Some life as been injected in markets overnight, as broad USD strength sees a number of ranges finally broken to inject some life into the start of Q4.
It seems a confluence of different factors have come together to lift the USD and the currency markets from their self-induced range trading coma of the last few months. OPEC’s tentative production cut deal, the constant drawdowns in US Crude Inventories pointing to life in the economy, better than expected US data, zero percent rates in the rest of the G10, Britain’s announcement of March 2017 for Article 50. There also seems to be less and less chance of an unexpected “orange swan” in the US presidential elections in November, as the campaign goes on.
Combined with the most important factor, an expectation above 60% now for a Fed Funds hike in December, yesterday it all came together with USD buying across the board. Perhaps this underlines my thesis that despite all the noise it’s really all about the Federal Reserve in December.
Looking across the markets today,
USD/JPY
Has been moving higher since last week’s OPEC deal. Japanese importers were badly blindsided by this and have been rushing to buy USD/JPY to cover unhedged oil imports. Natural sellers, in the shape of Japanese exporters, have gleefully pulled offers looking for better levels. Yesterday we saw daily trendline resistance at 101.85 taken out with USD/JPY rushing to 103.00.
Expect exporter offers at each big figure now and possibly option related sellers. 103.00 is initial resistance with the 100-day moving average at 103.95 after that.
GBP/USD
1.2800 post-Brexit low has finally broken after a number of muted attempts and brutal short squeezes. The announcement of an Article 50 date and the reality bites of Britain’s negotiation position with the EU, or lack of it, most likely helped flush the broad USD buying out of the closet.
We are now trading at 1985 levels apparently. I remember 1985 as the last year I thought my flat top haircut was fashionable. Reminiscing aside technicals become slightly irrelevant in these uncharted waters. 1.2800 breakout will be resistance initially and like USD/JPY, look for natural support initially at each big figure we get to on the way down.
GOLD
Finally capitulated after a number of unsuccessful attempts on the trendline seen in the chart below. The thing about metals is that when everyone runs for the door, they usually do at the same time and it is not a very large door. Yesterday was no exception.
The key support region around 1310 containing the 100-day moving average and trendline support gave way, and Gold dropped through 1300 as if it wasn’t even there. No doubt most of the street that was bullish had their stop losses under these levels, and the price action tells the story. Lots of sell stops, no buyers.
Today initial resistance is 1300/10 the breakout. Support at the overnight lows of 1365. The key support though is 1350/60. This contains some previous daily highs and lows as well as the 200-day moving average. A break here opens up 1200 on a technical basis.
I note however the daily RSI is seriously oversold.
AUD/USD
Less affected by the USD led rout. Most likely supported by higher oil and a better than expected retail sales this morning. Lets also not forget that like its Kiwi cousin, it actually still has interest rates that are not zero.
AUD still sits solidly towards the upper half of its trading range between daily trendline resistance at 7715 and trendline support at 7480. Intraday support lies at 7585.
USD/CNH
All is quiet on the Eastern Front as China is on holiday all week. SDR inclusion has passed with barely a whisper. The lull is unlikely to last if the USD rally continues.
The chart below is imperfectly drawn, but whichever way you draw it, it looks like a classic ascending triangle pointing to a break of the range topside. Look for some catch-up action here when the Chinese get back to work.
Summary
Some very important breakouts have occurred across the currency and precious metals space in the last 24 hours. The key going forward will be sustainability. A continuation, combined with upcoming event risk, portending the welcome return of financial market fireworks in Q4.
