Positive mood stalls on the “pivot” trade

Updated October 5, 2022

Headlines

*RBNZ delivers fifth 50bp hike, considered 75bps, signals more to come

*US pushing OPEC+ not to proceed with potential deep oil output cut

*US dollar nurses pullback as traders glimpse rate peaks

*Asian stocks bounce higher on signs rate hikes are working

*Gold rebounded for a sixth day on the dollar’s demise and subdued bond yields

FX: USD slid against most of its major peers. The DXY closed a tick above its lows of 110.05. Resistance is at 110.76 while next support is 109.29.  

GBP gained for a sixth session in a row, a winning streak not seen since April 2021. EUR popped higher reaching parity before stalling. Initial support is the mid-July low at 0.9952. The 50-day SMA sits above at 1.0014.

USD/JPY fell below the 144 figure after trading very close to 145. AUD struggled to hold above 0.65 again. Major resistance lies around 0.6530.  USD/CAD dropped sharply again towards 1.35 as traders await today’s OPEC+ outcome. NZD broke out of its recent range today to a high of 0.5805. But sellers have re-emerged after the expected RBNZ rate hike.

Stocks: US equities extended gains for a second straight session. Both the S&P 500 and the tech-laden Nasdaq 100 added 3.1%. The cumulative 5.7% gain this week marks the broader S&P 500’s biggest two-day rally since March 2020.  The back-to-back increases were also the first time the benchmark has posted consecutive sessions with gains of more than 2% since March.  

APAC stocks traded higher across the board as the region sustained momentum from Wall Street. ASX 200 continued to benefit following the RBA’s recent rate hike slowdown. Nikkei 225 reclaimed 27k though the upside was capped by lingering geopolitical tensions.

The Euro Stoxx 50 futures are signalling a softer open -0.5%, after the cash market closed up 4.3%.  S&P 500 futures are pointing lower, off 0.4%.

Day Ahead – OPEC+ plans larger output cuts

Oil has been bouncing with Brent currently above $90 ahead of today’s OPEC+ meeting. A big production cut of potentially 2mm b/d is on the cards. It is important to remember these are paper cuts and actual cuts will be much smaller. Oil experts reckon anything as much as 2mm b/d would take out the surplus for the rest of this year.

This would provide solid support to prices as Brent looks to push above the 50-day SMA at 93.45. A cut of less than 1mm b/d would see an immediate sharp correction. Much may depend on the details such as the time horizon for implementation and the baseline output level for the cut. It does seem as though the group are keen to keep a floor to prices around current levels.

Chart of the Day – GBP/USD hits resistance

The hoped-for central bank pivot has seen the dollar slump from recent highs. This has helped cable hits levels last seen three weeks ago. This was kind of unthinkable to many pundits just last week when parity beckoned for many. But certainly, there are still numerous headwinds for the UK as focus turns to PM Truss’ speech today. We also get NFP on Friday which is expected to be solid.

GBP/USD prices are now trading just above the pandemic low at 1.1409. Trendline resistance from the August high has also just been broken. If this zone acts as support, the 50-day SMA is a target above at 1.1659. The 21-day SMA sits below at 1.1295 if the 1.14 area is broken.

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