Welcome to a new month and the last quarter of the year. The day begins with Chinese celebrations on the 70th anniversary of Communist rule in China.

They are countered by protests in HK which saw one demonstrator shot. Market wise, there is little reaction, but eyes will remain on developments in HK.

The major economic event of the day was the RBA rate decision in Australia which saw interest rates cut to record lows. AUD fell from 0.6760 to 0.6694 and also dragged NZD lower to 0.6220 from 0.6270.

Better risk sentiment saw USDJPY rally to 108.46 and XAU drop towards $1,459. EUR and GBP remain rangebound against the USD, beginning the US day at 1.0900 and 1.2290 respectively.

As the US day begins, equity futures point to a slightly higher open for stocks, with DJ futures up 50 points. GBPUSD starts to head lower down to 1.2250 as some headlines about the ‘Irish backstop’ has traders sitting nervously.

The move continues finally hitting a low of 1.2225. The rest of the market is unmoved, although a weaker than expected Canadian GDP number sees USDCAD bounce from 1.3255 to 1.3289.

As equities open, the DJ is +100 points and the USD shows strength across the board. GBP falls to 1.2207, EUR fails to get back over 1.0900 and USDJPY is back to 108.40. USDCHF is back above 1.0000. But that is all about to change.

US ISM Manufacturing PMI comes in a lot lower than expected at 47.8 which is a contractionary reading and the weakest reading in 10 years.

Equities drop like a rock, the DJ down 200 points. EUR is up to 1.0935 and USDJPY falls to 107.70. USDCHF drops to 0.9940 and XAU is up to $1,483.

Even GBP finds a 50-point bounce, heading back to 1.2255. Not surprisingly, here comes the President Trump Tweet blaming the Fed for a strong USD, high-interest rates and a weaker ISM reading.

We get a Brexit headline about the proposed ‘Northern Irish backstop’ and GBP screams higher from 1.2250 to 1.2338. Then just as quickly the headline is denied by the EU and back we come to 1.2260. Fun times.

The DJ sinks an extra 100 points for good measure as full-on risk aversion kicks in. At that point, the market has had more than enough, and things die a death. All 3 major US indices close down by more than 1.1%. EURUSD ends at 1.0935, GBP at 1.2300 and USDJPY at 107.70. This was not the start to the month that the markets were looking for.

The RBA cut interest rates overnight to record lows. The last time AUDUSD touched 0.6672 was 2009 amid the financial crisis. What is interesting on this hourly chart is we have had three sharp moves under 0.6700 since the beginning of August and each time we have bounced back quickly, indicating inherent demand lurking at these lower levels.

Today’s move is the 4th time and at time of writing AUDUSD has poked its head just back above the 0.6700 level. I encourage you to pull up a daily chart and you will see that a clean break below here doesn’t show any significant support until 0.6300. Some interesting times ahead maybe.

David Hannigan
Author

A graduate of the Cass Business School, Dave's career began with Credit Suisse as an Equity Options Trader on the London Stock Exchange, before moving into the world of FX with Chemical Bank and Citibank. 1994 saw him join National Australia Bank, first as a Senior Dealer, then Senior Vice President and Chief Dealer.

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