The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication.
While both these themes have been known for a while, it seems the fact price action continues to deteriorate is discouraging investors from jumping back into equities. Earlier in the week, I highlighted how the bulls and bears continue to play a game of cat and mouse, with the bulls looking for a floor in the recent sell-off while bears consider adding to shorts.
As choppy price action is the dominant theme, patience will be key in this environment. At the moment, it certainly seems it will take time to realise a floor. While equities were sold off, the greenback remained fairly resilient and managed to gain some ground against the risk currencies in particular. The euro and the AUD plunged to new lows against the greenback, with EUR/USD dropping below its July 2013 low and AUD/USD dipping below $0.8800.
AUD and EUR smashed against the greenback
The momentum remains firmly pinned to the downside on AUD/USD and it seems traders will be eyeing a move to January lows at $0.8660 in the near term. Even though the pair has recovered some ground this morning, the current risk-off tone is likely to see traders continuing to sell into strength. The $0.885 region seems like an ideal sell zone, given it was previous support.
With commodities struggling and the USD remaining firm, it is difficult to see a sustained recovery in the pair. EUR/USD traded at its lowest since November 2012 and this move seems to have triggered some mild profit taking on shorts.
However, most traders will be looking to continue trailing stops lower and ride this trade for as long as they can. Later today, we receive consumer confidence readings for Germany and France – any disappointment will only lead to further losses for the euro.
ASX 200 to open weaker
Ahead of the open we are calling the ASX 200 down 1.1% at 5322. This will see us trade near March lows, with a risk-off tone the dominant theme. Iron ore dropped again. It is now trading below 79 and the weakness was fairly broad-based across the base metals space. Gold was an exception, with a fairly solid bounce as geopolitical risk played into the hands of safe-haven assets. While this might benefit some of the precious metals names, it will still be a brutal day for the materials complex. BHP’s ADR is pointing down nearly 2%.