GER30 D1 09 09 2020 2046

The sideways path in the DAX looks close to ending. The convergence in price over the summer months is setting up for a breakout scenario. Last week, the index attempted to fill the corona-gap, but the attempt was very short-lived as the gap-up into the gap was swatted back lower shortly after the open of trade of that day.

This brought an underside trend-line from June into play, a line that has several inflection points that make it a solid line of support. A break below it would likely lead to a sell-off towards the 200-day and July low at 12253.

But in recent sessions when the U.S. markets have worked off some their froth, Europe has held it together. This did not seem a likely scenario before as relative weakness in the DAX and CAC appeared to be sending a signal that they wanted to trade lower once the leading stock market took a break from rallying.

If the DAX can continue to show short-term relative strength in the face of further U.S. weakness, then this could set up for a sustained breakout into the corona-gap towards new record.

CADJPY D1 09 09 2020 1101

The upcoming Bank of Canada interest rate decision may underpin CAD against its major counterparts in the near-term, as Canadian policymakers are expected to retain their wait-and-see approach to monetary policy in light of recent economic data that shows the local economy is recovering faster than expected.

Markit manufacturing PMI figures for August pointed to the largest expansion in factory activity since August 2018, and second quarter GDP shrank less than the expected 39.6% plunge.

However, with the unemployment rate still hovering above 10% and an annual inflation rate of 0.1%, the BoC is likely to confirm its commitment to “hold the policy interest rate at the effective lower bound until economic slack is absorbed so that the 2% inflation target is sustainably achieved” and could flag future adjustments to its policy framework.
RSI has yet to snap below its uptrend extending from the March extremes and the MACD indicator continues to track firmly above its neutral midpoint, which suggests that selling pressure may begin to fade in the coming days.

If support at the July 22 close (79.83) and sentiment-defining 200-DMA (79.75) remains intact, a resumption of the primary uptrend could be in the offing.

A daily close above the 21-DMA (80.60) probably opens a path for CAD/JPY to retest the January low (82.13), with a break above potentially resulting in price fulfilling the implied measured move (84.10) of the Descending Triangle carved out from early-June to mid-August.

Conversely, a break below the 200-DMA could ignite a more substantial correction and possibly lead price back towards support at the 50% Fibonacci (77.87).

 

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EUSTX50 D1 09 07 2020 1329

Recent comments from Isabel Schnabel suggest that the European Central Bank is reasonably content with its current policy settings, as the Executive Board member stated that “as long as the baseline scenario remains intact, there is no reason to adjust the monetary policy stance”.

Although the central bank’s policies were calibrated “based on the June projections”, Schnabel appears confident that while “we are seeing a certain resurgence of infections, at the moment it looks unlikely that we are going to see a full lockdown again [which] is precisely what we assumed in our baseline scenario in June”.

This suggests that the ECB may save its monetary stimulus ammunition at its upcoming meeting on September 10, unless a surge of Covid-19 infections forces regional governments to impose economically devastating restrictions.

However, with the spread between Italian government bonds and German bunds notably widening in recent weeks, lack of action from the central bank may significantly sour investor sentiment and fuel a more substantial decline in regional asset prices.

That being said, comments from ECB Chief Economist Philip Lane flagging the Euro’s “repricing in recent weeks” could be a sign that policymakers are becoming increasingly more sensitive to the strength of the local currency and its impact on the trading bloc’s exports. The EUR/USD exchange rate surged to a fresh two year high on September 1 (1.2011).

Nevertheless, while Schnabel believes that “there could be surprises on the upside and the downside, which may mean that we have to reconsider our monetary policy stance”, she confirmed that for the time being adjustment is “not on the cards”.

With that in mind, Europe’s benchmark EU Stoxx 50 index may slide lower if the ECB opts to retain its wait-and-see approach to monetary policy at the upcoming September 10 meeting.

From a technical perspective, Europe’s EU Stoxx 50 index appears poised to slide lower despite carving out a bullish Ascending Triangle continuation pattern just shy of psychological resistance at the 3400 level.

With price tracking below the 21-, 50- and 200-day moving averages and above-average volume seen over the last two down-days, the path of least resistance looks to be lower.

Moreover, the RSI and MACD indicators hint at fading bullish momentum, as both oscillators slide below their respective neutral midpoints and into bearish territory.

To that end, the European benchmark may slide lower in the coming days, if sellers can overcome confluent support at the 61.8% Fibonacci (3243) and Ascending Triangle hypotenuse.

A daily close below the August 21 swing-low (3215) would probably invalidate the bullish continuation pattern and carve a path to test the August low (3158) and 38.2% Fibonacci (3063).

Oil US Crude 20200908 21.32

Crude oil prices fell more than 7% on Monday as the West Texas Intermediate blend slumped to its lowest level since mid-June. Trading beneath $37 a barrel, crude suffered a key breach beneath the 200-day moving average which could open the door to further losses. Apart from the technical concerns, risk-sensitive investments have experienced drastic losses in recent days and the weakness in crude oil could suggest a broader reversal in risk assets is a possibility.

While crude oil has yet to reclaim its pre-covid levels, it can be argued recent bullish sentiment in the tech sector has been a quiet tailwind for the commodity. Now as technology begins to falter, other risk assets like crude oil and lumber have begun to show similar signs of weakness.

Either way, crude oil will look to hold above possible support around the $36.61 mark which coincides with the top of the gap-lower established in the March plunge. Should it fail, secondary support may reside slightly beneath, near the $34.71 level. Together, the technical barriers might look to keep price afloat, but losses may be difficult to shrug off if weakness in other risk assets continues.

EURUSD D1 09 04 2020 2106

The EUR/USD currency pair has continued trading lower, boosted by the dollar positive jobs data. It now trades toward channel support as well as horizontal support. Yesterday’s extended candle wick indicated a rejection of lower prices however, added momentum off the back of the better than expected NFP may result in a retest of this area of confluence.

In further support of a continued move lower, is the appearance of negative divergence on the RSI, as price made higher highs while the indicator made lower highs. The initial litmus test remains the zone around 1.1790 which then brings into focus the 1.1760 level, however, the psych level of 1.1700 remains key to entertaining the idea of a reversal.

Should Bulls push price higher from here, the 1.1920 level becomes the nearest level of resistance before the 1.1965 level and upper side of the long term come into focus.

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