While the US Manufacturing PMI exceeded expectations the Australian GDP growth came in much worse than expected. The analyst consensus estimate was that the GDP change would be only-6%. The number, however, was confirmed at -7% q/q. Weakness was reported in both hours worked and business investment. This a historically bad number but it seems that the markets are focusing on the global recovery. By reading further you agree with our disclaimer at the bottom of this page and acknowledge that we don’t provide investment advice.

While the Australian economy has been severely hit by the coronavirus and tax cuts are being considered at a faster pace than previously planned the RBNZ governor Orr is suggesting that the New Zealand central bank might bring more quantitative easing and adopt a policy of negative interest rates. 

ECB chief economist Lane’s comments indicate that we might soon have a race to the bottom in the global currencies. He has expressed worries over the rising EURUSD rate. According to Lane the rising EURUSD rate eventually “feeds into our monetary policy setting”. This suggests the bank might take action if the value of the euro keeps on rising against the dollar. It’s in the interest of all the economies to keep the relative values of their currencies low as this makes their exports competitive.

USD was strengthened by the ISM Manufacturing PMI exceeding the expectations yesterday. The number was confirmed at 56 while the analyst expectation was 54.6. The price action following the ISM number created daily shooting star candles in EURUSD, GBPUSD and AUDUSD indicating loss of momentum in these markets. At the same time, there is a daily hammer candle formation USDCAD suggesting that we might have some short-term dollar strength ahead.

With current price above key support levels of 1.1754 and 1.1695 EURUSD is still trending higher. There is some loss of momentum that shows in the shooting star candle formation (yesterday’s spikey candle) so a short-term move lower is likely. The fast SMA (10 periods) points to the upper end of the support zone while the above mentioned key support levels define it’s lower end. The 23.6% Fibonacci retracement level at 1.1812 adds to the technical confluence in this zone. Currently, the nearest trend line support can be found at 1.1784. Based on the current technical and fundamental setting we believe it’s likely that the correction will only short-lived and will be met with new buying at levels closer to 1.1754. At the time of writing this, EURUSD is hovering at a minor support level formed by a daily high from August 27th.

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Similar signs of momentum loss are evident in GBPUSD or Cable like it’s often called. The pair moved almost to a historical resistance at 1.3515 before the positive PMI news from the US induced profit-taking from the USD shorts. This increases probabilities for a retracement towards 1.3246 – 1.3267 range where we have several technical factors coinciding. Apart from 23.6% Fibonacci level at 1.3246, we also have a 10-period SMA at 1.3240 and rising trendline support right below it. The cable is currently trading at support created by a 4h reactionary high from August 31st. 

On August 26th we suggested (read more here) that rallies are likely to be sold in USDCAD. The pair was trading at 1.3184 at the time of my analysis. USDCAD rallied higher on the same day and provided us with low-risk entry opportunities. The move that followed was over 180 pips! If you’d like to learn more about my analysis and would like to develop as a trader, go to www.tiomarkets.com/webinars to register your seat in the next webinar. Now we have a hammer candle in the daily USDCAD chart suggesting the market could retrace back to the sideways range is broke out from. The 10-period SMA and channel high together with the range low all currently reside around 1.3133. The 23.6% retracement is found at 1.3165. This defines a key-area for the pair and we will monitor price action around the zone should it retrace back there. My gut feeling is that should the pair move to that level it might actually move a little higher before sellers take control again. Technically this market remains in a downtrend as long as the next lower high is created below 1.3244.

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Recent macroeconomic data releases

  • US Core PCE Price Index 0.3% (0.5% expected)
  • US Personal Spending 1.9% (1.5% expected)
  • Chicago PMI 51.2 (51.0 expected)
  • Revised UoM Sentiment 74.1 (72.8 expected)
  • Chinese Manufacturing PMI 51 (51.5 expected)
  • Chinese Services PMI 55.2 (54 expected)
  • Australian Cash Rate 0.25% (0.25% expected)
  • Canadian Manufacturing PMI 55.1
  • US ISM Manufacturing PMI 56.0 (54.5 expected)

Macroeconomic data releases today & tomorrow

  • Australian GDP q/q -7.0% (-6.0% expected)
  • RBNZ Governor Orr Speaks
  • BOE Governor Bailey Speaks
  • US ADP Non-Farm Employment 1250K expected
  • UK MPC Member Broadbent Speaks
  • US Crude Oil Inventories -2.0M expected
  • Canadian Trade Balance -2.5B expected
  • US Unemployment Claims 955K expected
  • US ISM Non-Manufacturing PMI 57.0 expected

You may access the times and dates in the economic calendar here.

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Janne Muta
Chief Market Analyst
TIOmarkets.com

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Janne Muta
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