Trader thoughts - the long and short of it

Australia’s benchmark stock index paused to digest gains Friday, with another strong day in heavily weighted materials names offset by a drop in the even more overrepresented financials sector.

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Source: Bloomberg

S&P/ASX 200 takes a break after another impressive week: Still, the ASX posted a sixth consecutive week of gains to mark the longest winning streak in two years. Implied data is anticipating a strong start to the week for BHP with ADRs showing a 1% gain while Rio Tinto is expected to open flat.

Move over Kiwi, Aussie coming through: The Australian Dollar may be looking somewhat oversold and one to play its recovery may be through selling the New Zealand Dollar. Prices are testing resistance guiding the AUD/NZD downtrend since late October 2017, with confirmation of a breakout on a daily close above 1.0861 marking a reversal in the Aussie’s favour. This follows last week’s debut of new RBNZ Governor Adrian Orr, who struck a decidedly dovish tone as he prepared to lead the central bank’s mandate to target employment as well as inflation.

A heavy week of Asia Pacific economic data is on the horizon: A speech from RBA Deputy Governor Guy Debelle starts things off slowly on Monday. Heavy-duty scheduled event risk is not far behind, however, with the Japanese GDP report as well as a Chinese data dump including numbers on retail sales, industrial production and unemployment due Tuesday. Minutes from this month’s RBA meeting will also cross the wires on the same day. Wednesday brings Australian wages and consumer confidence statistics while Thursday features April’s labour-market data set. The latter will also see Japan’s CPI roundup cross the wires.

Brent crude oil closed this week near a critical marker on the chats: When people who look at price charts test the strength of a move, they will often look at how the current movement within the context of a major prior trend development. On Friday, Brent crude oil traded to the 50% retracement level of the 2012-2016 price range of $128-$27 per barrel, at $77.75. Aligning with this was a sharp increase in bullish options that would pay out if Brent traded at $100 by December. While this type of out-of-the-money options are often purchased because they are cheap, the upswing may also signify an environment that is supportive of gains in the underlying commodity.

US Dollar may find help in external economic data: The greenback settled little-changed against an average of its major counterparts last week, opting for digestion after the breakneck rally that brought it to a four-month high. External influences may revive the rally in the day ahead, however. CPI and GDP readings from Japan and the Eurozone are expected to produce weaker results. Meanwhile, minutes from the latest RBA meeting will probably strike a dovish tone. In all, that might undercut the case for policy normalisation outside of the US and burnish the relative appeal of the benchmark currency versus its G10 FX counterparts.

Fed freshmen face confirmation hearings: A busy week of scheduled commentary from Federal Reserve officials will be headlined by Senate confirmation hearings for Richard Clarida and Michelle Bowman, nominees to the Vice Chair and community banking posts on the US central bank’s Board of Governors. If lawmakers sign off on the nominations, Clarida and Bowman will acquire a vote on the rate-setting FOMC committee. Both are seen as generally in line with the mainstream of US central bank officials. Comments affirming their support for gradual stimulus withdrawal may be seen as reinforcing the case underpinning the Dollar’s recent gains and may give it another upward nudge. They may likewise weigh against broad-based risk appetite since markets have shown themselves decidedly uneasy about the prospect of speedy US tightening.

Will gold prices bounce or break lower at trend-defining chart barrier? The yellow metal is negotiating upward-sloping support guiding it broadly higher since December 2016. This now sits in the 1284.71-1302.73 area, with a breach lower initially exposing 1261.11. Alternatively, a rebound through minor upside barriers in the 1323.60-33.42 region opens the door for a challenge of resistance defining the broadly bearish bias since the beginning of the year. This is marked by a channel ceiling and a double top in the 1349.68-57.50 zone.

Market’s Data:

SPI futures moved -2.56 or -0.04% to 6116.19.

AUD/USD moved 0.0051 or 0.68% to 0.7537.

On Wall Street: Dow Jones 0.19%, S&P 500 0.03%, Nasdaq -0.22%.

In New York: BHP 1.33%, Rio 0.11%.

In Europe: Stoxx 50 -0.12%, FTSE 100 0.31%, CAC 40 -0.07%, DAX 30 -0.17%.

Spot Gold moved 0.2% to US$1319.1 an ounce.

Brent Crude moved -0.57% to US$77.03 a barrel.

US Crude Oil moved -1.12% to US$70.56 a barrel.

Iron Ore moved 1.36% to CNY484 a tonne.

LME Aluminum moved -1.31% to US$2335 a tonne.

LME Copper moved 1.57% to US$6917 a tonne.

10-Year Bond Yield: US 2.97%, Germany 0.56%, Australia 2.78%.

 

Written by: Ilya Spivak, Currency Strategist and Tyler Yell, CMT with DailyFX.

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