AUD/USD, ASX 200 Analysis: Asian Open – 10th July 2023
A weaker US dollar helped AUD/USD form a rally form 66c last week and tease us with a potential breakout. Whilst the ASX 200 is on the ropes, it shows the potential for some mean reversion higher (but by quite how far remains to be seen).
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Market summary
- Whilst Friday’s nonfarm payroll showed ‘only’ 209k jobs added compared to 225k expected and 306k prior, it’s still a healthy number that won’t deter the Fed from hiking further. Especially with unemployment at 3.6%
- Wall Street initially rallied but was unable to hold onto gains, closing slightly lower on Friday
- But the slower jobs number weighed on the US dollar which was the weakest forex major on Friday and second of last week (that title goes to the Canadian dollar)
- Fed fund futures now imply a 93% chance of a Fed hike this month, and for that to be the final hike of the cycle
- A strong employment report for Canada saw USD/CAD form a bearish engulfing day and bearish hammer on the weekly chart
- The Japanese yen continued to broadly strengthen on Friday, sending USD/JPY to a 2-week low just shy of 421, during its worst day in two months (and closing with a bearish engulfing week)
- EUR/USD closed at an 8-day high and now trades less than a days’ average range away from the 1.1012 high
- GBP/USD reached our 1.2800 target outlined last week, and shows the potential to break above the June high and make a run for the 1.30 handle
- USD/CHF accelerated lower after rolling over from 0.90 resistance on Thursday, and shows the potential to probe the YTD low of 0.8820
- WTI crude oil is also rallying which could make the increasingly short speculators question their positioning, with oil now showing the potential to retrace and potentially break above $75
Events in focus (AEDT):
- View The Week Ahead for a look at this week’s economic data and themes
- 09:50 – Japan’s current account, bank lending
- 11:30 – Australian building approvals (revised), business turnover
- 11:30 – China CPI, PPI
- Fed members speak (Daly 00:00, Mester 01:00, Bostic 02:00)
ASX 200 at a glance:
- 92% of the ASX 200 stocks declined on Friday during its worst day for four months
- A bearish engulfing / outside week formed
- Although the market held above 7,000 – a key line of defence for bulls to defend
- SPI 200 futures were 0.36% higher by Friday’s close
- The ASX is expected to open above the June 26th low today
- Potential for some mean reversion (7100 and 7145 are nearby resistance levels)
AUD/USD 1-hour chart:
AUD/USD formed a small bullish hammer for a second consecutive week, and last week’s candle was a bullish inside week. The weekly candles also show a double bottom around 0.66, and Friday’s bullish engulfing candle forms a higher low on the intraday charts and has taken prices to the top of its 0.66 – 0.67 range. Basically, demand is building which suggests a bullish breakout is on the cards. However, Friday’s rally looks stretched over the near-term, and we’d prefer to see prices retrace further and seek evidence of a swing low (such as the support zone around 0.6660) ahead of an anticipated break higher. A softer US inflation report (Tuesday US, Wednesday AM Australia) could certainly help with the bullish case.
-- Written by Matt Simpson
Follow Matt on Twitter @cLeverEdge
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