Risk appetite sours on China headlines

Next 24 hours: Yen demand creeps in as risk comes off

Today’s report: Risk appetite sours on China headlines

There are some new distressing headlines out of China that have shaken up risk appetite a bit into Thursday. We’ve heard about the end of talks between Evergrande and Hopson, which could intensify Evergrande’s credit crisis.

Wake-up call

Chart talk: Technical & fundamental highlights

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EURUSD – technical overview

The market has been looking for a higher low since topping out in 2021 up at 1.2350. Ideally, setbacks continue to be well supported above 1.1500 on a weekly close basis in favour of the next major upside extension back through 1.2350 and towards a retest of the 2018 high at 1.2555 further up. Only a weekly close below 1.1500 would force a rethink.

  • R2 1.1691 – 29 September high– Strong
  • R1 1.1670 - 19 October high – Medium
  • S1 1.1529 - 6 October/2021 low – Medium
  • S2 1.1500 – Psychological – Strong

EURUSD – fundamental overview

German producer prices spiked to their highest levels in 50 years. This was a good reason for another wave of demand for the Euro. At the same time, the ongoing dovish ECB speak, news of hawkish ECB Weidmann stepping down 5 years earlier than expected, and resurgence in Europe covid deaths are all factors weighing on the Euro into rallies. Key standouts on today’s calendar include UK CBI industrial trends, Canada ADP employment, and US reads in the form of initial jobless claims, the Philly Fed, and existing home sales.

EURUSD - Technical charts in detail

GBPUSD – technical overview

The market is in a consolidation phase in the aftermath of the run to fresh 2021 and multi-month highs. At this stage, additional setbacks should be limited to the 1.3200 area ahead of the next major upside extension towards a retest and break of critical resistance in the form of the 2018 high.

  • R2 1.3913 – 14 September high – Strong
  • R1 1.3835 – 20 October high – Medium
  • S1 1.3709 – 18 October low – Medium
  • S2 1.3653 – 14 October low – Strong

GBPUSD – fundamental overview

Another round of impressive data out of the UK on Wednesday has only helped to reaffirm hawkish BOE bets and prop the Pound some more. Key standouts on today’s calendar include UK CBI industrial trends, Canada ADP employment, and US reads in the form of initial jobless claims, the Philly Fed, and existing home sales.

USDJPY – technical overview

The longer-term trend is bearish despite the recent run higher. Look for additional upside to be limited, with scope for a topside failure and bearish resumption back down towards the 100.00 area. It would take a clear break back above 114.55 to negate the outlook.

  • R2 115.00 – Psychological– Strong
  • R1 114.70 – 20 October/2021 high – Medium
  • S1 113.00 – 12 October low – Medium
  • S2 112.08 – 30 September high – Strong

USDJPY – fundamental overview

Monetary policy divergence continues to be a fundamental catalyst driving Yen underperformance to multi-month lows against the Buck. However, Yen selling has been aggressive and this in conjunction with some risk off flow into Thursday are inspiring renewed Yen demand. Key standouts on today’s calendar include UK CBI industrial trends, Canada ADP employment, and US reads in the form of initial jobless claims, the Philly Fed, and existing home sales.

AUDUSD – technical overview

The Australian Dollar has been in the process of a healthy consolidation following the impressive run towards a retest of the 2018 high earlier this year. At this stage, there are signs of the market wanting to turn back up and any setbacks should be well supported down into the 0.7200 area. Look for a weekly close above 0.7500 to strengthen the outlook and force a shift in the structure.

  • R2 0.7599 – 6 July high – Strong
  • R1 0.7547 – 21 October high – Medium
  • S1 0.7378 – 18 October low – Medium
  • S2 0.7323 – 13 October low – Strong

AUDUSD – fundamental overview

There were some initial attempts to sell the Australian Dollar on Tuesday's dovish leaning RBA Minutes, but all of that has been reversed. We're seeing strong demand on the back of risk on flow and broad US Dollar outflows. It also seems as though the Aussie rates market is pricing an outdated Minutes that will likely need to be reconsidered as inflation continues to rise. However, into Thursday, we are seeing some risk off flow factoring into Aussie selling. Key standouts on today’s calendar include UK CBI industrial trends, Canada ADP employment, and US reads in the form of initial jobless claims, the Philly Fed, and existing home sales.

USDCAD – technical overview

Finally signs of a major bottom in the works after a severe decline from the 2020 high. A recent weekly close back above 1.2500 encourages the constructive outlook and opens the door for a push back towards next critical resistance in the 1.3000 area. Any setbacks should be well supported into the 1.2200s.

  • R2 1.2563 – 8 October high – Strong
  • R1 1.2499 – 12 October high – Medium
  • S1 1.2288 – 21 October low – Medium
  • S2 1.2252 – 23 June low – Strong

USDCAD – fundamental overview

The Canadian Dollar got another boost on Wednesday, this time from hot CPI data which printed its highest levels since 2003. All of this sets the stage for a more hawkish leaning Bank of Canada next week. Key standouts on today’s calendar include UK CBI industrial trends, Canada ADP employment, and US reads in the form of initial jobless claims, the Philly Fed, and existing home sales.

NZDUSD – technical overview

The market has entered a period of consolidation after running up to a yearly and multi-month high. Back above the April high at 0.7317 would be required to force a shift in the structure.

  • R2 0.7300 – Figure – Strong
  • R1 0.7219 – 21 October high – Medium
  • S1 0.7049 – 18 October low – Medium
  • S2 0.7000 – Psychological – Strong

NZDUSD – fundamental overview

Risk on flow and ramped up RBNZ rate hike expectations have been driving Kiwi higher this week. We've also seen broad based US Dollar outflows contribute as well. The market is now starting to talk about the possibility for a surprise RBNZ 50bp rate hike in November. However, we are seeing some risk off flow into Thursday which has inspired some selling. Key standouts on today’s calendar include UK CBI industrial trends, Canada ADP employment, and US reads in the form of initial jobless claims, the Philly Fed, and existing home sales.

US SPX 500 – technical overview

Longer-term technical studies are looking quite exhausted and the market is showing signs of wanting to roll over after racing to another record high. Look for rallies to be well capped ahead of 4600, with a break back below 4353 to strengthen the outlook.

  • R2 4552 – 3 September/Record high – Strong
  • R1 4543 – 20 October high – Medium
  • S1 4436 – 15 October low – Medium
  • S2 4272 – 1 October low – Strong

US SPX 500 – fundamental overview

We're trading just off fresh record highs, and yet, with so little room for additional central bank accommodation, given an already depressed interest rate environment, the prospect for sustainable runs to the topside on easy money policy incentives and government stimulus, should no longer be as enticing to investors. Meanwhile, ongoing worry associated with coronavirus fallout and risk of rising inflation should weigh more heavily on investor sentiment in Q4 2021.

GOLD (SPOT) – technical overview

The 2019 breakout above the 2016 high at 1375 was a significant development, opening the door for fresh record highs and an acceleration beyond the next major psychological barrier at 2000. Setbacks should now be well supported above 1600.

  • R2 1917 – 1 June high – Strong
  • R1 1835 – 15 July high – Medium
  • S1 1700 – Round number – Medium
  • S2 1677 – 8 March/2021 low – Strong

GOLD (SPOT) – fundamental overview

The yellow metal continues to be well supported on dips with solid demand from medium and longer-term accounts. These players are more concerned about exhausted monetary policy, extended global equities, and coronavirus fallout. All of this should keep the commodity well supported, with many market participants also fleeing to the hard asset as the grand dichotomy of record high equities and record low yields comes to an unnerving climax. [audio mp3="https://www.lmax.com/blog/wp-content/uploads/sites/4/2021/09/15seplmaxaudio.mp3"][/audio]

Peformance chart: 30 Day Performance vs. US dollar (%)

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