24th September 2020 - AUD poised to challenge the 0.7000 level


Good Morning,

Market Headlines

  • Dow Jones Industrial Average lost 525.05 points, or 1.92%.

  • S&P500 dropped 78.65 points, or 2.37%.

  • Nasdaq Composite also fell 330.65 points, or 3.02%.

US stocks ended up in the red again on Wednesday and the dollar hit its strongest level in two months, Investors are increasingly concerned by the prospects of the lack of stimulus in the run up to the US elections that will clash with flu season and the spread of the coronavirus. A plethora of Fedspeak included Chair Powell, who said “there’s still a long way to go”; VC Clarida – the Fed will not raise rates until inflation hits 2%; Rosengren – who is less optimistic on the recovery than other FOMC members; Evans – a 2.5% inflation rate could be seen for some time if the Fed does its job; and Mester – more fiscal stimulus is needed.

US 2yr treasury yields rose from 0.13% to 0.14%, while the 10yr yield eked a slightly higher range between 0.66% and 0.69%.

Commodities: Brent crude oil futures fell 0.2% to $41.65, copper fell 2.6%, iron ore fell 1.9% to $114.50 (to a six-week low, having fallen 12% over the past two weeks), and gold fell 2.2%.

Currencies

AUD/USD: 0.7069 – 0.7135 (two month low)

EUR/USD: 1.1652 – 1.1719

GBP/USD: 1.2676 – 1.2776

USD/JPY: 104.93 – 105.50

USD/CAD: 1.3315 – 1.3382

NZD/USD: 0.6536 – 0.6602

AUD/JPY: 74.54 – 74.94

AUD/NZD: 1.0792 – 1.0821

AUD Thoughts

The AUD/USD pair appears to be extremely oversold according to intraday technical readings, but with no signs of downward exhaustion. The 4-hour chart shows that the 20 SMA heads south almost vertically after crossing below the 200 SMA. The Momentum indicator has bounced modestly from its daily low, but the RSI indicator keeps heading lower, despite standing at 23. The pair is currently battling around August low 0.7075, enroute to the psychological 0.7000 threshold.

Support levels: 0.7040 0.7000 0.6965

Resistance levels: 0.7110 0.7150 0.7190

Event Risk Data Today

New Zealand: Trade balance is expected to fall into deficit in August (prior: 282m, market f/c: -350m).

Germany: The IFO business climate survey expected to see a further gain (prior: 92.6, market f/c: 93.8).

US: Initial jobless claims will likely continue to decline; the market expects claims to decrease from 860k to 840k this week. New home sales appears to be running out of steam as inventory scarcity puts a cap on robust demand (prior: 901k, market f/c 890k). The FOMC’s Bullard (02:00 AEST), Evans (03:00 AEST) and Williams (04:00 AEST) will speak. FOMC Chair Powell will also testify again, this time before the Senate Banking Committee (00:00 AEST).

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