Finally, we arrive at the focus of this week for the markets. It should be noted that the USA is going into a long weekend as they have Labour Day on Monday, which is a federal bank holiday. Not many people will wish to hold a risky position over this weekend. The majority of equity markets have had a good week bar the Australian ASX and the German DAX which are both still below their opening price.
Market Brief
The overnight session was quite eventful which meant there was follow-through from the end of the US session. One big market-moving data point was the news that Japanese Prime Minister Yoshihide Suga said he intends to resign, explaining that he would not seek re-election after his term comes to an end on September 30.
The Nikkei225 took this as a good thing and pushed on higher with the index gaining 5.38% this last week. The Japanese yen weakened which was fuel to the move into equities and with a new PM there could be a bigger fiscal response to the ongoing coronavirus disruptions.
In China the market received Services PMI data which came in so far under market expectations it looks like a complete collapse.
Lower staffing levels and pandemic-related disruption led to a second successive monthly rise in the amount of outstanding business at services companies. Chinese data this week is not painting a pretty picture for their economy with the manufacturing PMI’s all missing expectations along with this services data and the composite data. China is the 2nd largest economy in the world and we all need them to be prosperous.
The Australian dollar continues to push higher and is a hairsbreadth away from breaking through the recent daily swing highs which clears the balance area of resistance. This is being fuelled by the US dollar decline today as the Australian retail sales data came in worse than expected and at the same depressed levels as the previous month.
As is usually the way, the retail sentiment is on the wrong side of the move, with the ActivTrader sentiment indicator showing that 73% of traders are bearish of the AUDUSD.
The forex heatmap once again shows that the Australian dollar is the strongest currency relative to its peers at the London open and that the other commodity pairs are doing well on the back of weaker US dollar flows. The move into risk-on assets is pushing the S&P500 higher.
Of the 500 companies in the S&P500 yesterday the technology services sector held the index back a bit, which translated in the Nasdaq being slightly down yesterday.
The US dollar is now well-positioned for a bounce higher if the market likes the NFP and jobs-related data today. Tagging the daily 200 ema looked inevitable after the 50-period moving average gave way, and if we look left along with the chart, price is now at a swing low balance area where buyers used to reside. They may still be there, so initiating a short here is not the wisest of moves. If we break lower and close below the 200 ema, I am expecting the DXY to test the FOMC lows from June, as there was very little volume conducted in that big green candle, so the major support will be around the $90 level again.
We’re about to receive European PMI data points and the EURUSD has cleanly broken out of this falling wedge pattern that we have been monitoring. The slight pause on the H4 chart before the aggressive breakout would have been a great place to take that trade but now anyone looking to get into this on the long side should wait for the classic retest.
If we were to go by the EURUSD sentiment indicator on the ActivTrader platform, one way to trade to the long side would be for us to stay long the entire time the majority of traders were bearish the EURUSD.
The falling US dollar, Hurricane Ida and OPEC+ have all been very supportive of Brent crude prices this week. Ida has caused approximately 79.96% of current oil production in the region to be shut in due to the natural disaster.
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