OVERNIGHT DATA AND HEADLINES
• U.S. stocks ended mixed and relatively unchanged from Friday's close while markets moved on from the trade war headlines, but instead focused on a decorating macroeconomic backdrop following a poor outcome in the eurozone PMIs.
• The S&P 500 lost less than point to close at 2,991, Dow Jones ended a touch higher by 14.92 points (0.1%) to 26,949.99. The Nasdaq fell 5.21 points (0.1%) to 8,112.46.
• The flash US Manufacturing PMI lifted 0.7pts from August to 51.0, firmer than expected while EA manufacturing PMI for the eurozone plunged to a new cyclical low in September. The preliminary read dropped 1.4pts to 45.6, led by weakness in Germany where it tumbled 2.1pts to 41.4. Concerns that weak manufacturing activity is spilling over into the services industries are intensifying. The 1.5pt fall in the EA services PMI to 52.0 was the lowest read since January and prior to that, the lowest read since January 2014. The index for incoming new business fell 1.6pts to 50.9 and services exports fell 1.7pts to 47.5. Employment fell 0.5pts to 52.7. Both input and output price indices fell, dropping 1.2pts and 1.0pts respectively. These data suggest the ECB still has more work to do, and Draghi reiterated their willingness to do it.
• U.S. DXY index vaulted higher towards 98.83 from 98.40 but ended the session back at 98.65
• GBP ran out of steam below the 1.2500 support, dropping towards 1.2412 lows.
• EUR fell to 1.0964 lows as European PMIs disappointed / Draghi reiterates the ECB is ready to act.
• CNY dropped to its weakest level in almost two weeks on mixed U.S.-China trade signals. CNY ended at 7.1170 from 7.0900.
• AUD consolidated its recent losses in a quiet overnight session, supported around 0.6765 and trading a 15 point range.
• NZD rose from 0.6260 towards 0.6295 highs.
• AUDEUR lifted as a result of a weaker EUR overnight – up from 0.6135 toward 0.6172.
• AUDNZD fell below 1.0800 towards 1.0750.
• U.S. Treasury yields dropped as risk appetite ebbed after softer than expected euro zone business activity data fuelled recession fears. U.S. 2-year yields were down at 1.67% from 1.71%, U.S.10-year note fell to 1.71% from 1.75%, 30-year bonds were also lower at 2.161% from 2.198%.
• Gold rose to its highest in over 2 weeks as weak economic data from the euro zone stoked global recession fears. Spot gold gained 0.5% at $1,523.51 per ounce after hitting $1,526.80.
• China steel futures rose, rebounding from a two-week low on falling inventory and fuelled by tightening output curbs in smog-prone cities pledged by the environment regulator ahead of the heating season. Prices of benchmark iron ore with 62% iron content for delivery to China fell for the fourth day to $93 per tonne on Sept.20.
• Copper prices fell to their lowest in two and a half weeks as weak demand prospects were reinforced by the latest round of U.S.-China talks which failed to yield signs of a breakthrough in the long-running trade row. Benchmark LME copper ended down 0.3% at $5,778 a tonne.
• Oil ended about 1% higher after a volatile trading session as traders focused on when Saudi Arabia would be able to restore full output following the Sept. 14 attack on its facilities. Brent futures gained 49 cents (0.8%) to settle at $64.77 a barrel, while U.S. WTI crude gained 55 cents (1%) to settle at $58.64.
EVENT RISK TODAY
• No Australian Economic data today however RBA Governor Lowe will be speaking on “An Economic update” 7.55pm.
• Germany – September IFO business climate survey (sentiment to remain weak).
• U.K. – August public sector borrowing
• U.S. – Sep Richmond Fed index & September consumer confidence index (expectations materially weaker than current conditions).
AUD thoughts :
AUD remained range bound overnight as downbeat euro zone PMIs sent global bond yields lower. US services ISM and its jobs component were downbeat with U.S. yields diving sharply lower. AU-US spreads tightened however the AU yield slide was tempered by US-China trade rhetoric (Xinhua said talks were constructive & productive). AUD was up in smalls but still held below 0.6780/90 resistance zone.
Today we have a slew of Fed speakers & a speech by RBA's Lowe which presents some risk. AUD might consolidate its recent slide until the mentioned risks pass.
Technical outlook : AUD is down nearly 2% off the monthly highs with the decline testing the first major daily support zone early in the week.
The weekly opening-range is taking shape just above key support at 0.6759/67 and looking for the break for guidance.
Interim resistance stands at the median-line backed by the trendline confluence near 0.6800 and 0.6810 - both areas of interest of possible topside exhaustion if reached.
Ultimately a breach above 0.6830 is needed to validate a larger breakout. A break lower from here targets 0.6745 backed by the monthly open at 0.6724 - look for a bigger reaction there if reached.
Bottom line: AUD is testing key near-term support here at 0.6760/67 with the weekly opening range taking shape just above. From a trading standpoint, a good spot to reduce short-exposure / lower protective stops. Look for possible downside exhaustion near-term. Ultimately a larger recovery in price may offer more favourable short entries with the risk weighted to the downside while within this formation.