Market Summary:
- Another set of positive bond auctions in the US and the general pushback against hawkish Fed comments (alongside bets they may cut sooner) continued to weigh on bond yields and support Wall Street.
- Whilst the S& 500 and Nasdaq traded slightly lower on the day, they traded in tight ranges and are effectively holding on to gains near their respective cycle highs after a strong rally into them. Yet they are clearly lacking a suitable catalyst to drive them materially in either direction as trading volumes replenish after the long weekend in the US.
- The 5-year to the 30-year yields declined over -9 basis points on Monday, which saw the US dollar retain its place as the weakest forex major.
- AUD/USD closed above its 200-day average for the first time in four months, helped by a weaker US dollar but potentially also supported by a fresh face at the RBA.
- The RBA are to appoint the BOE’s Andrew Hauser as their deputy governor as soon as their December 5th meeting, which will fill the role Michelle Bullock left when she took over as governor two months ago. Australian Treasurer Jim Chalmers sees Hauser as the right person to strike the “right balance between providing deep central banking experience and offering a fresh, global perspective to the work of the RBA”.
- Michelle Bullock speaks at 12:18 AEDT / 01:18 GMT. I doubt she’ll veer too much from her hawkish script she’s read in recent speeches, which leaves little room for surprise unless she slips up with a dovish comment.
- Crude oil prices retraced for a third day, yet they continue to struggle to break and hold beneath the 200-week EMA. And as volatility was lower and left a doji on the daily chart, I continue to suspect we’re watching a base unfold and crude oil is due a bounce towards $80.
Events in focus (AEDT):
- 10:30 – Japanese CPI
- 10:50 – Japan’s foreign investment in bonds and stocks
- 11:30 – Australian retail sales
- 12:18 – RBA governor bullocks speaks
- 14:20 – BOE Ramsden speaks
- 16:00 – Japan’s core CPI (BOJ)
- 18:00 – German consumer confidence (GfK)
ASX 200 at a glance:
- The ASX 200 posted its worst day in 20 on Monday, as US yields originally gaped higher and weak China data weighed on sentiment for APAC stocks
- The ASX cash market reached my 7,000 target, and closed just beneath it at the low of the day
- With momentum now fully realigned with the bearish trendline from the August high, and Wall Street indices precariously perched near their own cycle highs, I suspect there could be further downside for the local market (especially if RBA governor Bullock delivers a more hawkish speech than expected)
- The 6950 low is now in focus for bears, who could seek to fade into retracements within yesterday’s range or a break of yesterday’s low.
- Take note that RSI (14) has also curled lower with prices and is now below 50 to show negative momentum, and a 61.8% Fibonacci ratio sits near the 6900 handle which comes into focus with a break beneath 6950.
AUD/USD technical analysis (chart):
The weaker US dollar and hawkish RBA comments have continued to allow AUD/USD to rise. But are bullish bets now getting ‘long in the tooth’ over the near term? RSI (2) is overbought and RSI (14) is getting close, although with a lack of bearish divergence on the RSI 14 is suggests there could be further upside overall, even if we are treated to a minor pullback over the near-term.
Yesterday’s low found support at its 200-day EMA and the day closed above its 200-day average, so I suspect any pullbacks towards these key levels may be bought by bulls. And that means we’d likely need to see a break beneath yesterday’s low before we could expect a sizeable pullback.
Ultimately, I am suspicious of capturing runaway bullish moves around these levels. Therefore, I would prefer to seek bullish setups above 0.6567 on a ‘per day’ basis and seek a more sizeable bullish bet if we are at some point treated to a decent retracement.
View the full economic calendar
– Written by Matt Simpson
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