Main Market Themes

US stocks bounced off initial lows and ended largely flat overnight while UST curve flattened after the Federal Reserve announced a 25bps cut in its Fed Funds Rate as widely expected but signaled no more reduction in the benchmark rate this year. The decision to cut is not unanimous with a 7-3 split and the latest dot plot also suggests policy makers are divided on future rate path, with only 7 out of 17 expecting further cut by year end. There was also little change in the economic projection where only 2019 and 2021 GDP growth forecasts were upgraded by 0.1ppt to 2.2% and 1.9% respectively (2020 unchanged at 2.0%). Unemployment rate for 2019 was also revised a notch up to 3.7% with all other projections unchanged from the June estimates. The latest move by Fed alongside its accompanying projections and dot plot was widely seen as hawkish cut against a backdrop of uncertain global environment amidst slower growth outlook and unresolved trade dispute with China. 

Oil prices extended further declines as the oil market calmed and EIA reported a buildup in US crude inventories. Brent crude lost another 1.5% to $63.60/barrel and WTI fell by 2.1% to $58.11/barrel.

Dollar rallied across the board as the dollar index gained 0.31% to 98.56, nearly reversing the previous day’s losses. USD strengthened against all its G10 counterparts and nearly all the majors.

Policy decision from the BOE due today and also a selection of ECB speakers today.

Technical & Trade Views

EURUSD (Intraday bias: Bullish, as 1.10 supports, 1.1150 targeted)

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. EURUSD…UPDATE The Euro continues to find support above 1.10 and is bid this morning a move through 1.1080 would confirm the bullish bias exposing stops above 1.1115 which should fuel a further drive to 1.1150 target

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 intraday bullish reversal from 1.24 support played out as such long positions remain intact and prices look poised to extend to my 1.26 target, I will be squaring long positions as we test 1.26 watching for intraday reversal patterns to set shorts playing for a more meaningful correction back 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. Note there are $1.9bn of 108.00 strikes that roll-off today at the New York cut .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 confirmed with intraday reversal patterns.

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 pull 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  AUDUSD…Update .anticipated .6800 test in progress watching for intraday reversal patterns here to set long positions targeting a drive to .7000 my equidistant swing objective, however, a failure below .6760 would concern the bullish view and expose stops below .6700

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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