EUR/USD looks at 1.04, DAX considers break of 15k: European open – 04/10/2023

Asian Indices:

• Australia's ASX 200 index fell by -71.1 points (-1.02%) and currently trades at 6,872.30
• Japan's Nikkei 225 index has fallen by -629.96 points (-2.02%) and currently trades at 30,607.98
• Hong Kong's Hang Seng index has fallen by -161.55 points (-0.93%) and currently trades at 17,169.67
• China's A50 Index has fallen by -72.69 points (-0.58%) and currently trades at 12,398.05

UK and Europe:

• UK's FTSE 100 futures are currently down -22 points (-0.29%), the cash market is currently estimated to open at 7,448.16
• Euro STOXX 50 futures are currently down -18 points (-0.44%), the cash market is currently estimated to open at 4,077.59
• Germany's DAX futures are currently down -71 points (-0.47%), the cash market is currently estimated to open at 15,014.21

US Futures:

• DJI futures are currently down -115 points (-0.35%)
• S&P 500 futures are currently down -17.25 points (-0.4%)
• Nasdaq 100 futures are currently down -64.25 points (-0.44%)

Events in focus (GMT+1):

• 08:55 – German services, composite PMIs
• 09:00 – ECB president Lagarde speaks
• 09:30 – UK services, composite PMIs
• 10:00 – Euro PPI, retail sales
• 11:00 – OPEC meeting
• 13:15 – US ADP employment change
• 14:45 – S&P Global US services, composite PMIs
• 15:00 – ISM services PMI

The ISM services report is released today, and I suspect there’s a decent chance of another strong report given the improvements seen in the latest manufacturing report. The US manufacturing sector contracted at its slowest pace in 10 months, new orders is on the cusp of expansion and employment expanded at its fastest pace in 13 months. The ISM services report painted a much rosier picture than the S&P global report, so if today’s ISM services continues to strengthen it could further bolster bets that the US economy is running hot an increase the odds of a November Fed hike. Over the past week we have seen odds of a November hike rise from ~16% to 30% thanks to a series of stronger economic data and hawkish Fed comments.

OPEC+ are expected to keep their oil output policy unchanged today, given Saudi Arabi and Russia have already announced that they will keep their current production cuts in pace until the end of the year. Large speculators and managed funds increased their net-long exposure to WTI crude oil futures for a fifth consecutive week, according to last week’s COT report.

• Currency ranges were on the low side overall for FX majors, and much of the volatility was restricted to NZD pairs after the RBNZ held rates at 5.5%
• 1-day implied volatility levels for all forex majors are above their 20-day averages
• AUD/USD held above Tuesday’s YTD low yet and is meandering around the 63c level, clearly looking for guidance from the European and US sessions
• The key driver for sentiment remains bond yields, as the higher they move with the US dollar the more likely it is to weigh on risk assets
• Equity market index futures are lower ahead of the cash opens, with the S&P 500 E-mini edgings its way to a 4-month low

DAX technical analysis ( chart):

The DAX has continued to edge lower overnight along with global index futures during the Asian session. It is difficult to say whether this is a precursor for the open and prices simply continue to fall, or if this is a false move ahead of some unwelcome volatility before the real move gets underway. But given the fact that bearish momentum accelerated since prices broke beneath and respected the 200-day EMA as resistance, I suspect any pullback higher may be ‘short‘ lived.

RSI (14) dipped into oversold, but that can largely be ignored because such readings are more reliable during sideways and oscillating markets. Besides, due to how the RSI is calculated it really has nowhere to go but lower when prices are moving sharply lower. Furthermore, we saw it move much lower in 2022 ahead of the price trough.

So for now we want to see if prices will retrace higher for bears to load up and anticipate a break beneath 15k, or prices will simply break that key support level early on and carry on.

EUR/USD technical analysis (1-hour chart):

Clearly, EUR/USD remains in a strong downtrend as it buckled under the pressure of a rising US dollar. Like the DAX, I’m equally open to a pop higher ahead of its next leg lower than I am for prices to simply continue lower. Take note that the US dollar index formed a small bearish hammer (shooting start) yesterday to show a slight hesitation for the dollar to simply continue higher. And with the dollars mighty run of late we are surely closer to a period of consolidation or a pullback than not. With that said, we’re yet to see a major sign of a market bottom on EUR/USD, even if prices have consolidated around the cycle lows.

A move to 1.0400 seems feasible, so bears can either a break to new lows or evidence of a swing high around a resistance level.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge