30th April 2019 - Position-Squaring Ahead of US, China Reports Driving Price Action

Good Morning,


Overnight Headlines

· The chance of a Fed rate cut by December, implied by Fed fund futures, remained at around 90%.

· The S&P 500 set an intraday record high, bolstering the view that the decade-long bull market has further to run, after consumer spending rose in March and inflation data was benign. Dow Jones rose 11.06 points (0.04%) to 26,554.39, the S&P 500 gained 3.15 points (0.11%) to 2,943.03 and the Nasdaq added 15.46 points (0.19%) to 8,161.85.

· Spot gold fell 0.5% to $1,279.32 per ounce, while U.S. gold futures settled about 0.6% lower at $1,281.50 an ounce.

· Iron ore futures in China rebounded after a four-session slump, bolstered by stockpiling demand ahead of Labour Day holidays beginning May 1. Spot iron ore for delivery to China was at $93.80 a tonne.

· Copper prices slipped as stocks in LME approved warehouses jumped and volumes fell ahead of holidays in China. Benchmark LME copper ended down 0.1% at $6,396 a tonne, close to the four-week low touched last week.

· Oil prices edged higher as the market attempted to resume a weeks-long rally that was halted on Friday when U.S. President Donald Trump demanded that producer club OPEC raise output to soften the impact of U.S. sanctions against Iran. Brent crude futures fell 11 cents (0.2%) to settle at $72.04 a barrel while U.S. WTI crude futures climbed 20 cents (0.3%) to end the session at $63.50.


Currencies

· The US dollar index is down 0.2% on the day, ending @ 97.84

· EUR rose from 1.1150 to 1.1185

· USD/JPY rose from 111.60 to 111.90

· AUD continued to range between 0.7040 and 0.7060

· NZD similarly ranged sideways between 0.6655 and 0.6680

· AUDNZD rose from 1.0560 to 1.0590

· AUDEUR fell back towards 0.6300


AUD Thoughts :

AUD managed to contain composure overnight as it remained in a relatively tight 20 point range, ahead of the critical 0.7000 support levels. AUD bears appeared to be in charge last week when it hit a new sub-0.7000 low for April, but key China data and a looming Fed meeting this week may determine whether that was a false break.

Despite a mixed bag of U.S. data, AUD is extending gains from the April 25 low. Bears have added to the market's net short and are in danger of getting squeezed if China's April NBS and Caixin PMIs, as well as the Fed, align against them.


March PMIs showed improved growth and eased some concerns about a global economic slowdown. The NBS manufacturing PMI is expected to match the March result while Caixin is forecast at 51.0 versus the prior 50.8. In-line or above-forecast results will brighten the global growth outlook further and likely buoy the AUD. Investors will then look to see if the Fed takes a dovish stance. Should Powell do so highly risk-sensitive assets such as AUD are likely to attract investors.


AUD should then extend its recent short-term rally as shorts, who have little to show for their efforts, cover. A test of 0.7205/10 resistance is then possible.

Today’s local Economic data release (March private sector credit) will be seen as second tier – market awaiting the Chinese April PMI data for direction….for the moment, AUD bears are sweating it out into the key risks.


Technical Outlook :

Mixed US data, whippy action in early NY, the AUD dip sub-0.7040 bought. Stocks, commodities gain; upbeat risk buoys high beta currencies, AUD/USD benefits.

AUD nears the April 26 high will little pullback seen, shorts are nervous. Daily techs favour bulls, RSI rising, 50 Fib of 0.6715-0.7295 supports (0.7005). China PMIs & Fed meeting loom, shorts might get squeezed harder.

Bulls need to overcome 0.7100/20 to gain control, 0.7205/10 eyed thereafter.


Risk Event Today

- Australian Economic data today : March private sector credit is expected to rise 0.3% (Westpac fcs +0.2%).

- China: Apr NBS PMI’s are expected to hold onto to March gains with the manufacturing index edging up 0.2ppts to 50.7 and the non-manufacturing index similarly up 0.2ppts to 55.0.

- Euro Area: Q1 GDP is expected to rise 0.3% with a resilient services sector offsetting manufacturing weakness but ultimately resulting in a net modest outcome. Mar unemployment rate is anticipated to hold at 7.8%

- US: Q1 employment cost index is expected to rise 0.7%. Mar pending home sales and Feb S&P/CS home price index will provide an update on the housing market. Apr consumer confidence is expected to edge up to 126.1 from 124.1 but note the University of Michigan measure declined in the month.

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