Main Market Themes

Markets were mired in risk off mode with risk assets under selling pressure yesterday, as the weekend’s drone attacks on Saudi’s oil facilities heightened geopolitical concerns between the US and Iran. Major stock indices ended in the red in the US and Europe but mixed in the Asian markets, amid weaker than expected China data. 

Weaker than expected China industrial production, retail sales and fixed asset investment took center stage, raising concerns over economic fallout that would require the China government to introduce more stimulus to arrest the slowdown.

Bonds broadly gained on haven appeal and so did the greenback, which climbed steadily on the back of weaknesses in G10 FX. 

Global Brent crude oil prices have since pulled back from its knee jerk spike to as high as $72/ barrel, last settling 14.6% higher at $69/ barrel, still above the pre-droning strikes level of $60. The attack destroyed about half of Saudi’s total oil production and about 6% of world output, not only raising concerns on supply disruption but more importantly on geopolitical risks.

The meeting in Luxembourg on Brexit matters between UK PM Boris Johnson and Outgoing European Commission President Jean-Claude Juncker ended with little progress as was expected.

A series of ECB speakers including Villeroy (0940 and 1630 GMT), Lane (1635 GMT) and Coeure (1710 GMT) may keep trader attention on the EUR today. On the data calendar, watch for German ZEW survey (0900 GMT) and US industrial production (1315 GMT).

Technical & Trade Views

EURUSD (Intraday bias: Neutral, bearish below 1.10, bullish above 1.1050)

EURUSD From a technical and trading perspective EURUSD has potentially posted a major double bottom at the yearly S1 pivot. Price action is setting the stage for a more meaningful recovery to the upside, however, yesterdays breach of 1.11035 concerns this view. A sustained failure below 1.10 opens 1.0965 as intraday support ahead of last week’s lows at 1.0930. A move back through 1.1050 is needed to suggest downside risk has been eliminated and reset focus on offers above 1.11. Note there are 1.1000 option strikes maturing this week which total nearly EUR4.4bn.

GBPUSD (Intraday bias: Bullish, above 1.2385 targeting 1.2650)

GBPUSD From a technical and trading perspective anticipated test of 1.2450 extended to 1.25, I now see the potential for a pullback to test bids towards 1.2385, where I will be watching for intraday bullish reversal patterns to set long positions targeting a test of 1.2650 a failure below 1.23 would concern this view and suggest a more meaningful correction is underway to retest support at 1.22.  GBPUSD…UPDATE expected pull back to test bids at 1.2385 underway, watching for intraday reversal patterns in this area to set long positions targeting 1.2650. Failure below 1.2385 and I will employ the same approach closer to 1.23 as highlighted in the chart.›

USDJPY (intraday bias: Bullish, above 107.80 targeting 109)

USDJPY From a technical and trading perspective 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 USDJPY…UPDATE 109 test looks to be in play, however, note divergence developing on the move towards 108.50 which suggests we may struggle to reach the 109 target, however, I maintain my plan looking to sell at or above 109

AUDUSD (Intraday bias: Bullish, above .6800 targeting .7000)

AUDUSD From a technical and trading perspective offers just below .6900 which have capped on the initial test, setting a short term top and a correction back to test bids towards .6800. Monitoring price action towards the .6800 level to buy the dip for a second leg of upside to test offers towards .7000.  Note there are a total of AUD 2.25bn of strikes 0.6890-0.6900 due Sept 18.

Please note that this material is provided for informational purposes only and should not be considered as investment advice. The views discussed in the above article are those of our analysts and are not shared by Tickmill. Trading in the financial markets is very risky.

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