USD, yields wobble near month end, CNY to lead AUD/USD higher?

US yields were lower, the US dollar handed back gains and gold reached a record high as soft US economic data removed a pilar of support for hawkish bets.

JOLTS job openings fell to a 3-year low of 7.4 million, down -418k on the month which is nearly three times its -155k 12-month average. The absolute rate also shows the trend is very much lower and has been consistently beneath its own 12-month average since July 2022. GDP now also fell short of expectations at 2.8%, compared with 3.3% prior and forecast.

None of these figures are immediately alarming in isolation but, given we have already seen a surge higher on the USD and yields, it makes sense that we could have a bump in the road along the way. Especially since we have month-end flows and in incoming presidential election to contend with.

USD index wobbles around cycle highs

The USD rally has been nothing short of impressive, but may it is time for at least a miniscule pullback. The USD index seems to be struggling around the July high, with three higher wicks failing to prompt a daily close above 104.20 this past week and a bearish pinbar forming yesterday. A bearish divergence is also forming on the daily chart, while the US 2-year yield formed a bearish engulfing day and closed beneath its August high.

Perhaps a cheeky pullback to the 10-day EMA, near the 103.80 swing low could be on the cards. If so, that could weigh further on USD/CNH, which in turn could lift AUD/USD from its lows given the strong correlation between AUD/USD and the yuan of late.

AUD/USD technical analysis:

In Monday’s AUD/USD outlook report I suggested bears might be seeking to fade into the 200-day MA, or the higher 200-day EMA if given the chance. They didn’t wait for the higher resistance level and instead reloaded their shorts following a minor bounce higher Monday morning.

AUD/USD has fallen -5.7% over the past four weeks since its September high, and I cannot say there are immediate signs of a bottom on price action alone. However, I suspect the bleeding could at least slow given clues elsewhere.

The USD index is showing signs of fatigue around its cycle highs, having stalled around its July high and closed back beneath it with a bearish pinbar. This doesn’t necessarily imply an imminent pullback, but it does show a hesitancy to continue surging higher.

This has allowed the yuan to strengthen slightly against the USD. And as AUD/USD has been tracking the yuan quite closely of late, perhaps it can close the gap with the yuan – especially if Australia’s CPI fails to soften as much as expected.

Take note that AUD/USD has found support around a weekly VPOC (volume point of control) and the daily RSI (2) is currently oversold for the third day. Note the 1-hour chart where CNH/USD has bounced ahead of AUD/USD, and a bullish divergence is forming on the RSI (14).

Given AUD./USD is holding around support I am now looking for a cheeky bounce towards 66c, or the September low at a stretch. But with election jitters and month-end-flows also in the mix, not outstaying ones welcome to any direction may be prudent.

And if we are treated to a bounce, I suspect bears will continue to lurk and seek to fade into resistance levels with 0.6500 in focus.

Events in focus (AEDT):

The economic calendar really heats up from today. Australia’s CPI is expected to soften to 2.3% y/y (3.8% prior) or 0.3% q/q (1% prior). This is quite a jump which already has me on guard for an upside surprise. Besides, trimmed mean is the one that counts and that is expected to dip to 3.5% y/y, down from 3.9% and slip to 0.7% q/q from 0.8% prior. Even if these figures are achieved, I do not think it will immediately move the dial for the RBA, but it could excite AUD bulls briefly on hopes that it will. My base case is for numbers to fall slightly short of expectations and help lift AUD/USD and track the yuan slightly higher.

Germany’s state CPIs can provide a decent lead for EU inflation figures, which makes it one for EUR/USD traders to watch.

Also note that advanced Q3 GDP is released for the US, which while is backwards looking, still provides trend for the US economy which is generally outperforming at present. And another strong set of figures will of course become a political tool for Harris, and another reason for doves to lose faith and bid the USD and yields.

• 11:30 – AU quarterly, monthly CPI report
• 16:00 – JP household confidence
• 19:55 – DE unemployment
• 20:00 – DE state CPI
• 21:00 – EU economic sentiment index, GDP
• 23:15 – US ADP nonfarm payrolls
• 23:30 – US Q3 advanced GDP

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge