Daily Market Outlook, October 2, 2019
Main Market Themes
Stocks sold off and bonds rallied overnight as poor US manufacturing data rekindled worries over the outlook of the world’s largest economy. Markets were slammed by the weakest ISM manufacturing PMI in a decade which printed its second month of sub-50 reading, echoing the synchronised manufacturing downturn that happens elsewhere across key economies.
Major indexes had a terrible start to 4Q as the Dow Jones, S&P 500 and NASDAQ dropped by 1.1-1.3%.
Traders sought the relative safety of US treasuries leading yields to slip around 2-8bps along the curve. Weak data prompted speculation that the Federal Reserve would deliver another rate cut - The yield on benchmark 2Y notes, a proxy for short term interest rate outlook fell by 7bps to 1.55% while 10Y UST yield slipped by 3bps to 1.64%.
Brent crude fell below $60 to $58.89/barrel as Saudi Arabia restored productions, WTI slipped by 0.8% to $53.62/barrel.
Boris Johnson is expected to unveil final Brexit offer to the EU and clarified his intention to leave without an offer on 31 Oct should the deal was again rejected.
The RBA cut the cash rate to a historic low of 0.75% as widely expected, expressing concerns over labour market.
A consolation is that Emerging Market risk premiums and short-end Emerging Market FX vols remain relatively staid, suggesting that the epicenter of market stress is not currently focused in EM space but is instead located within the G10 space arena instead.
The greenback weakened against most of its G10 counterparts, the Dollar Index reversed previous session’s gain to fall back to the lower end of 99 as traders fled to traditional safe havens CHF and JPY. EUR and GBP rebounded. DXY closed 0.25% lower at 99.13. The dollar is expected to trade on a weaker note today on renewed concerns over US economic growth as traders raised their bets on another Fed rate cut in October. Futures priced in 64% probability of a 25bps cut, a marked increase from Monday’s 40%.
Technical & Trade Views
EURUSD (Intraday bias: Neutral Bullish above 1.0945, Bearish below 1.09)
EURUSD From a technical and trading perspective anticipated 1.0885 target achieved as 1.0930 caps corrective upside bears target 1.0820. A move back through 1.0935 is needed to alleviate the downside pressure and set a near term base to target a test of the now pivotal 1.0960. EURUSD...UPDATE yesterday’s reversal offers some near term encouragement for bulls, follow through above 1.0940 opens a test of the pivotal 1.0960 resistance through here will see further short covering opening a test of offers above 1.10. A drift back below 1.09 resets focus on 1.0840
GBPUSD (Intraday bias: Neutral 1.22 target achieved)
GBPUSD From a technical and trading perspective as 1.2350 caps the upside I now see the potential for a pullback to test bids towards 1.22 where I will be watching for intraday reversal patterns to attempt long positions for a move back through 1.23. A failure to find support in the1.22 zone would be a bearish development exposing 1.20 as the next downside objective, only a move back through 1.2365 would delay further downside GBPUSD...UPDATE intraday reversal from my 1.22 target plays out as 1.2240 supports look for the next leg higher to challenge 1.2350 offers, only a breach of yesterday's lows would concern the corrective bias and suggest a false break opening 1.2150/30.
USDJPY (intraday bias:Neutral 108.40 target achieved)
USDJPY From a technical and trading perspective the sharp reversal from the 108.40 target opens a retest of 107.50/40 support a failure here will open a 107 test. On the day a move back through 108 would suggest a false downside break and reset focus on offers towards 109
AUDUSD (Intraday bias:Neutral .6688 target achieved)
AUDUSD From a technical and trading perspective the anticipated test of .6725 plays out as .6735 continues to cap upside attempts bears target a test of .6680. A move back through .6780 is needed to renew bullish sentiment
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Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!