AUD/JPY looks set for a breakout, crude oil mulls bounce from $70

EUR/USD sank to an 11-week low after the ECB delivered a dovish 25bp cut and US data once again exceeded expectations. The 25bp cut marked the ECB’s first back-to-back easing in thirteen years, and their third cut this year. High rates have hurt investment and economic growth according to the ECB, although Lagarde maintains that they are on track for a soft landing.

US retail sales blew past expectations and initial jobless claims fell, which now brings into question whether the Fed will need to cut twice this year. Retail sales increased 0.4% in September (0.1% expected) and core retail sales came in a healthy 0.5% m/m (0.1% expected, prior revised up to 0.2% from 0.1%). +

The US dollar index is now on track for its third week higher and to close firmly above 103. EUR/USD has provided an impressive 14 bearish candles over the past 15, USD/JPY closed above 150 for the first time since July and USD/CAD formed a bullish engulfing day (with bets of a 50bo BOC cut helping).

Australia’s latest employment report dealt a harsh blow to anyone calling for the RBA to cut rates. 64.1k jobs were added, which is over 20k above expected and nearly 40k over prior. And 51.6k of that job growth stemmed from full time roles. The participation rate also reached a record high of 67.2% and unemployment remained at a decent 4.1%. The RBA’s cash rate futures curve has fully priced in a cut by May, although many are now speculating that the RBA may not even cut this year. And if inflation continues to slow at the steady pace it is and unemployment remains as robust as it has, there is a solid case for the cash rate to remain in pause mode.

Events in focus (AEDT):

We have a host of data from China today, including growth figures for Q3. Naturally, it warrants a look from the perspective of global growth pressures, but we also need to factor in that Beijing’s recently announced stimulus won’t be captured in the backward-looking data sets. Therefor its market impact may be limited.

Tokyo inflation figures can provide a 3-week lead on Japan’s nationwide CPI. But unless it comes in particularly strong then traders its impact may be muted given the BOJ’s reluctance to tighten policy faster than a snail’s pace.

Bets are on that the BOE are set to cut rates at least twice more this year, and those bets would be bolstered an potentially weigh further on the British pound should UK retail sales come in soft.

FOMC members are hitting the wires again, and I see little reason for them to unveil a dovish show. US data continues to surprise to the upside,

• 10:30 – JP consumer price inflation (Tokyo)
• 12:30 – GDP, industrial production, retail sales, fixed asset investment, house prices, unemployment, NBS press conference
• 17:00 – UK retail sales
• 22:30 – building permits
• 00:30 – FOMC member Bostic speaks
• 01:00 – FOMC member Kashkari speaks
• 01:30 – US GDPnow
• 03:30 – FOMC member Bostic speaks

AUD/JPY technical analysis:

Over the past 10 days AUD/JPY has oscillated around its 100-day average. And the bias is for an upside break of this sideways range, given the bullish trend the led prices into it and the bullish range-expansion day seen on Thursday. The daily RSI (14) is also confirming the trend higher and nowhere near the overbought level.

While not a textbook example, it could be deemed a bull flag on the daily chart. And the 100% projection from the ‘mast’ lands just above thew 103 handle, which itself is just above the June low. From here, bulls could seek low-volatility dips towards Wednesday’s low to increase the potential reward to risk ratio. The 200-day SMA AT 100.23 or the 100 handle itself many also provide support along the way.

The 102 handle and monthly R1 pivot just above it may also provide resistance along the way.

WTI crude oil technical analysis:

Over the past seven days, WTI crude oil has fallen over 11%. However, bearish momentum over the past three has waned and it trying to form a base around $70. The daily RSI (2) reached oversold on Tuesday and remained there on Wednesday before curling higher yesterday. A gravestone doji also formed yesterday to send further suggest a swing low could be near – if not in already.

I’m not looking for anything glamorous here, but I suspect crude oil prices are in for a bounce. And $72 looks achievable, with the monthly R1 and 200-day EMA sitting just above it.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge