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.

View the full economic calendar

-- 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:

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
Search for the market you want to trade in our award-winning platform
Choose your position and size, and your stop and limit levels
Place the trade

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit www.cityindex.com/en-sg/terms-and-policies for the complete Risk Disclosure Statement.

ALL TRADING INVOLVES RISKS. LOSSES CAN EXCEED DEPOSITS.

City Index is a trading name of StoneX Financial Pte. Ltd. (“SFP”) for the offering of dealing services in Contracts for Differences (“CFD”). SFP holds a Capital Markets Services Licence issued by the Monetary Authority of Singapore for Dealing in Exchange-Traded Derivatives Contracts, Over-the-Counter Derivatives Contracts, and Spot Foreign Exchange Contracts for the Purposes of Leveraged Foreign Exchange Trading. SFP is also both Derivatives Trading and Clearing member of the Singapore Exchange (“SGX”). SFP is a wholly-owned subsidiary of StoneX Group Inc.

The information provided herein is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to invest, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk.

The information does not represent an offer of, or solicitation for, a transaction in any investment product. Any views and opinions expressed may be changed without an update. To understand the risks and costs involved, please visit the section captioned “Important Information” and the “Risk Disclosure Statement”.

The information herein is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

StoneX Financial Pte. Ltd. 1 Raffles Place, #18-61, One Raffles Place Tower 2, Singapore 048616. Tel: 6309 1000. Co. Reg. No.: 201130598R.

This advertisement has not been reviewed by the Monetary Authority of Singapore.