Commodity prices such as oil are supported by the falling US dollar.
Risk-on day today in the forex and equities markets. Good earnings season reports are giving investors confidence to buy back into the equities and the markets are starting to find new all-time highs again.
The forex heatmap couldn’t be much clearer at the end of the London session. The markets are generally risk-on which is good for equities during the US earning season, commodities, and their associated pairs, while the US dollar and Chinese yuan battle it out with the yen as to who is the weakest relative to them all.
The US dollar index has not been able to catch a bid all day and is starting to look decidedly bearish as it forms a clear swing high at resistance. The closer it gets to last Friday's low the more likely it is to push through the rising trendline and go on to test the $91.50-$92.00 zone.
One pair to benefit from the weakening US dollar is the AUDUSD which I had said a few weeks ago could reach the 0.7600 breakdown level. Clearing 0.7500 and a close around these levels will be very bullish as we will have had 2 daily closes above the 200-period moving average. With the 20 crossing the 50 to add to the bullish momentum.
The commodities that are priced in US dollars benefit from a weaker greenback and today we see the Brent oil contract move back above a level of resistance I had signaled. If this level can now hold as support the move back towards $90 resumes. Analysts are calling for prices between $90 and $100 per barrel. US EIA weekly production figures were lower by 100k today, with crude stocks drawing down -0.431 million barrels, which was opposite to market expectations and a sign of economic demand.
This afternoon was a big auction in the 20-year bonds. The ETF that tracks these treasuries is the TLT and the sale today resulted in a rather aggressive sell-off. The bid-to-cover was 2.25x down from the previous auction and below the 6-auction average, showing that there was less demand for these 20-year bonds today.
The benchmark Treasury yields are based on the US 10 year note and following on from today’s 20-year auction the 10-year yields caught a bid whereas the Short-Term Interest Rates (STIR) were less affected. The US 10 year yields generally reflect traders’ thoughts on where and when interest rates rise.
The Fed speakers today gave their views on whether the Federal Reserve will be raising rates any time soon, with Randal Quarles saying, "It is clear that we have met the test of substantial further progress toward both our employees and our inflation mandates, and I would support a decision at our November meeting to start reducing these purchases and complete that process by the middle of next year," Though he also stated that the Fed isn’t behind the curve in reacting to inflation and that they have the tools to bring inflation down toward the 2% goal.
What was noticeable following from the 20-year auction was the 50-point sell-off in the Nasdaq which on an hourly chart brought the price down to the 50-period moving average, but also that coincided with a measured move of the Initial Balance range. Anyone who was trading the Nasdaq today would have had a shock to the downside after what had been a balanced and boring day, so it is worth noting when these treasury auctions are scheduled.
Indices in the United States continued their gains, with the Dow Jones Industrial Average rising over 170 points and setting a new intraday record. With Tesla set to report its third-quarter earnings after the close, investor optimism appeared to be boosted by better-than-expected earnings reports.