AUD/USD, ASX 200 catch a tailwind from Wall Street optimism

Appetite for risk began to pick up pace on Thursday as cooler jobless claims figures pointed expectations back towards a soft landing for the Fed. Initial claims came in at 233k compared with 241k, and underscores the importance of incoming US economic data ahead of inflation, retail sales and consumer sentiment reports next week.

Wall Street indices closed at a 4-day high and US bond yields were higher across the curve, with the 2-year closing above 4% for the first day in five while the 10-year saw an intraday break above it. Commodities also caught a tailwind in the slight risk-on session, although it should be remembered that gains seen on Thursday still pale in comparison to the losses that preceded them.

Gold formed a bullish engulfing day in line with my near-term bullish bias, with silver and copper prices also perking up as we suspected earlier this week. Bitcoin futures closed above its 200-day MA and EMA, AUD/USD was the strongest FX major whilst safe-havens CHF and JPY were the weakest.

RBA governor Bullock reiterated the central banks hawkish stance, saying they would “not hesitate to hike if needed”. While it provided a small tailwind for AUD/USD, it failed to take out Wednesday’s high by the end of the Asian session.

Events in focus (AEDT):

• 11:30 – AU business confidence (NAB)
• 11:30 – China CPI, PPI (NBS)
• 16:00 – DE CPI
• 22:30 – CA employment report

ASX 200 at a glance

• The ASX 200 cash index remained in a relatively tight range for a third day, and is on track for its worst week since August
• It is also on track for a bearish engulfing month, just 8 calendar days into August
• But with the ASX holding above recent lows and without a fresh trigger to sell, it seems a bounce could be due – even if only small.

ASX 200 futures (SPI 200) technical analysis:

The daily RSI (2) reached oversold by Monday’s close, which found support just above the 200-day MA. The subsequent bullish pinbar and two doji’s saw false intraday breaks of the key average, before appetite for risk finally produced a decent bullish candle during Thursday’s overnight session. The 38.2% Fibonacci retracement acted as resistance, but I suspect it has further upside potential today.

Bulls could seek dips on lower timeframes and initially target the 7767 – 7794 range, neat a high-volume node (HVN) and 50% retracement level. A break above which brings the 7860 – 7895 region into focus around a 61.8% level and another HVN.

AUD/USD technical analysis:

Risk-on appetite and hawkish RBA comments saw AUD/USD rise in line with my bias yesterday. A daily close above the June low and 50% retracement level is constructive for the bull camp, and upside potential remains today should Asia run with Wall Street’s lead. But I’m not expecting a big follow through. Besides, AUD/USD is now right within the potential sell zone I with the 200-day MA, EMA and 66c handle nearby.

Something to look out for is a false break 66c resistance, as a daily close back beneath it could warn of a swing high next week. For now, momentum points higher on the 1-hour timeframe and a move above 66c seems more likely than note. The question is whether we’ll see enough of a ‘risk-o’ follow through today to justify a sustained rally above the 0.6620 resistance zone. Also note that the daily RSI (2) is in the overbought zone.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

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