USD/JPY hints at another false break, AUD/USD looks set to bounce

The US dollar index formed a small bearish inside day after once again failing to hold onto gains above 105.20 for the second day in a row. This could allow for some mean reversion for some of its FX peers, and for today we have a potential AUD/USD long and USD/JPY short in focus.

Wall Street once again reached record highs, and US treasuries were lower following a batch of high-grade bond sales on Monday, led by Home Depot. The S&P 500 notched its 30th record high of the year, and the Nasdaq reached a record high for its sixth day in a row. Even the Dow Jones managed to close higher, forming a three-day bullish reversal pattern called a morning star formation. This could bode well for the ASX 200 today, with the SPI 200 snapping a two-day losing streak overnight and holding above 7680.

Higher demand forecasts from OPEC, EIA, and IEA helped crude oil bulls spring back to life after a very modest retracement last week. WTI crude rose over 2% on Monday after rallying from its 200-day average and now looks set to break above $80.

Economic events (times in AEST)

We have a fair amount of data over the next 24 hours, although most of it falls under the 'second-tier' category. We're not expecting anything profound from the RBA, who are likely to hold rates at 4.35% and maintain their obligatory hawkish bias – which few believe will be acted upon. We also have US retail sales and production figures, which could prompt some movement for the US dollar and yields if they come in hot or cold enough. Also, take note of the plethora of Fed speakers, although I'd be surprised if they collectively veer too far from the script fresh on the heels of last week's FOMC meeting. And for now, that script seems to be dangling a potential December cut, but not more.

09:55 – South Korean exports
10:10 – RBA assistant governor Ellis speaks
10:30 – Singapore non-oil exports
11:00 – Fed governor Cook speaks
11:30 – SG trade balance
14:30 – RBA cash rate meeting
15:30 – RBA press conference
19:00 – German ZEW
19:00 – Eurozone CPI
22:30 – US retail sales
23:15 – US industrial production, manufacturing production, capacity utilisation
00:00 – FOMC Barkin speaks
01:40 – Fed Collins speaks
03:00 – Fed Logan, Kugler speaks, US 20-year bond auction, Atlanta Fed GDPnow
04:00 – Fed Goolsbee speaks

USD/JPY technical analysis:

On Friday, I warned about false breaks above 158 for USD/JPY, and so far that was the right call. A shooting star candle formed after a false break of 158, and the market has since drifted back up towards the level for another attempt. I remain unconvinced that the market is ready for a strong move higher, so once again I am on guard for false breaks. This leaves two clear levels in mind to look for such reversals: 158 and 158.26 (Friday's high).

The one-hour chart shows a clear game of two halves. A strong rally up to 158.26 was met with high volumes, yet an equally sharp reversal with high volumes sent prices lower over the next few hours. Price action on Monday allowed prices to drift higher, yet volumes are relatively low, which is suggestive of a false move.

Prices are hugging the May high and show the potential for a brief swing or two higher, which brings the 'MOF intervention' level ~158 and Friday's high into focus as potential false breaks and countertrend move triggers.

AUD/USD technical analysis:

Last week I was looking for prices to hold above the ‘US CPI’ low. Clearly, it didn’t hold. But prices are holding above the 100 and 200-day EMA and swing low ~0.6580. And with a bullish pinbar forming on Monday, I suspect a cheeky bounce might finally be due.

The 1-hour chart shows volume increased at the cycle low, and a bullish divergence on RSI (14) ahead of the bounce back above the US CPI low. From here, I prefer dips towards 0.6600 and for a potential move towards 0.6640, or 0.6660 at a push. A weak set of US economic data is likely required for the latter.

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.