Updated: Nov 4, 2020
The week has gotten off to a good start, as risk assets improved all throughout Monday. Today has been a very slow day as a result of the pending U.S. presidential debate tonight. We would note that debates usually don't move markets in one way or the other. Therefore we expect any movement in the next 24 hours to be the result of some COVID related or increased speculation around Friday's Non-farm payroll report in the U.S.
Let's look at the charts to see where we are.
The S&P 500 index, and by extension, risk assets have hit a defined resistance point after rallying for three days straight. We have been saying for the last week or so that we are in a bear flag pattern. We expect it to last for a couple more days before we get a break either up or down of the channel. Our risk oscillators are both sitting in neutral, which as we have noted in the past can presage an outsized move in the future.
We noted on our last newsletter that the DXY was in rising wedge pattern that most likely would need to correct to the downside before resuming an uptrend. We believe we are currently inside of said correction. Strong short term support is currently above the 93.00 level. We expect it to hold and see the DXY rally into the 96.00 area.
The AUD/JPY cross looks to have rebounded as we noted in our last newsletter, along with risk sentiment. However, it is now bumping up against our long-term moving average as our short-term moving average is making a marked turn to the downside. Time will tell, but we expect choppy trading towards bearish moves in the short term. Remember, we are only about a month a way from a very critical election in the U.S. Risk-Aversion looks to become the theme as the date gets closer.
We are still in the bear flag pattern discussed in the previous newsletter. We expect a couple more days of this range holding before a break lower. Remember, this cross is affected heavily by both risk and oil prices. Any softness in either of those two and the downtrend should resume.
The AUD/USD pair rebounded as previously noted. However, this pair is associated with risk and heavily affected by moves in the DXY. As the DXY moved down, this pair has rebounded, but it is getting close to resistance and the DXY is getting close to support. As such, short plays are preferred in this pair.
The inverted hammer in the GBP/AUD discussed in our last letter played out perfectly. This pair did cross 1.8200 which invalidated our bearish thesis, but it did provide for a great short-term move to the downside. Going forward, since our bearish thesis is invalidated, we expect sideways action. Staying clear of this one for now.
We re currently short this pair. We believe it has hit resistance and had 5 straight days to the upside. This is heavily influenced by risk. The RSI is around 50 at the same time as this pair is hitting our long-term moving average as resistance. View our recent trading alerts and open positions to see the stop-loss level we are using.
This is a favorite pair of ours. It is affected by many forces and has a relatively low cost of trading. Currently, the pair is hitting up against two resistance lines: 1. short-term moving average (orange) 2. Bottom of the rising trendline from June that was broken last week. This pair has rebounded as expected, but we will be looking to short it into the 66.00 area.
Thank You for reading.