Main Market Themes
Global financial markets was surrounded by positive vibes yesterday and overnight, first on softer stance by both China and the US on their longstanding trade spat, followed by ECB’s stimulus measures.
The ECB did not disappoint, delivering a 10bps cut in its deposit facility and revived its bond purchase programme with a monthly purchase of €20bn starting 1- Nov as widely expected as it gauged that the Eurozone economy is in an extended slowdown and inflation will remain below target. ECB had revised its growth forecast down to 1.1% and 1.2% for this and next year (previous 1.2% and 1.4%) and trimmed its inflation forecast to 1.2% and 1.0% (previous 1.3% and 1.4%). Ultimately, higher bund yields and pared expectations of a further ECB rate cuts this year combined with descent from Germany and France lifted the common currency.
European stocks and bonds rallied after the announcement while the EUR saw a knee-jerk fall, breaking below the crucial 1.10 support very briefly before bouncing back sharply to end the day 0.5% higher at 1.1065.
Minutes post ECB announcement, President Trump tweeted to whip the Fed again, “applauding ECB’s success” in cutting rates and devaluing the EUR!
The cyclicals (AUD, NZD, CAD) tracked lower despite a White House official denying a report that the US was considering an interim deal with China. Firmer UST yields also continued to buoy the USDJPY, leaving the pair above 108.00 by late New York trade.
Expect Sino-US headlines to resume centre stage with the ECB meeting now a postscript. On the former, the latest buzz is centring on some form of interim deal to delay or roll back tariffs. Working level officials are also reportedly due to meet next week for talks.
Technical & Trade Views
EURUSD (Intraday bias: Bullish, Outside reversal day, possibly week?)
EURUSD From a technical and trading perspective EURUSD retested last weeks lows where buyer stepped in aggressively printing an outside day reversal and now has the potential to print an outside weekly reversal and a major double bottom at the yearly S1 pivot. Price action is setting the stage for a more meaningful recovery to the upside, resistance today is expected on the initial foray above 1.11 as 1.1050 supports expect offers over 1.1150 to be tested
GBPUSD (Intraday bias: Bullish,1.2450 test underway)
GBPUSD From a technical and trading perspective headline risk weighs with the potential for the pair to retest support towards 1.22 watch for bullish reversal patterns to 1.2185 to set a base for the next leg of the corrective recovery to target 1.26 UPDATE …GBPUSD anticipated test of 1.2450 underway, where I anticipate offers to cap on an initial test, with the potential for a pullback to test bids towards 1.22, where I will be watching for intraday bullish reversal patterns to set long positions targeting a test of 1.26.
USDJPY (intraday bias: Bullish,108 achieved as 107.50 supports 109 next)
USDJPY From a technical and trading perspective the pair retains a bid tone supported by the reversal in US treasury yields, the pair looks poised to test offers above 108, where i will be looking for a tradable pullback to test bids towards 107, as these contain the correction there is the potential to set a base to make a sustained push through 108 UPDATE…USDJPY 1.08 objective achieved, as 107.50 contains the correction there is scope for the current grind higher to test offers above 109 where I will be watching for momentum and sentiment divergence to complete the current sequence and present an opportunity to initiate short exposure targeting a move back through 108 and a retest of bids at 107.50
AUDUSD (Intraday bias: Bullish, offers ahead of .6900 to be tested)
AUDUSD From a technical and trading perspective last weeks intraday price pattern has impulsive qualities suggesting pullback should be bought for another leg of corrective upside, on the day I am looking for the pair to trade with a bid tone, any pullbacks towards the .6800 level will be buying opportunities as the pair should find support setting a base for the next leg higher to target offers above 0.6900 UPDATE …AUDUSD remains buoyant supported by positive news flow on the US/China trade front. As .6840 supports it seems we can make an early challenge on the offers towards .6900 which I anticipate will cap on the initial test, setting a short term top and a tradable correction back to test bids towards .6800. The increasing momentum divergence supports this view and I will be watching for intraday bearish reversal patterns to initiate short positions targeting a .6800 retest from above. Note there are now a total of AUD 2.46bn of strikes 0.6890-0.6900 due next week Sept 18.
Please note that this material is provided for informational purposes only and should not be considered as investment advice. Trading in the financial markets is very risky.