Asian Indices:
- Australia's ASX 200 index rose by 8.9 points (0.13%) and currently trades at 6,853.00
- Japan's Nikkei 225 index has fallen by -233.2 points (-0.75%) and currently trades at 30,760.86
- Hong Kong's Hang Seng index has fallen by -112.8 points (-0.66%) and currently trades at 17,059.33
- China's A50 Index has fallen by -38.3 points (-0.33%) and currently trades at 11,647.97
UK and Europe:
- UK's FTSE 100 futures are currently down -20.5 points (-0.28%), the cash market is currently estimated to open at 7,354.33
- Euro STOXX 50 futures are currently down -8 points (-0.2%), the cash market is currently estimated to open at 4,033.75
- Germany's DAX futures are currently down -30 points (-0.2%), the cash market is currently estimated to open at 14,770.72
US Futures:
- DJI futures are currently up 45 points (0.14%)
- S&P 500 futures are currently up 8.5 points (0.2%)
- Nasdaq 100 futures are currently up 40.75 points (0.28%)
The US dollar is on the ropes as we enter this session, but it’s likely all down to yields as to where the dollar goes next. And we have enough data in the pipeline to make it go one way or the other. I think we’d all be relieved to see yields pull back further, and that could happen if the Middle East conflict doesn’t escalate and a ground assault it delayed further. Today’s flash PMIs could set expectations for the US GDP report, and if the data leans far enough one way it could prompt a strong dollar rally or breakdown with the Fed in a blackout period.
But it’s interesting to see that the US dollar index has pulled back to just beneath the January high in today’s Asian session. With such a busy calendar, I am equally open to it rallying or falling from current levels. It’s plausible that the dollar is near to completing an ABC correction and could shoot higher with yields, just as it is that yields and the dollar need a much deeper retracement from their peaks. Either way, the US dollar and yields remain markets to monitor this week.
1-day implied volatility levels are elevated relative to their 20-day average for EUR/USD, GBP/USD and NZD/USD. We have a host of data in today’s European and US session, with UK wage and employment data and German consumer sentiment kicking off at 07:00 BST before the flash PMIs for Europe, UK and the US roll in between 09:00 and 14:45. Also take note that RBA’s new governor Michelle Bollock also speaks at 09:00, and ECB president Lagarde hits the wires at 13:30.
Whilst Lagarde is unlikely to revel too much today ahead of Thursday’s meeting, we might get some more insight from RBA’s Bullock as to the significance of tomorrow’s inflation report, which could become a proxy for a November hike if it comes in too hot.
Events in focus (GMT+1):
- 07:00 – UK average earnings, employment change
- 07:00 – German GfK consumer sentiment
- 08:30 – German flash PMIs (manufacturing, services, composite)
- 09:00 – RBA Governor Bullock speaks
- 09:00 – Eurozone flash PMs (manufacturing, services, composite)
- 09:30 – UK flash PMIs (manufacturing, services, composite)
- 13:30 – ECB president Lagarde speaks
- 14:45 – US flash PMIs (manufacturing, services, composite)
DAX technical analysis (weekly chart):
If I look at the weekly and monthly charts of the DAX, a simple case could be made that it is unlikely to have reached the end of its bearish run from its all-time high. Not only is its -11.5% drawdown from the record high shallow by historical standards, but the fall from the peak has happened faster than the rise to its peak from current levels. This suggests a ‘bearish translation’, and hints towards a longer-term top in its cycle. However, markets don’t travel in straight lines and a bit of mean reversion could be expected along the way.
DAX technical analysis (daily chart):
An established bearish trend is clearly visible on the daily chart of the DAX. Bearish momentum is also increasing with each leg lower. However, its decline stalled around the December on Monday and formed a Doji to show a hesitance to break immediately lower. A slight bullish divergence is also forming with the RSI (14), after it reached the oversold level back in early October.
I can understand why some may not want to be bullish at these levels, but at the same time I suspect bears may want to be cautious being ‘caught short’ at these lows. At the very least, I suspect some mean reversion is due, which could entice a fresh round of selling if it can return to the 15k area ahead of its next bearish breakout. A break beneath 14,600 assumes bearish continuation.
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-- Written by Matt Simpson
Follow Matt on Twitter @cLeverEdge
