AUD/USD and copper slump for a 6th day, ASX 200 regains balance

Wall Street indices recouped some of last week’s losses on Monday as they absorbed news that Biden had cleared the path for Kamala Harris to run for presidency, allowing investors to also switch their focus to tech earnings season. Harris raised ~$84 million of donations within 24 hours, nearly doubling the war chest when combined with Biden’s. And that underscores just how ready voters are for a new face in the White House. The Nasdaq 100 and S&P 500 were up ~1.5% and 1% respectively, although the Dow rose just 0.3% and formed an inside day near last week’s low and Rikshaw Man doji candle.

China cut several of its short and long-term interest rates on Monday in a bid to boost economic growth, following a slew of weak economic data and growing concerns over deflation and potential trade wars. USD/CNH rose to a 12-day high thanks to a weaker yuan, the China A50 formed a bearish outside day. AUD/USD was lower for a sixth day as it continued to track copper prices south. Copper futures closed below 4.2% to a 3.5-month low before finding support at the March high (4.171). The Nikkei 225 futures found support at the May high and erased Friday’s losses, although remained below 40k. Hang Seng futures pared most of Friday’s losses after a false break of last week’s low.

Events in focus (AEDT):

• 15:00 – SG CPI
• 17:00 – ECB Lane speaks
• 20:00 – CN Foreign direct investment
• 00:00 – US Richmond Fed manufacturing index, home sales
• 00:00 – EU consumer confidence

AUD/USD technical analysis:

I mentioned in yesterday’s AUD/USD weekly outlook that bearish reversal candles on the weekly chart barely come in isolation. And Monday’s bearish price action shows the Assie have little intension of swimming against the tide.

Not only did AUD/USD fall for a sixth day, but it was the most bearish day in six weeks. Still, support has been found at the 100-day EMA (0.6630) and 38.2% Fibonacci level. Given the 200-day EMA is nearby at 0.6609, dare I speculate that its downside potential could be limited today given Wall Street was higher and copper prices found support. The daily RSI (2) is oversold for markets.

Whilst I see the potential for further losses on both markets, I am not convinced these are the levels for bears to consider entering. Instead, they may want to wait for minor bounces and seek to fade into strength. Particularly if the US dollar can

ASX 200 at a glance

• The risk-off tone saw the ASX 200 cash index close lower for three consecutive days
• Yet the daily low found support just above the 7900, and two of the last days have formed lower wicks to suggest bears are losing steam
• With 9 of its 11 sectors falling and 63% of stocks declining, it warned bearish sentiment over the near-term could be stretched

ASX 200 futures (SPI 200) technical analysis:

From a purely technical perspective, the strong breakout from compression seen on July 11 suggests that the ASX 200 could go on to hit new highs. However, for it to stand of doing so soon likely requires a strong rally from Wall Street indices and APAC indices in general. And given the mixture of drivers at present, I am leaning towards some choppy trading conditions before we get the next directional move – which ever way that may be.

The daily chart shows prices closed marginally above the April high after snapping a 3-day bearish streak. And we could see the ASX 200 capitalise on overnight gains today, even if only towards the 8000 level.

The 1-hour chart shows the monthly R2 pivot sits just beneath the 8000 handle. And the 1-hour volume profile also shows a liquidity gap between current prices and the R2 pivot, and that gap could be filled and suck prices towards 8k if prices advance today.

From there I remain doubtful the ASX will simply continue higher without a fresh catalyst, and therefore I am equally open to a swing high forming around such a level on the assumption of profit taking around the big figure.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge