Japanese export data is bullish, but today’s markets start risk-off
The rise in equities yesterday put cold water on the analysts calling for the top in the markets. But today commodity forex pairs once again look to be weakening against the haven currencies, which could signal another round of selling in the more volatile assets.
Has sentiment changed? Yesterday was a respite for the correction, today's forex heatmap looks to have returned to risk-off as the Swiss franc, US dollar and Japanese yen are all finding bids ahead of the London open, and commodity pairs are depreciating. When this happened previously the equities tumbled a couple of percents easily.
Using the NDX chart which only trades the US session it is easy to see what signals can be derived from pure price action. On the Risk-Off days in the forex market the London session would have given rise to the US equities, only to see the US open give the likes of the Nasdaq a pop higher to trap the perma-bulls and then proceed lower for the rest of the session. Yesterday’s change in sentiment saw the gap get filled in the opposite direction.
During the Asia-Pacific session, the BoJ meeting minutes from June revealed that the members are optimistic that the Japanese economy will recover as the pandemic subsides. Most members expressed the view that it was appropriate for the Bank to maintain the following guideline. First, as for the short-term policy interest rate, it would apply a negative interest rate of minus 0.1 percent to the Policy-Rate Balances in current accounts held by financial institutions at the Bank. Second, as for the long-term interest rate, the Bank would purchase a necessary amount of JGBs without setting an upper limit so that 10-year JGB yields would remain at around 0 percent.
The USDJPY continues to move higher and has taken out yesterday’s high, a close back above the daily 50 and 20 ema’s will be a very good sign for the bulls.
Japanese export data increased above expectations to 48.6% year on year. Marking the fourth consecutive monthly rise in sales.
The AUDUSD is now acierating lower and a break below 0.7220 would quickly result in a move towards the 0.7000 level as there is little market structure left to act as a roadblock.
Australian retail sales data has been heavily affected by the ongoing coronavirus lockdowns. Retail sales in Australia declined by 1.8% month-over-month in July 2021, compared with market expectations of a 0.4% fall.
The UK borrowing data was released before London opened. Public sector net borrowing (excluding public sector banks, PSNB ex) was estimated to have been £22.8 billion in June 2021; this was the second-highest June borrowing since monthly records began in 1993, £5.5 billion less than in June 2020.
The GBPUSD will continue to move lower on US dollar strength and as we are already under the daily 200 ema, I have used the Fibonacci extension tool to see where the price could be heading. A measured move to 1.3450 looks like a great first target. As that would also coincide with the September 2020 spike high. I will be looking for a reversal here and for the price to then take out the 2021 double top. If we are in a bear trend, the recent support line which broke would act as resistance and we can look for a reversal there to target the 1.3170 level which is the 161.80% fib extension. I don’t see this just collapsing in one fell swoop.
Energy traders will get the latest inventories today at 3.30 pm BST and in the London session the ECB speakers may give the euro a nudge but as the ECB is in ‘the quiet period’ I am not expecting anything until after tomorrows data.