Morning Report: Risk Rolls Over, Bullish For EUR

Market Commentary  

Equity markets continue their descent overnight after closing at their lows last week China’s PMI-mfg (preliminary) came in at 47.1, a 6.5 year low. DJI, S&P and NASDAQ fell >3% by close, following similar magnitude of losses in the European markets. Risk appetite is still weak this morning, USDJPY dipping below 121 at one point before a mild rebound. UST 10yr yields were last seen around 2.0295%. Dollar index was sharply lower towards 94.00 overnight, move lower due to risk-off sentiment and softer than expected market manufacturing PMI last Friday. Worries if Fed delays rate hike in September also contributed to weak USD sentiment. Markets are now only pricing in 34% probability of rate hike in Sep (vs. 36% post FOMC Minutes release yesterday vs. 48% a day before FOMC minutes release).

EUR maintained its upward momentum, trading to a high of 1.1498 this morning off the back of risk aversion and slowing divergence between Fed and ECB. EUR remains a “funding currency” play – risk off sees EUR higher while risk on sees EUR lower. The inverse relationship is expected to persist for as long as ECB is on unconventional monetary easing. Worries of Fed possibly delaying rate hike (implies monetary policy divergence between US and EU could take a breather) could help support the EUR further in the short-term.

GBP was largely stable relative to other G7 majors which saw bigger movements. Week ahead sees little key data except for CBI Aug reported sales (Wed); Aug nationwide house prices (Thu); 2Q GDP (Fri). BoE Carney is due to speak at Jackson Hole Symposium on Sat. Expect GBP to consolidate, with mild bias to the upside.

USDJPY has formed a potential technical double-top with the pair falling below the 122 handle. This came off the back of risk-off sentiments (China growth concerns, rising Korean peninsula tensions, etc.) that saw safe-haven plays. Pair is currently hovering around 121 with both momentum indicators and oscillators bearish bias. Further dips could see the pair move lower towards 120.

Technical  Commentary 

EURUSD Short Term (1-3 Days): Bullish – Medium Term (1-3 Weeks) Bearish

  • Stops above 1.15 targeted on route to weekly 1.18 corrective symmetry objective, intraday support moves to 1.1330/10 only below 1.12 concerns bullish advance
  • Daily Order Flow bearish; OBV sideways to up, Linear Regression and Psychology bullish
  • Monitoring intraday price and Order Flow indicators on a test of 1.18 or 1.12

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GBPUSD: Short Term (1-3 Days): Bullish  – Medium Term (1-3 Weeks) Bearish

  • A close above 1.57 targets 2015 highs next at 1.59. Intraday support is eyed at 1.56 Only a close below 1.5550 would concern the near term bullish advance
  • Daily Order Flow bullish; OBV sideways, Linear Regression and Psychology bullish
  • Monitoring intraday price action and Order Flow indicators on a test of 1.56 or 1.5750

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USDJPY: Short Term (1-3 Days): Bearish  – Medium Term (1-3 Weeks) Bullish

  • The breach of 122 concerns medium term bullish view and opens a retest of bids towards 120, intraday resistance now sighted towards 122.50, only a close back above 123 eases bearish pressure
  • Daily Order Flow bearish; OBV sideways to down, Linear Regression and Psychology bearish
  • Monitoring intraday price action and Order Flow indicators on a test of 123 or 120

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EURJPY: Short Term (1-3 Days): Bullish – Medium Term (1-3 Weeks) Bearish

  • While 138 caps downside reactions bulls now target symmetry objective at 141.70, a failure at 136.50 opens a retest of range support at 134/33.
  • Daily Order Flow bullish; OBV sideways, Linear Regression and Psychology bullish but lack momentum
  • Monitoring intraday price action and Order Flow indicators at 141 and 137

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