Asian Open: GBP On Track for Currency of the Month

The British pound is on track to be this month’s strongest major whilst the US dollar sits at a three-month low. A host of data from Japan and Australia kicks off today’s session, although volumes should be quieter than usual due to a three-day weekend in UK and US.

UK

Asian Futures:

  • Australia’s ASX 200 futures rose 6 points (0.084%), the cash market is currently estimated to open at 7185.5
  • Japan's Nikkei 225 futures are down -90 points (-0.31%), the cash market is currently estimated to open at 29059.41
  • Hong Kong's Hang Seng futures are up 77 points (0.27%), the cash market is currently estimated to open at 29201.41

European Friday close:

  • UK's FTSE 100 index rose 2.94 points (0.04%) to close at 7022.61
  • Europe's  Euro STOXX 50  index rose 31.35 points (0.78%) to close at 4070.56
  • Germany's DAX  index rose 113.25 points (0.74%) to close at 15519.98
  • France's CAC 40 index rose 48.4 points (0.75%) to close at 6484.11

US Friday close:

  • The Dow Jones rose 64.85 points (0.19%) to close at 34,529.45
  • The S&P 500 rose 3.23 points (0.08%) to close at 4,204.11
  • The Nasdaq 100 rose 28.666 points (0.21%) to close at 13,686.51


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Bears side-lined in May for global indices

Well, May was not the bearish month history forecast it to be. The Euro Stoxx 60, CAC and Australia’s ASX 200 closed to record highs on Friday, the DAX sits just below its own all-time high. The US hasn’t performed quite so well although Wall Street is on higher to close this month higher on aggregate.

The Nikkei 225 produced a three-week bullish reversal pattern (Morning Star Reversal) and on track to close the month with a bullish pinbar. A break above 29,700 will confirm both bullish reversal patterns.

The ASX 200 closed to a record high on Friday with materials and energy sectors leading the way higher. Information technology was the only sector in the red and, unless something goes drastically wrong today the ASX 200 is on track for its eight consecutive bullish month. The daily trend remains bullish above 7082 although we’d like to see prices remain above the 7136.40 high if a bullish breakout to fresh highs is to expected any time soon.

Over the weekend the EU has authorised the use of the Pfizer-BioNTech vaccine on adolescents, which paves the way for a faster rollout to narrow the gap between the US and UK rollouts. Meanwhile the UK has cut its order of Johnson and Johnson vaccine 10 million doses, thanks to their successful vaccine rollout which has seen around two-thirds of the adult population.


ASX 200 Market Internals:


ASX 200: 7179.5 (1.19%), 30 May 2021

  • Materials (1.88%) was the strongest sector and Information Technology (-0.53%) was the weakest
  • 9 out of the 11 sectors closed higher
  • 4 out of the 11 sectors outperformed the index
  • 149 (74.50%) stocks advanced, 41 (20.50%) stocks declined
  • 68.5% of stocks closed above their 200-day average
  • 60.5% of stocks closed above their 50-day average
  • 73.5% of stocks closed above their 20-day average

Outperformers:

  • + 8.60%   -  Inghams Group Ltd  (ING.AX) 
  • + 5.63%   -  South32 Ltd  (S32.AX) 
  • + 5.12%   -  Corporate Travel Management Ltd  (CTD.AX) 

Underperformers:

  • -5.27%   -  CSR Ltd  (CSR.AX) 
  • -5.07%   -  Nuix Ltd  (NXL.AX) 
  • -2.08%   -  Champion Iron Ltd  (CIA.AX) 


Forex: DXY holds above 90.0 (again)

It was a volatile session for the dollar on Friday as Core PCE (the Fed’s preferred inflation gauge) rose at its fastest rate on 25-years. After rising a nine-day high, prices gave back the session’s gains to close with a bearish pinbar on the daily chart. The US dollar index (DXY) produced a Rikshaw Man Doji on the weekly chart which found support at 89.50 and closed just above 90.0. The longer it continues to hold above the January low the greater the odds a of corrective bounce becomes, in our view.

  • Prices on AUD/USD continues to trade in a choppy sideways range although it does show the potential for a head and shoulders top formation on the daily chart. However, a similar pattern emerged in March which failed to hold beneath its neckline after breaking out. Furthermore, head and shoulders top generally form at the end of trends and not within a complex/sideways correction. Therefore, we don’t have a whole lot of confidence in the pattern itself, even if price action does appear on the ‘toppy side’ whilst the dollar index appears poised for a bounce higher.
  • EUR/USD produced a weekly indecision candle which closed beneath 1.2242 resistance. Given this follows on from a bearish hammer then we remain wary of its potential to retrace (dollar strength) from current levels.
  • GBP/USD has also found resistance at the February high of 1.4235. However, the daily chart shows a sideways range so
  • NZD/USD rolled over from form 0.7300 after failing to break above it on Wednesday and Thursday. A three-bar bearish reversal has now formed on the daily chart called an Evening Star Reversal.


Momentum is beginning to turn higher again on EUR/AUD

EUR/AUD has made it back onto our bullish watchlist after failing to break above our initial 1.5800 target. However, whilst its advance was halted, neither did it decline to invalidate the overall bullish bias. Given the vaccine rollout is about to ramp up across Europe, a weak GDP print for Australia this week could send this cross towards the 1.5900 handle and retest the January high.

Prices successfully held above 1.5700 (barring a minor breach of it after its breakout). Friday’s strong bullish close formed part of a three-day bullish reversal pattern (Morning Star Reversal) and marked support at 1.5724. A break above Friday’s high assumes bullish continuation, although bulls could also seek setups within Friday’s range should any retracement be seen on low volatility. Ideally prices should hold above the 1.5750 – 1.5800 area.


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From the weekly COT report (Commitment of Traders):

  • Traders trimmed their net-long exposure to CAD futures for the first week in five, shedding -1.3k contracts. However, heading appears to be going on at as gross longs added 2157 contracts versus 3458 shorts. As it stands, the 1-year Z-score is currently 2.46 standard deviations above its mean to suggest a sentiment extreme.
  • Overall, weekly volumes changes were quite low across FX majors. The British pound and euro saw the largest changes, both adding 5759 and 4142 contracts to net-long exposure, respectively. Bullish exposure to euro futures have risen for six consecutive weeks.
  • Net-long exposure to copper futures fell to a 10-month low. Bullish exposure to platinum futures fell for a fourth consecutive week to its lowest level this year.


Commodities:

Copper futures closed to a seven-day high and may have carved out a swing low at 4.5820. The weekly chart also produced a two-week bullish reversal (bullish piercing pattern) to further suggest its correction from the May high may have completed.

Gold closed above 1900 for the first week in six months. Friday’s candle was a bullish hammer / outside bar which low suggests a swing low may have formed at 1880. If prices rally on Monday, we can assume its correction is complete whilst a break beneath 1875 assumes a deeper retracement is underway.

Silver bulls need to regain control quickly if this bullish channel is to remain in play. Prices have effectively moved sideways for the past seven sessions, and whilst dips have been snapped up breaks higher have failed to hold onto momentum. A break below 27.20 invalidates the bullish channel and suggests a deeper correction is underway, but we really need to see prices rally above 28.0 today (and actually hold on top gains this time) if bulls want to keep this channel intact.

Oil prices are holding beneath their March and May highs ahead of Tuesday’s OPE meeting. Given prices have sold off on four separate occasions over this period then we’ll not write off the potential for a fifth sell-off (especially if the dollar rallies above the January highs). But for a bullish breakout to have any chance of success we’d also want to see the US dollar index break to new lows.


Up Next (Times in AEST)

  • Please note that today is a public holiday in the UK and US

You can view all the scheduled events for today using our economic calendar, and keep up to date with the latest market news and analysis here.


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