was not helped by the release of the flash PMIs and while the manufacturing sector was firm, the services sector fell back into contraction after missing expectations. US$Jpy had a strong finish to the session at the top of its 50 point range and begins Thursday looking as though it wants to head back towards 105.50+.
In the commodities sector, Oil remains sidelined at 39.50 although that seems unlikely to last long if the energy sector continues its decline in the stock markets. Gold and Silver fell by 2% and 6.5% respectively, with Silver actually reaching the bear flag target that we alluded to yesterday!
In terms of the numbers, the Eurozone Manufacturing PMI rose to 53.7 in September, up from 51.7, and beat expectation of 51.9, the best level in 2 years. On the other side of the coin the Services PMI dropped to 47.6, down from 50.5 and back in contraction after missing expectation of 50.5. In the UK, the Manufacturing PMI dropped slightly to 54.3 in September, down from 55.2 but above expectation of 54.0. The Services PMI dropped to 55.1, down from 58.8 and missed expectation of 56.0 but remain well in growth territory. The US September PMIs were solid and did nothing to hurt the dollar. Manufacturing was as expected at 53.5 (prior 53.1), with services at 54.6 (exp 54.5, prior 55.0).
Looking ahead, Thursday will get under way with the NZ Trade Balance and the BOJ Minutes in what should be a quiet Asian session. Europe will follow with the SNB Interest Rate Decision/Statement, where no change to policy is expected, and the German IFO; Business Climate/Current Assessment/Expectations (exp 93.8 – prior 92.6/ 89.5 – prior 87.9/ 98 – prior 97.5), while the US will see the weekly jobless claims (Initial 843K/Continuing 12.34mio), New Home Sales (exp -0.1%mm) and the Kansas Fed Mfg Activity. Central Bank speakers will include the BOE Governor Bailey, Fed’s Williams, US Treasury Secretary Mnuchin, and once again the Fed Chair Powell testifies to Congress.
See trade ideas – below the trend table.
Economic data highlights will include:
Thur: NZ Trade Balance, BOJ Minutes, SNB Interest Rate Decision/Statement, German IFO; Business Climate/Current Assessment/Expectations, US weekly jobless claims, New Home Sales, Kansas Fed Mfg Activity, BOE Governor Bailey Speech, Fed’s Williams Speech, Fed Chair Powell testifies to Congress.
Market moves, in brief:
FX: DXY 94.38 (+0.43%)
Bonds: US10Y; 0.677% (+0.73%), German 10Y; -0.502% (+1.10%), UK 10Y; 0.221% (+11.33%), Australian 10Y; 0.805% (-4.75%), NZ 10Y; 0.488% (-6.69 %), China 10Y; 3.100% (+0.25%)
Stock Indices: DJI; -1.92%, S+P; -2.37%, NASDAQ; -3.02%, EUStoxx50; +0.50%, FTSE100; +1.20%, Shanghai Composite; +0.17%, ASX200SPI: -0.8%
Metals: Gold $1860 oz (-2.01%), Silver $22.78 oz (-6.65%), Copper $2.9565 lb (-3.71%), Iron Ore $122.96 per tonne (NYMEX) (-0.84%),
Oil: WTI $39.50 pb (-0.57%)
|INDICES / COMMODITIES|
Trend Table: September 24, 2020
Generally, the US$ still looks the best trade and I think it will head higher as the DXY moves towards 95.00 and eventually 95.50. See the charts/outlook below the trend table.
Staying short/looking for levels to sell any of the majors against the US$ seems to be the plan but I am concentrating on the Euro and the Aud$.
The metals remain heavy and the stock markets look increasingly likely to test the downside. Price action here remains very choppy so leave plenty of room on entray and SL levels.
|1 Hour||Bullish Divergence||Up – Overbought||Turning Neutral||Possible Topping Formation||Down – Oversold||Down|
|4 Hour||Down||Up||Turning Lower?||Up||Down||Down|
|1 Day||Turning Lower||Possible Basing Formation||Turning Lower?||Neutral – Turning Higher?||Neutral – Turning Lower?||Neutral – Turning Lower?|
|1 Week||Possible Topping Formation||Neutral – Turning Lower?||Turning Lower?||Possible Basing Formation||Possible Topping Formation||Possible Topping Formation|
|1 Hour||Bearish Divergence||Down||Down||Down||Bullish Divergence||Neutral|
|4 Hour||Up||Turning Lower?||Neutral – Turning Lower?||Down||Down||Neutral|
|1 Day||Turning Higher||Neutral – Turning Lower?||Neutral||Turning Neutral||Turning Lower||Turning Neutral|
|1 Week||Possible Basing Formation||Overbought – Turning Lower?||Turning Neutral||Overbought – Turning Lower?||Overbought – Turning Lower?||Turning Neutral|
|1 Hour||Neutral||Turning Neutral||Turning Higher||Turning Lower?||Up – Overbought||Turning Neutral|
|4 Hour||Turning Higher?||Turning Neutral||Up||Down||Up||Turning Neutral|
|1 Day||Turning Lower?||Turning Neutral||Possible Basing Formation||Turning Neutral||Turning Neutral||Neutral – Turning Lower?|
|1 Week||Possible Topping Formation||Turning Neutral||Turning Neutral||Possible Topping Formation||Turning Neutral||Possible Topping Formation|
DXY: As we pointed out on Telegram on Monday (sign up/join us at: https://t.me/orchardforex ) the DXY was breaking above the neckline of the reverse head/shoulder and now at 94.00, it seems to have the chance to head on to its measured objective of around 95.50.
EurUsd: As we said yesterday, if our DXY outlook is correct, as we look for a run to around 95.50, that puts the Euro down at around 1.1525, near enough to the March 1.1495 high and the 61.8% Fibo of the June-September rise at 1.1491. A break of the current levels would open the way to 1.1620 (minor), to 1.1585 (50% of 1.1168/1.2011) and then towards the 1.1490/1.1520 area. We are seeing some minor bullish divergence in the hourly charts, suggesting a possible bounce, but staying short/selling rallies is preferred, with a SL now placed above 1.1720 or ideally above the neckline – at 1.1765.
GbpUsd: Sterling is now sitting on the 200/100 DMAs, converging at around 1.2720, which may see further consolidation. We need to see a break below 1.2685(38.2% of 1.1409/1.3482) to give confidence of further declines, in which case we could see a run towards 1.2500 and to 1.2440 (50%). On the topside, resistance will be seen at 1.2800 and at 1.2820 (55 DMA) and I would be looking to sell into this area should we see it, with a SL placed above 1.2850.
AudUsd: The Aud is now back below 0.7100 and is sitting just above the 24 July low of 0.7069, which we pointed out yesterday as being the ideal target and has been the low on Wednesday. The hourly charts are extremely oversold so I would expect momentum to slow from here and would not be surprised to see a squeeze back to 0.7100/20 which I would be looking to sell into. The medium term momentum indicators still point lower and a break of 0.7070/50 would allow for a move down to 0.7020 (61.8% of 0.6776/0.7413) and eventually to 0.6925 (76.4%). On the topside, the first Fibo resistance will now be seen at 0.7150 (23.6% of 0.7413/0.7068)and again at 0.7198 (38.2%). Keep a SL above 0.7150.
Silver: We pointed out the chance of a bear flag yesterday, which has more or less already reached its measured target after Wednesday’s 6.65% fall. With the momentum indicators generally looking heavy, further downside would target 22.25 (28 July low) and then 21.50 (100 DMA). On the topside, resistance will be seen at 23.25/50 and I would be looking to sell into that area, with a SL placed above 23.85
S+P: The Index has given up all of the gains seen on Tuesday and, as with all stock indices, the longer term momentum indicators are looking rather precarious. The S+P currently sits at 3230 (session low; 3220), just holding on above the Monday low of 3217 and the 100 DMA at 3200, and I suspect that these will be tested in the days ahead, with further downside targets, if we see them, likely to arrive at 3160 (23.6% of 1803/3586) and then at 3100 (200 DMA). As before, selling rallies towards 3300/50, with a 70 point SL is preferred.