Market rally slows

Overnight Headlines

*USD eased as risk-related currencies clawed back more losses

*US stocks edged up to new record highs, VIX stalls above 17

*Oil up again (3.45%), halfway back to recent highs

*China reopens world’s third busiest port terminal

USD is marginally higher this morning after falling yesterday. Markets put aside Covid concerns and the Delta variant in a narrow range day. DXY currently trades just below 93 with EUR pressed above 1.1750. JPY dipped early in the day before recovering slightly and has closed around the same level for the last four days. Commodity currencies were again the winners. AUD traded to the highs of the week, testing the 50% midpoint of this month’s trading range. NZD is back above previous support/resistance above 0.69.

US equities made new record highs as the US House agreed a $3.5 trillion budget blueprint while advancing the $1 trillion infrastructure bill. Investors continued to buy the dip in the past week’s beaten down sectors. Defensive areas like healthcare lagged. Nasdaq outperformed the broader S&P 500 and we are seeing small declines in Asian markets. European markets have opened flat with US markets currently pointing to a muted opening too.

Market Thoughts – Cautious trade

After the solid bounce back in risk markets so far this week, markets are readying for Chair Powell’s upcoming speech on Friday. Understandably, positions are being squared and more caution is prevailing with some of the risk-related majors having pulled back over half of their recent losses.

The commodity rally has also paused. Oil has enjoyed its biggest two-day gain since November. But the dollar declines have slowed amid an upturn in the oil demand picture. We are now in wait-and-see mode ahead of Friday’s Powell speech. US durable goods data released today, which is the best investment indicator of the economy, may show signs of slowing momentum.

Chart of the Day – Yen crosses on the radar

JPY pairs give us an instant indication of risk on/risk off with the classic risk barometers, AUD/JPY and CAD/JPY the best examples. Any surprises from Chair Powell could shock US yields which have been quiet recently. Higher yields are generally bad for the yen and see a bid in the opposite currency.

EUR/JPY has lagged other yen crosses even as EUR/USD has moved higher amid the positive risk sentiment. A doji printed yesterday with prices marginally above the July low at 128.59. But the 200-day SMA looms above around 129.13 while the bearish trendline from the mid-June high is still intact. If we roll over again, the recent lows at 127.93/4 are key support.

Jamie DuttaAnalyst / Trader

"With extensive experience as a full time trader and financial market commentator, I have worked as a trader in top tier investment banks and trading houses, including Morgan Stanley and GAIN Capital trading Forex, Index derivatives. and Bonds. I combine technical analysis with a deep fundamental knowledge to identify trade set-ups. My real life experience allows me to break down the complexities of financial jargon and trading. This means everyone can better understand the compelling forces of greed and fear which are realised every day in countless ways across markets."

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