EUR/USD, AUD/USD bounce on lower yields: Asian Open – 24/10/2023

US yields pulled back from their cycle highs which saw the 10-year yield fall back below 5%. And if this tweet is correct, it was because prominent bond bear, Bill Ackman, disclosed on Twitter (sorry… X) that he had closed his short bond position.

In a short thread, Ackman cited “too much risk in the world to remain short bonds at current long-term rates” and that the “economy is slowing faster than recent data suggests”. If other bond bears follow suit, it could further weigh on yields. With large speculators at or near record level of net-short exposure to US bonds across the curve, it is perhaps wishful thinking that Ackman alone can turn this trend around – even if it screams sentiment extreme. It’s also worth nothing that he claims to have closed his shorts and has not taken a long position.

Still, yields were lower which saw the 10 and 20-year form bearish engulfing days. The US dollar index briefly touched a 20-day low but has fond support around 105.50, sending EUR/USD to its highest level since 22 September. I noted in yesterday’s COT report that price action on the weekly chart and trader positioning suggests some mean reversion is due, and that now seems to be playing out with lower yields. For now at least.

See how large traders were positioned on the futures markets last week: EUR/USD, gold, WTI crude oil analysis: Commitment of traders report (COT)

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Events in focus (AEDT):

  • 09:00 – Australian flash PMIs (manufacturing and services)
  • 11:30 – Japan’s flash PMIs (manufacturing and services)
  • 16:00 – BOJ core CPI
  • 17:00 – UK average earnings, employment change
  • 17:00 – German GjK consumer sentiment
  • 18:30 – German flash PMIs (manufacturing, services, composite)
  • 19:00 – RBA Governor Bullock speaks
  • 19:00 – Eurozone flash PMs (manufacturing, services, composite)
  • 19:30 – UK flash PMIs (manufacturing, services, composite)
  • 23:30 – ECB president Lagarde speaks
  • 00:45 – US flash PMIs (manufacturing, services, composite)

ASX 200 at a glance:

  • The ASX 200 fell for a third day and closed at its lowest level since November
  • Yet with stability seen on Wall Street indices and SPI 200 futures overnight, we may find the bleeding at least slows on the cash index today
  • Whether it can muster up the strength to retrace higher seems debatable without a bullish catalyst to bolster APAC stocks today, but bears may want to be cautious around these lows

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EUR/USD technical analysis (4-hour chart):

The weekly chart of EUR/USD printed a weekly bullish pinbar at the start of October, which saw a false break of 1.05 and the January low. And that pinbar low is yet to be retested, to suggest demand around 1.05. A bullish engulfing week formed and prices have now broken above last week’s high, which further suggests a base has formed.

The question now is whether this is the beginning of a trend, or merely a 3-wave retracement (which could soon top out and revert to bearish momentum). A 100% Fibonacci projection and 1.0700 handle make a likely resistance area initially – and we could assume the correction has completed if we see bearish momentum form around such as resistance zone.

But due to the clues of the higher timeframe, my bias is for a move towards the 1.0765 resistance zone. And any dips towards 1.060 or 1.0635 could pique my bullish interest over the near-term. Of course, we’ll need to see the US dollar index break beneath 105.50 for this to play out and for yields to continue to retrace from their cycle highs.

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AUD/USD technical analysis (daily chart):

Once again, the Australian dollar (aka the battler) has held above key support levels despite broad risk-off sentiment. And it was only a few weeks ago that large speculators were net-short AUD/USD futures by a record level. And the longer it defies bears, the greater the chance there is for a corrective bounce.

AUD/USD formed a bullish engulfing candle on Monday to yet again suggest demand around 63c. Any low volatility dips within yesterday’s range could be of interest to dip buyers. And it could work out quite well if US PMI data comes in soft, alongside a stronger-than-expected inflation report for Australia on Wednesday.

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