AUD/USD, ASX 200 could get a tailwind from Wall Street rebound

A hotter-than-expected core CPI print from the US prompted sharp bounce for risk on Wednesday, as traders scaled back bets of a 50-bp Fed cut in November. This narrows the gap between market pricing and economists, the latter of which backed 75bp of hikes over the next three meetings and not 100bp Fed fund futures were trying to price in.

Core inflation rose 0.3% m/m according to the BLS, above the 0.2% expected and prior. Core CPI also remained at 3.2% y/y, a full 1.2 percentage points above the Fed’s 2% target. The broader read of CPI met expectations of 0.2% m/m and 2.5% y/y.

US bond yields were higher, although only just. But it was enough to help the USD index recoup all of the day’s earlier losses and post a minor gain of 0.05%. Wall Street indices posted strong gains led by tech stocks, with the Nasdaq 100 rising 2.2%, the S&P 500 up 1.1%, although the Dow Jones was up just 0.3% no thanks to Trump’s performance at the Presidential debate. And the bounce of Wall Street helped commodity currencies AUD and CAD lead the way higher among FX majors and USD/JPY recoup losses earlier from the day.

Hawkish comments from the BOJ initially sent USD/JPY below 141 ahead of the CPI report, but the pair redeemed itself to effectively close flat and form a bullish pinbar on the daily chart. Take note that the BOJ will hit the wires again today at 11:00, so we might find upside potential to be limited if they retain their hawkish rhetoric. I therefore have a neutral bias on the pair today.

Gold remains stuck within its choppy range and formed a wide-legged doji (indecision day) which keeps my bas as neutral. WTI crude oil managed a small bullish inside day to warn the worst of the selling pressure could be over, for now at least.

Events in focus (AEDT):

Take note that the BOJ will speak at 11:00, and there is a decent chance they will make more hawkish sounds given that tends to now be the script all members are reading from. This makes USD/JPY less appealing for now given we have already seen an extended selloff and the USD was bid due to hotter CPI figures from the US.

A 25bp cut from the ECB is practically a given, leaving it down to whether the ECB will feel obliged to signal cuts at futures meetings today. And that makes the ECB press conference a must watch to fill in any gaps.

US producer prices tonight could pack a bullish punch for the US dollar if that also comes in hot, like CPI did. Also note jobless claims figurers are also released alongside PPI data.

• 08:45 – NZ food price index, retail sales
• 09:50 – JP producer prices, foreigner investment in stocks, bonds
• 11:00 – AU inflation expectation 9Melbourne Institute)
• 11:00 – BOJ Tamaru speaks
• 11:30 – AU business confidence (NAB)
• 21:00 – CN loan growth, money supply
• 22:15 – ECB interest rate decision (25bp cut expected)
• 22:30 – US producer prices, jobless claims3
• 22:45 – ECB press conference

AUD/USD technical analysis:

With Wall Street indices posting solid gains it might be enough to give AUD/USD a bit of a tailwind. A bullish outside day formed on Wednesday, which coincides with the daily RSI (2) rising above 50 from oversold. It also closed back above a 38.2% Fibonacci ratio.

A mini v-bottom respected the weekly S1 pivot point, which suggest an important swing low has formed on the 1-hour chart. Prices are also above the monthly pivot point and high-volume node (HVN), so any dips towards the 0.6650 could be favourable for bulls looking for a move towards 0.6700, just below the weekly pivot point.

ASX 200 futures (SPI 200) technical analysis:

Where Wall Street goes, the ASX tends to follow. And the 0.7% rally on SPI futures overnight points to a positive open for the ASX 200 cash market today. Yet I remain dubious of runaway gains on the local market, given its reluctance to outperform above 8,000 for any length of time.

Yet we find ourselves in a similar scenario to yesterday. Momentum is now pointing higher, in line with the rally from the monthly pivot. But it has regained decent ground above 8,000 (for now). Like AUD/USD, today’s bias is to buy dips and for a move up to the weekly R1 pivot around 8075. But given its poor history at such heights; the bias then becomes to fade into strength below 8100.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

How to trade with City Index

You can trade with City Index by following these four easy steps:

1. Open an account, or log in if you’re already a customer 
   
   • Open an account in the UK
   • Open an account in Australia
   • Open an account in Singapore
   
   
2. Search for the market you want to trade in our award-winning platform 
3. Choose your position and size, and your stop and limit levels 
4. Place the trade