AUD/USD, USD/JPY, USD/CNH analysis: Asian Open – 29/08/2023

• Trading volumes were much lower during the European session due to the UK public holiday on Monday
• This means a lot of the supposed ‘Doji’s’ and general indecision patterns can largely be looked past, as they formed on a day of low trading activity over any high-volumed battle between bulls and bears
• Whilst China’s equity markets were quick to rally out of the gate on Monday, they failed to hold on to most of their gains after regulators announced measures to boost market sentiment
• The China A50 had a daily high to low range of over 5%, the CSI 300 initially rose 4.6% and the Hang Seng 2.5%, yet all handed back a decent chunk of those earlier gains
• Whilst the announcement of lower stamp duty, margin ratio’s and commissions helped the initial pump, I cannot see if changing the views of fund managers who are either bearish or on the sideline with due to bearish fundamentals. So whilst the measures may help support markets to a degree, we’ll need to see a stimulatory bazooka to materially send China’s equity markets higher.
• Australian retail sales rose 0.5% in July, above the 0.3% expected and -0.8% prior. It seems Australian consumers aren’t quite ready to roll over, with July’s 0.5% figure also exceeding its 12-month average of 0.16% and long-term average of 0.48%. But it is hardly on fire either, so I don’t think there’s any immediate cause for concern regarding another RBA hike. Perhaps that could change if inflation doesn’t behave in Wednesday’s report.
• Wall Street rose for a second day despite Powell’s hint at one more Fed hike, although Monday’s bullish opening gaps were only met with modest gains in the session

Events in focus (AEDT):

• 09:30 – Japan’s unemployment rate, jobs/applications ratio and 2-year JGB auction
• 17:40 – RBA assistant governor (soon to be governor) speaks on “Climate Change and Central Banks”
• 00:00 – US consumer sentiment (Conference Board), US JOLTS job openings

ASX 200 at a glance:

• The ASX 200 enjoyed its most bullish day in 22, although it has not exactly outperformed over the past month which means it could achieve that stat with a modest inside day.
• Given light trade overnight, I suspect the ASX 200 might remain within Thursday – Friday’s range, somewhere between 7100 – 7200.

USD/JPY technical analysis (daily chart):

I want to highlight the significance of the current levels that USD/JPY has stalled at. Whether that creates a tradeable opportunity is perhaps another conversation, but it could at least help explain why the market is hesitant to simply break higher.

Yesterday’s small-ranged candle (due to lower trading activity) is meandering around the 146.59 high, which was set on November 10 due to a soft US CPI report and subsequent plunge on USD/JPY (and the US dollar in general). USD/JPY also perfectly respected that November 10 high on August 23, so it is clearly a level traders are closely watching. And even if USD/JPY manages to break this level today or this week, there is also a strong volume node around 147.1 – and such levels can behave as both a magnet or support/resistance level.

Add to the fact that the US02Y-JP02Y spread has also stalled beneath its own March high, and that risks of verbal (or actual) intervention increase with each leg higher on USD/JPY, bulls may want to instead seek dips over breakouts.

Countertrend bears may prefer to fade such moves. But keep in mind that USD/JPY has a tendency to toy with a decent break of levels before reversing lower (at least that is what I have observed recently), so perhaps a better approach could be to wait for the breakout of resistance to then be coupled with a reversal back beneath the breakout level, and essentially waiting for it to be deemed a ‘fakeout’ before seeking shorting.

USD/CNH technical analysis (daily chart):

USD/CNH remains in an established uptrend on the daily chart, although it has pulled back slightly from its YTD highs and formed a consolidation above the June highs and 20-day EMA. Note that the US02y-CN02Y spread has already broken to cycle high to suggest further upside potential for USD/CNH over the near-term. Bulls could seek dips around the current cycle lows with a initial target around 7.3500, and potentially hold on to see if it can break above the 2022 high. However, even if prices instead decide to pull back further from current levels, the trend structure is firmly bullish enough to reconsider longs around trend support or the 2019/2022 highs.

AUD/USD technical analysis (1-hour chart):

AUD/USD formed a bullish inside day as ‘the battler’ continues to defy the strong US dollar and simply roll over beneath 64c. We showed the long-term trend support level projected from the pandemic low in yesterday’s Asian Open report, and until that level breaks then I favour an upside bounce to catch bears off guard. Yet due to the lower levels of anticipated volatility, traders may want to refer to much lower timeframes and seek ‘the scraps’ or step aside until volatility returns.

The 30-minutes charts chows that AUD/USD held above key support levels following Jerome Powell’s speech on Friday, and has since formed two higher lows. Given the scrappy nature of price action I am a little sceptical of traditional breakouts, and would prefer to seek long opportunities at lower support levels if we see prices pull back and form another higher low. Otherwise, not trade seems like a good trade without the arrival of a weak-USD catalyst.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

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