Asian Open Shakeout on Gold Post FOMC as USD Catches a Bid

Asian Futures:

• Australia's ASX 200 futures are up 14 points (0.19%), the cash market is currently estimated to open at 7,310.90
• Japan's Nikkei 225 futures are up 260 points (0.88%), the cash market is currently estimated to open at 29,899.40
• Hong Kong's Hang Seng futures are down -43 points (-0.18%), the cash market is currently estimated to open at 24,178.54

UK and Europe:

• UK's FTSE 100 index rose 102.39 points (1.47%) to close at 7,083.37
• Europe's Euro STOXX 50 index rose 52.68 points (1.29%) to close at 4,150.19
• Germany's DAX index rose 158.21 points (1.03%) to close at 15,506.74
• France's CAC 40 index rose 84.27 points (1.29%) to close at 6,637.00

Wednesday US Close:

• The Dow Jones Industrial rose 338.48 points (1%) to close at 34,258.32
• The S&P 500 index rose 41.45 points (0.96%) to close at 4,395.64
• The Nasdaq 100 index rose 148.74 points (0.99%) to close at 15,176.51

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Indices

Equity markets rose overnight after the Fed cleared the path for it to begin tapering (potentially in November, unless things change for the worse…) and soothed Evergreen’s contagion fears by saying the issue appears to be “very particular to China”. Stocks liked it.

Read the fundamental and technical takeaways from my colleagues Matt Weller and Joe Perry:

• FOMC meeting recap: Powell projects a November taper announcement
• VOLATILITY ALERT! The taper is coming

The Dow Jones was the top performer, rising 1% with the Nasdaq and S&P 500 close behind at 0.99% and 0.95% respectively. 9 of the 11 S&P sectors closed higher, led by energy and financials and whilst the index touched a 3-day high it’s found resistance at the 200-day eMA. The VIX fell to 20.87, down from a high of 28.8 3-days ago and VVIX (30-day volatility of VIX) fell at its fastest daily rate in 4-months by -13.14 points.

The ASX 200 has drifted higher for two days since Monday’s selloff, although losses from that day are yet to be recouped. We have a mildly bullish bias today thanks to a stronger lead from Wall Street (and the SPX may have its work cut for a decent rally anyway) but bulls needs to break above 7300 to give an upside move any legs.

ASX 200 Market Internals:

ASX 200: 7296.9 (0.32%), 22 September 2021

• Energy (2.25%) was the strongest sector and Financials (-0.62%) was the weakest
• 6 out of the 11 sectors closed higher
• 6 out of the 11 sectors outperformed the index
• 114 (57.00%) stocks advanced, 82 (41.00%) stocks declined
• 65% of stocks closed above their 200-day average
• 46% of stocks closed above their 50-day average
• 33% of stocks closed above their 20-day average

Outperformers:

• + 6.14%   -  Sims Ltd  (SGM.AX) 
• + 5.56%   -  Worley Ltd  (WOR.AX) 
• + 5.35%   -  Champion Iron Ltd  (CIA.AX) 

Underperformers:

• -4.49%   -  Premier Investments Ltd  (PMV.AX) 
• -3.39%   -  Link Administration Holdings Ltd  (LNK.AX) 
• -2.99%   -  Insurance Australia Group Ltd  (IAG.AX) 

Forex: Commodity FX higher post-Fed

Commodity currencies were the strongest majors overnight, led by CAD and AUD whilst safe-havens JPY and CHF were the weakest as traders dumped safe-havens in favour of riskier assets. In the 48-hourts leading up to FOMC, JPY and CHF had seen solid gains which pretty much evaporated once established that the Fed appear on track to announce tapering in November.

EUR/USD printed a bearish engulfing candle and closed below 1.1700. The US dollar index (DXY) is back above the March high and printed a bullish engulfing candle on the four-hour chart, confirming support around 93.00 in line with its bullish trend on the intraday chart.

We remain bearish on GBP/NZD below Friday’s high, and yesterday’s bearish engulfing candle shows momentum is realigning with that bias, although we’re yet to see a convincing drive below 1.9400. GBP/USD reached our target around the August low, so happy to step aside for now whilst the markets decides how to react around that key level. GBP/CHF initially fell in line with yesterday’s bearish bias and squeezed in a new low, yet momentum reversed we we’re stepping aside.

As for Australia, RBA’s Assistant Governor Michelle Bullock said lending standards and rising household debt had once again caught the eye of regulators, with the RBA noting the patter could “pose risks to the economy”. Are these the first steps towards macro-prudential tools being reimplemented? Perhaps not immediately, but something to consider moving forward.

AUD/USD carved out a potential inverted hammer yesterday yet closed only marginally higher, which keeps 0.7220 support in focus as a break beneath it suggests bears have retained control. AUD/JPY printed a bullish engulfing candle on the daily chart to suggest a low is in pace at 78.86.

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Commodities: Oil and gold diverge

The weekly EIA (Energy International Agency) report revealed that US crude stocks fell to levels not seen since 2018 as demand picked up, sending oil prices to a 2-day high. Were it not for the stronger dollar perhaps WTI could have settled closer to $73, but it is at least moving in line with our bullish bias.

Gold was originally rising in line with yesterday’s bullish bias, yet the yellow metal saw a volatile shakeout post-FOMC as the dollar caught a bid on the prospect of a rate hike in 2022 and tapering this year. A bearish hammer has formed the daily chart which closed back below Tuesday’s target of 1780, having found resistance at the 20-day eMA.

On the four-hour chart we can see a bearish engulfing candle respected trend resistance and invalidated a smaller bullish channel. Given it failed on three occasions to close above 1780 then we suspect a top is in place over the near-term, giving us a bearish bias below 1780.

Up Next (Times in AEST)

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