USD/JPY flirts with 150, ASX futures track Wall Street, eyes record high

The US dollar index extended its bullish run to a 10-weeek high on Monday during thin trade. And that was before FOMC member Christopher Waller called for “more caution” on rate cuts, citing a need to reduce the “policy rate gradually over the next year”. Fed fund futures now imply around an 87% chance of a 25bp cut in November or a 13% chance of holding, a far cry for the 50bp cut priced in just a couple of weeks ago. Fed fund pricing now sees 98bp of cuts in 2025, down from around 200 just recently.

Wall Steet indices rose in tandem, with the S&P 500, Dow Jones and DAX reaching a record high ahead of a busy week for earnings. How those earnings land will help investors assess just how healthy the economy really is, and whether Wall Street indices can extend their record-setting gains or be knocked from their perch. US retail sales and initial jobless claims will also garner greater attention on Thursday, given the latter posted its strongest surge in over two years last week.

• The USD index reached a 10-week high, though the rally has stalled around the 103 handle and 200-day SMA
• EUR/USD hit a new cycle low, but it is trying to form a base around the 1.09 handle and its 200-day EMA
• Bond markets were closed due to the Federal holiday, which saw yield futures trade in tight ranges and the 2-year sit below 4%
• A bearish engulfing day formed on AUD/USD but the 100-day EMA and 67c handle once again came to the rescue for bulls
• Bitcoin futures rallied for a second day and close back above the August high

Events in focus (AEDT):

• 15:30 – JP capacity utilisation, industrial production
• 17:00 – UK average earnings, claimant count, employment change
• 18:00 – ES CPI
• 18:45 – FR CPI
• 20:00 – IEA energy report
• 20:00 – EU industrial production
• 20:15 – DE ZEW economic sentiment
• 23:30 – CA CPI
• 02:00 – US consumer inflation expectations
• 02:30 – FOMC Daly speaks
• 04:05 – FOMC Member Kugler speaks

USD/JPY technical analysis:

The daily RSI (14) continues to confirm the rally on USD/JPY, is yet to reach overbought or develop a bearish divergence on this timeframe. We’ve now seen a daily close above the 200-day EMA, although 150 now stands in its way for a move to the 200-day SMA (151.20).

However, 150 is a big level to crack and a bearish divergence is forming on the 4-hour chart. The weekly R1 pivot also lands on the 150 handle. We may see an attempt or two to break above 150 at the Tokyo open, but I suspect at least a minor pullback could be on the cards, which brings 149 or the weekly pivot point at 148.66 into focus over the near-term.

ASX 200 futures (SPI 200) technical analysis:

With Wall Street reaching record highs overnight, it’s possible the ASX 200 could reach its own record today. The ASX has posted a solid rally since the August low and, while price action has effectively moved sideways over the past month, momentum has realigned with its bullish trend over the past four days. With ASX 200 futures just shy of its record high, it would almost seem rude not to test it today.

But how it behaves around that key level matters. If it comes out the gate sheepishly and gently probes the 8334 level, it suggests a lack of initiative buying and increases the odds of a false break and move lower, back into range. However, should prices rally out the gate and break above the high, the ASX 20 may stand a batter chance of holding onto its gains.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge