FX and markets update – Vols, moles and stocks in holes

by | October 11th, 2018, 11:23:42 | News

A quick look at the markets 11 October 2018

  • EURUSD – As I type, just pushing the highs at 1.1575. Finding solid ground above 1.1500 at the old S&R level of 1.1535/40 and being protected at 1.1510. 1.1590 and 1.1600/05 mark he main higher levels to watch, followed by 1.1620/30 as another former S&R level.
  • GBPUSD – Some rally sellers are still grabbing a living with each high but the dip buyers aren’t too far away. Outside of any new Brexit headlines, it’s really USD that’s going to bring the moves, and that’s going to come as a result of the current moves in other markets. 1.3180 is showing support and there’s various minor levels at 1.3160 & 1.3145/50. Things look a bit stronger into 1.3120/30 and the big fig will naturally hold support too. Up top, 1.3220 was a level I’d been watching for a while and we held a first attempt before breaking in what looks like a typical stop rush. The level could once again play ball on a fresh attempt. On the Brexit front, we’re in a bit of a ‘wait and see’ moment. There’s supposed meetings tomorrow and Monday but there’s a big risk of weekend headlines too as negotiations seem to be at full steam ahead of the summit. We’ve got a case of Deja vu here when we had the famous ‘Moving on to phase two’ agreement Dec 2017, which all came together at the 13th hour after a rush of negotiations. Expect a flood of mole stories from “sources” and “persons familiar with discussions” from the press
  • USDJPY – Sellers have well and truly banished the pair from the big 114.50 top and now 112.00 is the nut to crack. Dip buyers we’re handed their arses after the break under 113.00 but they’ve done a job down her at the lows. The lack of a decent bounce from here will be a worry though. Stops are in play through 111.90 and the next half decent tech level is around 111.60/70, though. Topside 112.35/40 marks the day’s highs with 112.50/60 next. 112.85/90 resistance will be in place ahead of 113.00
  • USDCAD – Sitting pretty above 1.3000 but finding things tough at the intraday highs 50/60. 1.3080 comes next on a break. 1.3100 and 1.3130 come next. Support is quite tight to 1.3030 but it’s not overly strong looking and a break there could mean a swift move to 1.30
  • AUDUSD – Solidifying the support at 0.7040 overnight but struggling into 0.7100 still. 0.7080 is support from 1.3065/70. 0.7120/30 marks the wider range top that needs to be broken for a push higher
  • Equities – Were at one of those junctures we’re negativity feeds negativity. Stocks re in a hole and can’t climb out. Asia stocks fall, EU stocks fall, then US stocks fall, leading to Asia stocks falling again, leading to EU stocks falling again…. you get the picture. US stocks are down around 5% from their recent highs so we’re still well within correction territory. That won’t stop the doom merchants from predicting the end of the world though, as the US press is full of the usual crap about the world ending because stocks have dipped. don’t believe the hype (just yet). We haven’t had a healthy correction since the start of the year. Markets can’t go one way indefinitely without correcting. At 10% losses, fear and panic will reach fever pitch. We’re not there yet so this is not the time to chase it lower, nor is it the time to try catching the knife unless you’re keeping trades very tight. Volatility is well up (Vix at 24) which means things will remain choppy. I can see a bounce happening early in the US open, purely on how much it dumped yesterday but whether it lasts and we see more losses remains to be seen. If we break the 10% mark and get down to 15%, then you can start believing some of the hype and we’ll get some spill over into other markets. For now, FX is relatively unaffected and is happy to watch stock traders running around with their hair on fire

US CPI offers traders some fundamental news to get their teeth into. You’ll remember that CPI dropped by a hefty amount last month (2 pips in both headline and core) and caused some wobbles in USD on it shaking up Fed expectations. If we see further falls today, we’re going to get the same wobbles. The market is actually looking for another drop in headline CPI to 2.4% from 2.7% but a tick up to 2.3% in the core. That’s quite a wide expectation in CPI so it leaves a lot of room to come in better than expected. 2.5% or higher will help USD while even a pip under expectations will bring out the sellers again.

Perhaps one thing to look for is whether a bad CPI number helps stocks. If we’re also seeing an asset switch as interest rates go higher, we may see a mild reverse of that if inflation dropping leads to the market lowering Fed expectations. I wouldn’t set that out as a trading strategy but maybe just for information purposes as a signal to watch in future.

Whatever happens, keep foremost in your mind that we’re in a volatile patch of trading so treat your trades accordingly.

 

Ryan Littlestone
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