US Dollar Basket 20200930 21.54

So we’re in the final hours of Q3 and the rest of this week brings some high-impact data out of the United States. This could serve to extend the near-term bullish trend in USD or, perhaps, may help to bring bears back into the mix to re-test those two-year-lows that came into play earlier this month.

Tomorrow could be especially pensive as we get both PCE and PMI numbers out of the US. The PCE number will give some insight into inflationary pressure; and the day after brings Non-Farm Payrolls so market participants will get an updated view on the employment picture out of the United States. Collectively, these data outlays can help to re-frame the September outlay that saw a noticeable change-of-pace in both stocks and currencies.

Coming into September the US Dollar was beset by a sell-off that had held since the March spike. Prices in USD pushed down to fresh two-year-lows on the first day of the month, running into a giant area of confluent support. That’s where matters begin to shift, and after a support hold in the first couple of weeks of September, buyers got a bit more active last week in helping the currency to push up to a fresh high.
At this point, the monthly chart shows a not-yet-confirmed bullish engulfing pattern. Such formations will often be approached with the aim of bullish continuation, and when taken with the context of long-term support, this can keep the door open for bullish continuation themes into the Q4 open. For this formation to confirm, today’s price action would need to close above the August open at 93.44.

 

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USDJPY D1 09 28 2020 1410

USD/JPY rates look poised to extend their trek lower after failing to climb back above confluent resistance at the trend-defining 50-day moving average (106.23) and Schiff Pitchfork parallel.

Although price has recovered significantly since collapsing 2.4% from the monthly high (106.55), the recent topside push appears to have validated the downside break of the uptrend extending from the March low (101.18) and suggests further losses may be afoot.

Moreover, with the RSI continuing to respect the downtrend extending from the June highs and price tracking below the 21-, 50-, 100- and 200-DMAs, the path of least resistance seems to be lower.

Therefore, should USD/JPY remain capped by psychological resistance at the 106.00 level a retest of the 2019 low (104.45) looks on the cards, with a daily close below the September low (104.00) needed to bring the yearly low (101.18) into play.

 

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USDCAD D1 09 18 2020 0955

Upcoming Canadian retail sales figures for July may exacerbate the USD/CAD exchange rate’s fall from the monthly high, with a better-than-expected release reinforcing the Bank of Canada’s (BoC) view that “the Canadian economy has bounced back even more strongly in the reopening phase than we were expecting” and potentially justifying the central bank’s decision to maintain the status quo.

The BoC opted to maintain “its target for the overnight rate at the effective lower bound of 0.25%” and pledged to continue its quantitative easing (QE) program “with large-scale asset purchases of at least $5 billion per week of Government of Canada bonds” at its September meeting.

From a technical perspective, the path of least resistance for USD/CAD appears to be lower, as price failed to break back above the trend-defining 50-day moving average (1.3280) and September high (1.3259).

A daily close below the 21-DMA (1.3142) probably triggers an extended slide back to support at the 50% Fibonacci (1.3039), with a break below the psychologically pivotal 1.30 level potentially bringing the October 2018 low (1.2783) into play.

 

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EUR GBP 20200923 13.42

UK exporters could face lengthy queues at Kent as the EU plans to enforce full goods controls

UK PMI data prints largely in line with expectations

Michael Gove, who is responsible for no-deal planning, issued a warning to the freight industry over potential import and export delays in Kent. Mr Gove mentioned that as many as 7000 EU-bound freight trucks could cause delays of up to 2 days. The reason for this is, according to Gove, is due to around 70% of freight trucks travelling to the EU being unprepared for the new border controls.

The European Union is expected to impose full goods controls on the UK, stopping all freight without the correct documentation after the transition period, effective from 1 January 2021.

Similarly to other economies, there was an expectation for improved economic conditions as the UK eased up on lockdown restrictions. Manufacturing (Flash) PMI data slightly beat expectations; while Markit/CIPS Composite (Flash) and Markit/CIPS UK Services PMI (Flash) came in slightly below expectations. Traditionally, figures above the 50 mark indicate improving economic activity.

AUDUSD D1 09 14 2020 1448

AUD/USD appears to be stuck in a narrow range after reversing ahead of the 50-Day SMA (0.7162), but fresh remarks from the RBA may rattle the rebound from the monthly low (0.7192) as the central bank warns that the economic recovery is “likely to be both uneven and bumpy.”
Hints of additional monetary support may produce a bearish reaction in the Australian Dollar as the RBA insists that “the yield target will remain in place until progress is being made towards the goals for full employment and inflation,” and the central bank may show a greater willingness to expand the scope of its emergency tool as “further purchases will be undertaken as necessary.”
Keep in mind, the advance from the 2020 low (0.5506) gathered pace as AUD/USD broke out of the April range, with the exchange rate clearing the January high (0.7016) in June as the Relative Strength Index (RSI) pushed into overbought territory.
AUD/USD managed to clear the June high (0.7064) in July even though the RSI failed to retain the upward trend from earlier this year, with the exchange rate pushing to fresh yearly highs in August and September to trade at its highest level since 2018.
Recent developments in the RSI instilled a bullish outlook for AUD/USD as it threatened the downward trend from earlier this year to push into overbought territory for the fourth time in 2020, but a textbook sell-signal has emerged as the indicator quickly slipped back below 70.
In turn, the bullish momentum may continue to abate following the failed attempt to test the July 2018 high (0.7484), with the 50-Day SMA (0.7162) on the radar for AUD/USD as it threatens the upward trend established in June.
Failure to hold above the 0.7270 (23.6% expansion) region may push AUD/USD back towards 0.7180 (61.8% retracement), with the next area of interest coming in around 0.7090 (78.6% retracement) to 0.7140 (23.6% retracement), which largely lines up with the 50-Day SMA (0.7162).
At the same time, a larger rebound in AUD/USD may bring the Fibonacci overlap around 0.7370 (38.2% expansion) to 0.7390 (38.2% expansion) back on the radar as the exchange rate clings to trendline support, with a break above the 2020 high (0.7414) opening up the 0.7480 (50% expansion) region.

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