Asian Open USD Enters a Corrective Phase NZDUSD Set to Bounce

Asian Futures:

• Australia’s ASX 200 futures fell -1 points (-0.02%), the cash market is currently estimated to open at 7307.6
• Japan's Nikkei 225 futures are down -30 points (-0.1%), the cash market is currently estimated to open at 28753.28
• Hong Kong's Hang Seng futures are up 171 points (0.61%), the cash market is currently estimated to open at 28481.42

European Friday close:

• UK's FTSE 100 index fell -1.89 points (-0.03%) to close at 7123.27
• Europe's  Euro STOXX 50  index rose 5.42 points (0.13%) to close at 4084.31
• Germany's DAX  index rose 46.28 points (0.3%) to close at 15650.09
• France's CAC 40 index fell -0.96 points (-0.02%) to close at 6552.86

US Friday close:

• The Dow Jones rose 13.4 points (0.44%) to close at 34,786.35
• The S&P 500 rose 32.4 points (0.76%) to close at 4,352.34
• The Nasdaq 100 rose 167.578 points (1.15%) to close at 14,727.63

Indices:

A strong nonfarm payroll report on Friday boosted sentiment for markets, with the headline figure adding 850k jobs compared with the 559k expected. Unemployment rose to 5.9% from 5.8% but markets were seemingly happy to look beyond that as a blip.

US equities went into overdrive mode with the Nasdaq 100 and S&P 500 accelerating higher at their record high. After seven consecutive days of gains it is now the best run for the S&P 500 since 1997.

The ASX 200 is trading in a potential triangle formation on the daily chart. We said the same thing last week, only for price action to evolve, invalidate the pattern and begin forming a new one. Something that should be factored in here is the time of year, so this may well just be a seasonal thing as opposed to a build-up to a convincing break. The fact we have a bullish and bearish pinbar on consecutive days last week underscores its lack of direction, so perhaps trading intraday ranges may be the best play until we see a convincing breakout, one way or another.

ASX 200 Market Internals:

ASX 200: 7308.6 (0.59%), 02 July 2021

• Consumer Discretionary (1.3%) was the strongest sector and Information Technology (-0.11%) was the weakest
• 9 out of the 11 sectors closed higher
• 3 out of the 11 sectors outperformed the index
• 128 (64.00%) stocks advanced, 61 (30.50%) stocks declined
• 72.5% of stocks closed above their 200-day average
• 66% of stocks closed above their 50-day average
• 52.5% of stocks closed above their 20-day average

Outperformers:

• + 20.3%   -  IDP Education Ltd  (IEL.AX) 
• + 5.16%   -  A2 Milk Company Ltd  (A2M.AX) 
• + 5.00%   -  Nickel Mines Ltd  (NIC.AX) 

Underperformers:

• -5.28%   -  IPH Ltd  (IPH.AX) 
• -4.37%   -  Megaport Ltd  (MP1.AX) 
• -2.99%   -  Netwealth Group Ltd  (NWL.AX) 

From the Weekly COT Report (Commitment of Traders)

From Tuesday 29^th July 2021:

• Net-short exposure to the US dollar was reduced by -6.6 billion dollars accord to calculations from IMM, meaning 11.1 billion of short exposure has been reduced over the past two weeks.
• Traders are their most bearish on Japanese yen futures since May 2019, with net-short exposure being increased by 16k contracts. Gross shorts were increased by 9.3k contracts and gross shorts reduced by 6.7k contracts.
• Elsewhere, weekly volume changes were quite across FX majors.
• Traders were bearish on AUD futures for a sixth consecutive week.
• Gold futures traders had their lowest net-long exposure in two years.
• Copper saw its first increase in net-long exposure in 8-weeks. Whilst by a relatively small amount, its 1-year Z-score is at -2.1 standard deviations, so perhaps there is a case to build for a trough to form on copper prices.
• Platinum also saw a slight increase in net-long exposure, although 25k short contracts were cut – its largest weekly decline since November 2019.

Long/short positioning (75% and above):

• CAD futures: 75.2%
• S&P 500 futures: 84.5%
• WTI futures: 82.4%

Forex: 50-week eMA continues to cap dollar gains

The US dollar index (DXY) closed back beneath its 50-week eMA after a false break above it on Thursday. The daily chart closed with a three-bar reversal pattern (Evening star reversal) thanks to a broad sell-off of the dollar after NFP. The trend remains bullish above 91.51 on the daily chart but it now appears likely to be within a corrective phase.

USD/JPY formed a long-legged Doji on the weekly chart and a bearish outside day on Friday. With traders increasingly net-short on JY futures we suspect new highs will be on the card once its corrective phase has been completed, but the March 2020 (pandemic) peak has proved a tough level to crack upon its first attempt.

EUR/USD closed back above the June low after a false break, leaving a bullish hammer on the daily chart and suggesting a minor bounce could now be on the cards.

Of all the reversal pattens across FX majors, commodity FX were the most impressive. USD/CAD was the biggest move, falling 0.95% whilst NZD/USD and AUD/USD rallied 0.89% and 0.75% respectively, and all had large outside days.

AUD/USD closed above 0.7500, although take note of the monthly pivot at 7070 which makes a likely resistance level.

AUD/CAD has held above the October 2020 low, so there’s the potential for a corrective bounce form current levels as it has effectively been in a sideways range since early June.

Whilst there are similarities between AUD and NZD charts, we’d prefer NZD/USD for counter-trend longs over the near-term. AUD/NZD is drifting lower (which shows NZD is outperforming AUD) and NZD/USD has done a better job at standing up to dollar strength on recent weeks.

Note the false break for NZD/USD of its April low in June, and prices held above that false break last week (unlike AUD). Therefore, our bias is bullish above Friday’s low and would welcome any low-volatility dips within Friday’s range as it may help increase potential reward to risk ratio for retest of the June 25^th high. Still, it has to conquer the 200-day eMA so we could expect some notice around current levels, but the initial target is the weekly R1 pivot, just beneath 0.7100.

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Commodities: Gold considers a break of 1800

Gold rallied for a third day and came close to testing 1800, closing the week with a (relatively small) bullish pinbar. With the dollar showing signs of a corrective phase, then perhaps we will see gold back above 1800. And there’s also the fact that prices are holding above trendline support (projected from the May 2019 low) after a particularly bearish month in June – so a retracement could be expected from those factors alone. A break above 1800 is the next key level for bulls to break which opens-up a clear run for 1860.

WTI trades around 75.25 ahead of today’s OPEC+ meeting. Should they fail to increase production by any meaningful amount then it could be headed for the October 2018 high of 76.90.

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