AUD/USD, ASX futures rattled after Fed cut by 50bp, AU jobs up next

Well, that settles that. The Federal Reserve cut their cash rate for 50bp, which is their largest sized cut since the pandemic. Yet the dot plot indicates the Fed will revert to 25bp increments for the remainder of the year, to total 100bp of cuts by December and an interest rate target of 4.5% to 4.75%.

The Fed have “greater confidence” that inflation is moving towards their 2% target, although they will continue to assess incoming data. Only one Fed governor dissented and wanted to go for a 25bp at this meeting, making it the forest descent in 19 years. But the fed will remain data dependent

The US dollar was dragged lower with yields at the time of the 50bp cut, yet these moves were fully reversed after Jerome Powell’s speech. And given we have seen a decent bearish move for the US dollar and yields heading into this meeting, further short covering on outlandishly-dovish bets could prompt further upside, at least over the near term.

• The USD index formed a bullish pinbar day following a false break of the August low and 100 handle
• This saw EUR/USD form a bearish pinbar close back beneath the December high, following its failed ‘bid’ to tag 1.12
• USD/JPY closed flat, but also formed a bullish pinbar which held above the December low and Tuesday’s bullish range-expansion candle
• The S&P 500, Dow Jones and Nasdaq 100 formed bearish outside days (the former two of which marked a false break of their record highs)
• A bearish outside day also formed on gold futures following a false break of its record high, and like Wall Street indices had a large upper wick

Events in focus (AEDT):

The Fed’s 50bp cut will allow RBA watchers to hone-in one any weak data from Australia, in hope of monetary easing back home. And that brings Australia’s employment report into focus at 11:30 AEDT. In all likelihood, Australia’s economy will continue to pump out decent employment figures, but in light of the reversal on risk overnight it could trigger a deeper pullback on AUD/USD should we get a rise in unemployment or surprise miss on the jobs figures.

The Bank of England (BOE) are likely to hold their interest rate at 5%, no thanks to core CPI beating expectations. Yet the consensus remains for cuts into the year end, because the BOE’s own measure of services inflation is trending lower and only slightly above their own forecast.

The Fed’s September cut may be out of the way, but now we can obsess over the trajectory of potential cuts From November onwards. Keeping in mind that US data has generally outperformed in recent weeks, a decent set of jobless claims figures today could see the USD strengthen further.

• 08:45 – NZ trade balance
• 09:50 – JP foreigner stocks, bond purchases
• 11:30 – AU employment report
• 21:00 – BOE interest rate decision
• 22:30 – US jobless claims

AUD/USD technical analysis:

It was a game of two halves for AUD/USD, but after a volatile bearish pinbar the market was effectively flat for the day. The fact is failed to hold above the July high or test trend resistance shows the Aussie is not yet ready to continue its march higher, even though this remains the expected move (eventually).

Also note the high-volumed pinbar on the 4-hour chart which could be deemed a key reversal.  It was also a strong negative delta candle to show offers far outweighed bids. Therefore, the bias is for a deeper retracement over the near-term, with a move towards 67c potentially on the cards. Bers could seek to fade into rallies within yesterday’s range or wait for a break of its lows.

ASX 200 futures (SPI 200) technical analysis:

With Wall Street looking worse for wear at their own cycle highs, we might see a bearish follow-through on the ASX 200 today. It has formed a 3-day bearish reversal pattern after all (evening star formation). Still, that is not to say any pullback from here will be severe.

Support was found around a 38.2% Fibonacci level, and the high-volume node around the 8135 swing high. The strong rally from 8000 also appears to be impulsive and price action from the ATH appears to be corrective. So while we may see prices dip lower, the core bias is to seek a swing long setup.

A break below 8135 assumes a deeper pullback towards 8100. But even if it falls that far, I would be seeking evidence of a swing low to form ahead of its next attempt at an all-time high.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

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