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Trader's View - APAC brief 28 Aug



Sentiment and Wall Street: Risk appetite appears to be slowly returning to the bellies of investors, with global equity markets experiencing a synchronized push higher to start the week. Wall Street has led the charge of course, overnight adding to the all-time highs achieved at the end of last week. The S&P500 posted a remarkable gain of 0.72 per cent as that index entered rarefied air, while the Dow Jones added 1 per cent to crack the 26,000-mark once more. Trade wars and emerging market troubles are playing less of a role in market psychology at present, as fundamentals seemingly make their way back to the fore.


Asian markets: The general boost in sentiment arguably manifested best in Asian equities yesterday. The region’s capital markets have been perhaps affected most by trade wars, stemming largely from concerns relating to Chinese financial stability. The PBOC’s announcement of its “counter cyclical measures” to stabilize the Yuan has underwritten trader confidence, with the USD/CNH finding comfort at the 6.80 level. The Nikkei was a standout performer yesterday and may well be the barometer of global share-market strength: that index began to grind through dense resistance yesterday, a successful break of which today could indicate a substantial bullish turn for global equities.


ASX today: SPI futures are pointing to an ASX200 which will participate in the upswing today, with that market indicating at time of writing a 24-point jump at the open. The Australian share market has relatively less fundamental information to trade-off this week, given that the economic calendar is comparatively bare, and earnings season is nearing its end. There is justification for the local market to recover last week’s losses, especially if global risks remain at bay and investors can move passed the confidence sapping impact of Canberra’s leadership debacle. A re-entry of trend at 6272 today may flag this dynamic, opening opportunities to climb back toward the ASX200’s decade long highs at 6330.


ASX fundamentals: As it applies to reporting season, of the companies that have reported, 30 per cent have exceeded forecasts and 42 per cent have met them. Despite not quite matching its US cousins, the results do establish a firm base for the ASX200 to build on recent gains. Volume was remarkably high for a Monday yesterday, but the breadth of the gains was (fairly) meagre, implying that investors believe the market has been a touch oversold, and there is room for a greater recovery. The key ingredient will be a stable global backdrop, which judging by yesterday’s trade, is showing signs of returning.


Emerging markets: Emerging markets are proving far more stable this week, bolstered by several news stories across the globe. China’s support for the Yuan is the headline grabber, but docility in emerging market currencies – such as the Turkish Lira – have reduced fears of financial contagion spilling into developed capital markets. The announcement last night of a bilateral trade agreement between the US and Mexico has added to the sense of relief amongst traders, with the Mexican Peso rallying on that news. Emerging market equities will continue to feel the heat, particularly as the US Fed slowly raises interest rates, but for the time being the belief prevails that perhaps an emerging market crisis has (for now) been averted.



Greenback: Having incorporated the relatively dovish comments from US Federal Reserve Chairperson Jerome Powell’s comments at Jackson Hole over the weekend, currency traders have shifted their positions in the market to reflect current US interest rate expectations. The result of this has naturally been a weaker greenback to start the week, which has fallen to 94.37 as measured by the US Dollar index. While the heat has certainly come out of the USD, the trend for the greenback has yet to reverse, providing traders with ample opportunity to “buy the dip” and potentially take long USD positions, notably against the highly liquid EUR/USD.


Gold: The pull-back in the USD has also seen a bounce in gold prices at the beginning of this week, likewise providing opportunities for USD bulls to short the yellow metal. There is an argument that gold has bottomed out now, having bounced off $US1160 a fortnight ago, and sustaining a short-term rally since then. However, the gold story as it stands is still a US Dollar story, meaning the moves in the gold price are predominantly indicative of the fortunes of the greenback. Considering the uptrend in the USD remains intact for now, trade up to $US1235 could be considered natural and within this trading dynamic, with the levels around $US1214 and $US1224 representing profit taking opportunities for the conservative trader.

Information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. 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. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.


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    • Swiss Franc Firming Against US Dollar and Euro. Will Momentum Take CHF Higher?
      EUR/CHF made a 7.5-year low at the end of last month at 0.9699, moving below the previous low of 0.9804.

      Since breaking lower, the price has not managed to reclaim 0.9804 and it may continue to offer resistance. The 21-day Simple Moving Averages (SMA)is currently at that level, potentially adding resistance.

      Further up, the recent peak of 0.9957 might offer resistance ahead of the break point at 0.9973.

      In the last session, the price has crossed below the 10-day SMA and remains below the 21-, 55-, 100- and 200-day SMAs.

      A bearish triple moving average (TMA) formation requires the price to be below the short term SMA, the latter to be below the medium term SMA and the medium term SMA to be below the long term SMA. All SMAs also need to have a negative gradient.

      Looking at EUR/CHF, the criteria for a bearish TMA has been met and may indicate that bearish momentum could evolve further.

      Support might be at the recent low of 0.9699 or further down at the 161.8% Fibonacci Extension of 0.9638.


      Chart created in TradingView 


      USD/CHF has bounced off low made at the start of this month at 0.9470 to trade in a wide range of 0.9545 – 0.9650. These levels might provide support and resistance respectively.

      While the price is below all short-, medium- and long-term Simple Moving Averages (SMA), they have positive and negative gradients. This may suggest a lack of conviction for directional momentum that might see further range trading.

      Re-iterating this possibility is the price criss-crossing the 10-day SMA. Recent history has shown that when the price crosses the 10-day SMA, momentum in that direction continues. That is not the case over the last week.

      The recent low of 0.9470 may provide support ahead of the break point at 0.9460. On the topside, resistance might be at the break point of 0.9710 or the July peak of 0.9886.

       Chart created in TradingView

      Daniel McCarthy, Strategist Daily FX

      Source: Daily FX
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