26th September 2019 - USD bullish, AUD breaks key support level



Good morning


OVERNIGHT DATA AND HEADLINES


• Overnight all about political uncertainty with sentiment changing course from negative to positive. Nevertheless, the USD stands victorious at the end of the US session. EUR and GBP were among the worst performers, with EUR now close to year lows.

• Helping sentiment, data showed that sales of new U.S. single-family homes rebounded more than expected in August, a sign that the struggling housing market was starting to get a lift from lower borrowing rates. The Commerce Department said new home sales increased 7.1% to a seasonally adjusted annual rate of 713,000 units last month, boosted by a surge in activity in the South and West. July's sales pace was revised up to 666,000 units from the previously reported 635,000 units.

• News that China is looking to buy more agricultural products from the US, and comments from President Trump, noting a deal is “closer than you think,” failed to boost sentiment during the first half of the day but added to the optimistic stance in the US afternoon.

• Trump released the transcript of the call with Ukraine authorities, and the Justice Department concluded that he didn’t violate the campaign finance laws, diminishing chances of impeachment.

• The UK Parliament resumed with MPs engaging in a blame discussion without clearly indicating what they would do next. Irish PM Leo Varadkar said that the UK must table written proposals to solve the Irish border issue before the next EU summit that would take place mid-October. UK PM Johnson addressed MPs in the American afternoon, calling upon opposition parties to call a vote of no-confidence in his government or stand aside and vote for whatever deal Johnson gets. Loads of uncertainty weighed on GBP trading to 1.2350.

• Cryptos consolidate losses, BTC/USD stable around 8,300.00.

• Wall St bounces back as investors shrug off impeachment risk. Dow Jones +163 points (0.61%) 26,970, S&P 500 +18 points (0.62%) 2,984, Nasdaq +84 points (1.05%) 8,077.38.


CURRENCIES


• The U.S. DXY index rose across the board - up 0.7%, on pace for its biggest daily rise in nearly 3 months to 99.01.

• GBP dropped more than 1% from 1.2470 to 1.2350, ceding gains made the previous day

• EUR shed 0.68%, back under 1.1000 towards 1.0936 lows.

• AUD fell lower from 0.6790 highs down to 0.6736 lows

• NZD followed, falling from 0.6331 towards 0.6267 lows

• AUDEUR remained firm in light of o/night selling pressures, trading up from 0.6140 lows towards 0.6175

• AUDNZD saw a low at 1.0701 however bounced back up towards 1.0769 in late trade.


INTEREST RATES

• Yields on U.S. Treasury long-dated debt rallied from two-week lows overnight, after falling for seven straight sessions, bolstered by strong housing data and comments by President Donald Trump about a possible trade deal with China.

• U.S. two-year yields were up at 1.65% from 1.59%, U.S. 10-year note yields rose to 1.72% from 1.64%, Yields on 30-year bonds were also higher at 2.134%, from 2.095%.


COMMODITIES

• Gold slid 2%, retreating from a multi-week peak, as political uncertainties in the U.S. stemming from an impeachment inquiry into President Donald Trump drove investors to the safety of the USD, limiting Gold’s appeal. Spot gold fell 1.8% to $1,504.61 per ounce

• Front-month iron ore contract on the Singapore Exchange was down 3.3% at $87.40 a tonne in late trade. Steel output curbs in China and its trade war with the U.S. are key headwinds for demand. Falling steel inventories in China should help keep prices of steel and steelmaking raw materials "relatively well-supported" in the coming months

• Copper prices erased losses after U.S. President Donald Trump held out the prospect of end to a trade war with China. Trump told reporters in New York that a deal to end a nearly 15-month trade war with China could happen "sooner than you think". Three-month LME copper edged up 0.1% to $5,786 a tonne. LME aluminium fell 0.6% to close $1,752 a tonne.

• Oil shed more than 1%, logging a second straight day of losses after U.S. crude stockpiles unexpectedly rose and as Saudi Arabia maintained a faster-than-expected recovery of its oil production. Brent crude futures settled at $62.39 a barrel, shedding 71 cents (1.1%) while U.S. WTI crude settled 80 cents (1.4%) lower at $56.49 a barrel.


EVENT RISK TODAY


• No Australian Economic data today

• ECB President Draghi speaking on financial services in Frankfurt

• US – Q2 GDP & Core PCE

• US – weekly jobless claims


AUD thoughts :


Overnight broad based USD strength saw all major/minor currencies fall – AUD trading towards 0.6739 lows with a small bounce back up towards 0.6750 this morning.


A quiet day on the domestic data calendar ahead with any headlines regarding the trade negotiations, impeachment inquiry and Brexit likely to be the drivers behind any extended moves.

Tonight’s US GDP numbers will be the highlight of the day where the market is expecting a QoQ gain of 2%. The release includes the 3rd and final estimate of Q2 US GDP.

Consensus sees no change from the last estimate (the 2nd) and that makes sense given that the 3rd estimate rarely diverges too much from the 2nd estimate. If there is an upgrade it is likely to be in consumer spending data given the strength in consumption this year. This data will likely confirm that Q2 was solid from an aggregate demand basis, and that weakness in aggregate demand was in inventories and/or net exports.

While the release will be closely watched, the USD is seemingly more at mercy from the impeachment inquiry and trade negotiations. Any further developments likely to be the catalyst for any momentum shifts.


Technical outlook :

AUD shorts gain traction as key Fibonacci level breaks.

USD & US rate complex rally in NY, AUD/USD slides respectively. The 61.8% Fibonacci level (0.6760) from the 0.6678-0.6895 range breaks, slide extends below 0.6740.

Techs lean bearish, daily RSI reverses and sinks, long upper wick on September candle. Shorts gain some traction but do not have complete control yet.

Await further 24 trading confirmation of lower lows before a complete bear run can be made. Next support level 0.6729 which if broken is completed at 0.6678 support.






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