6/7 US Market Wrap
US market wrap: A bounce in risk appetite to close the day.
Risk aversion was on the front burner as we headed into the US session this morning after last Thursday’s meltdown, but sentiment recovered later in the day after the S&P 500 was down testing the critical 200-day moving average around 887 on the cash index. The USD and JPY strengthening that got underway late last week was followed up with new highs across the board in early trade, but both currencies sold off all day in New York as risk sentiment recovered – possibly partially fed by a better than expected US ISM Non-manufacturing number, which rose to 48.0, close to the important 50 level.
Outside of equities and currency moves, however, there was little action to note, as treasuries wandered around in a tight range with the 10-year trading right at 3.50% and commodities remained particularly weak. In FX we have a compelling technical reversal in some of the USD crosses after having traded in a range for over six weeks, underlining the idea that the ranges may continue to hold as long as we are in the summer doldrums. We’ll certainly need to see, for example, EURUSD proving itself down below 1.3900 again and EURJPY back below 132.00 before the USD and JPY bulls can have more convincing technical arguments.
Looking ahead: In Asia’s Tuesday session, look out for the RBA, which could shock the market with a rate cut (we estimate a better than negligible chance that they cut 25 bps despite strong market consensus that RBA will not tinker with rates at this time) – the market is not ready for this development, should it materialize. The AUDUSD rising trendline was broken today intraday, but the NY close is looking less convincing and the larger range of late is still in tact. We’ll need to see 0.7850/00 taken out to even discuss a bear market in AUDUSD, so stay tuned.John Hardy, FX Market Strategist, Saxo Bank