Mixed data from the US resulted in a mixed response from markets on Tuesday, with softer job openings contrasting with an expansive services industry. JOLTS job openings softened to a 31-month low yet it seemed to be overshadowed by the ISM services report, given traders rejoiced by pricing in Fed cuts in July when JOLTS originally fell to a 2-year low.
ISM services expanded at a slightly higher pace, new orders were higher than expected and prices paid (while slightly softer) remain at a 'healthy' 58.3, just below its long-term average.
This won't sway the Fed into action next week, but neither does it build a case that services inflation is dead. And that helped the US dollar index extend its countertrend move to a 9-day high.
Were it not for the fact that traders are now jumping on to the #ECB pivot hype, the US dollar index (which is ~57% weighted to the euro) would be trading much higher.
- US bond yields continued to move lower as bond investors continued to step back into the market to support bond prices.
- AUD/USD was the weakest forex major as it retreated for a second to a 7-day low, after the RBA held interest rates and their statement was once again interpreted as dovish.
- This makes it the third bearish response following a supposedly dovish statement, yet the prior two were followed up with hawkish minutes. Will history repeat on December 19th?
- Gold also fell for a second day, but volatility was less than a quarter of Monday’s prominent bearish outside day and it remains above $2000. But the volatile false break to a record high likely means gold bugs remain a little shell-shocked, and I wouldn’t be too surprised to see low volatility trade occur in the lower range of the past two days over the near-term.
- EUR/USD continued to weaken on bets that the ECB are also approaching a potential policy pivot, sending the euro back beneath 1.08 to a 3-week low
Events in focus (AEDT):
- 09:00 – Australian manufacturing, construction index (AIG)
- 10:50 – Japan’s Tankan index (Reuters)
- 11:30 – Australian GDP, capex, RBA chart pack
- 21:30 – BOE governor Bailey speaks
- 00:15 – US ADP employment change
- 02:00 – BOC cash rate decision (no change expected)
ASX 200 at a glance:
- The ASX 200 formed a bearish outside day despite the supposed dovish RAB minutes
- 160 ASX stocks declined (or 80%) and 9 of its 11 sectors were lower, led by energy and material sectors
- This shows a lack of appetite for the ASX to break above hold above 7150, yet at the same time support around the 7000 – 7030 area suggests range-trading strategies and opportunities within a ‘per day’ basis are preferred until trends across global stock market indices become clearer
AUD/USD technical analysis (daily chart):
So far I’m glad to see that AUD/USD is pulling back from the key resistance zone (Q3 open / bearish trendline) in line with the bias outlined in myAUD monthly wrap report
. Tuesday’s low tested the high-volume node from the prior rally, although closing so close to the low suggests further downside – which brings the 0.6500 – 0.6520 support zone into focus. From here is seems to be down to how far the US dollar wants to bounce and if US indices hold around their highs as to how far the Aussie may pull back. Should we see the US dollar extend its countertrend move and indices retrace over the next week, the AUD/SD could break below 0.6500 towards 0.6450.
However, take note that the second half of December is usually bullish for US equities and appetite for risk in general, which is why I am favouring a swing low in AUD/USD to form ahead of an eventual breakout above 0.6700 by the end of month.
Crude oil technical analysis (daily chart):
The daily trend structure on crude oil remains bearish and the target for $70 very much alive with WTI touching 5-month low. Yet its lack of bearish volatility on the day and weak attempt of breaking the cycle low suggests bears are losing steam. Without a fresh catalyst, I’m on guard for a minor technical bounce towards $75 before its bearish trend resumes towards the $70 target.
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