AUD/USD slammed, JPY thrives amid Wall Street selloff, BOJ expectations

The Wall Street selloff caught a second wind following a disappointing start to big tech earnings. Investors are sobering up to the eye-watering numbers being spent on AI by Alphabet and Tesla to chase lacklustre results, which saw Wall Street nurse its heaviest single-day losses of the year. The Nasdaq 100 tumbled -3.7% during its worst day since October and stopped just shy of retesting 19k. The S&P 500 was -2.3% lower during its worst performance since December. The VIX rose over 3.3 points to a three-month high on what was its most bullish day in 16 months, and not in a ‘good’ bullish way.

The Japanese yen retained its place at the top of the leader board on speculation that the BOJ could raise rates as soon as next week. ‘Sources’ told Reuters the central bank is weighing up a 10bp hike next week and will announce a detailed plan to halve bond purchases over the coming years.

The build-up of hawkish expectations of the BOJ alongside the Wall Street slide certainly made its mark on AUD/JPY which fell to an 11-week low, stopping just shy of the 101 handle. The FX barometer of risk has fallen nine of the past 10 days, and down -7.6% over the same 10-day period – its worst such run since March 2020. AUD/USD was down for an eighth day, its most bearish daily run in 11 months.

The Bank of Canada cut their cash rate by 25bp to 4.5%, making it the second cut this cycle and at back-to-back meetings. They also signalled further cuts, saying they wanted to revive growth without reigniting inflation. Given the BOC’s rate is now 100bp beneath the Fed’s it seems unlikely they will cut again at their next meeting, but the path does seem to be lower from here. USD/CAD rose for a sixth day to a three-month high.

Markets are clearly unwinding risk, and we could see some follow-through today in Asia. However, several risk markets are approaching key support levels, which tend to prompt at least a pause in trend if not a minor rebound when multiple markets trade around such milestones.

• The S&P 500 closed near its 50-day EMA, with the 5400 handle and both trend, gap support nearby
• The Nasdaq 100 closed just above the 19k handle and May high
• Nikkei futures fell for a 9^th day, although the May and June lows sit just below current levels
• Copper may have another cent to fall, but $4 is on hand as potential support
• AUD/USD has the 101, 100 handles and trend support within a day’s trading range

Events in focus (AEDT):

• 09:50 – JP services price index, foreigner bond/stock purchases
• 18:00 – German business sentiment (IFO)
• 18:00 – EU money supply, private/corporate loans
• 22:30 – US GDP (Q2 advanced), jobless claims, durable goods orders
• 22:30 – CA earnings
• 01:00 – ECB President Lagarde speaks

AUD/USD technical analysis:

The sell-off on AUD/USD has been nothing short of relentless, giving up every opportunity to mean revert over the past eight days of selling. This is one of those times that the moves are so strong that they breeze past technical levels – quite simply because this is an unwind of risk and traders are rushing for the exit. Levels can be checked later.

AUD/USD made light work of breaking below 66c and the 200-day MA overnight, where it now eyes a potential break of the June low and 50% retracement level today. The 4-hour chart shows RSI (14) well within the oversold level but with no bullish divergence. And with a volume peak coinciding with the beginning of its latest leg lower, bears still seem keen to push it lower. And that will keep AUD/USD in our ‘sell the rally’ mode, if it is kind enough to present one.

The next major support area is 0.6528 – 0.6537, at the 61.8% Fibonacci level and weekly S3 pivot point.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

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