Asian Open Traders Are the Most Bullish on the US dollar in a Year

Indices rebounded on Friday

It was only a 4-day week for US equity traders and after a blip (sell-off) midweek, Wall Street rallied on Friday which saw the S&P 500 and Nasdaq 100 post minor gains for the week. The S&P 500 opened just above the pivotal level of 4330 we covered on Friday’s video and traded its way to a new record high, although the Nasdaq closed the week -65 points beneath its record high. The Russell 2000 broke a four-day losing streak on Friday and closed just above its 50-day eMA, which suggests an important swing low was seen at 2192. The Dow Jones also closed at a record high although beneath its intraday peak of 35,091.

On a closing basis the ASX 200 has been confined at an 87-point ranger over the past three weeks. Promising breakout patterns have failed to be confirmed and breaks have instead reversed, providing range trading strategies with optimum conditions. So, if prices can hold above the 7216.6 low then perhaps we may see another bounce back inside its range today.

ASX 200 Market Internals:

ASX 200: 7273.3 (-0.93%), 11 July 2021

• Energy (0.04%) was the strongest sector and Information Technology (-2.84%) was the weakest
• 10 out of the 11 sectors closed lower
• 36 (18.00%) stocks advanced, 153 (76.50%) stocks declined
• 67% of stocks closed above their 200-day average
• 58.5% of stocks closed above their 50-day average
• 36.5% of stocks closed above their 20-day average

Outperformers:

• + 5.08%   -  Viva Energy Group Ltd  (VEA.AX) 
• + 1.98%   -  NRW Holdings Ltd  (NWH.AX) 
• + 1.83%   -  LendLease Group  (LLC.AX) 

Underperformers:

• -6.61%   -  CSR Ltd  (CSR.AX) 
• -5.71%   -  Webjet Ltd  (WEB.AX) 
• -5.47%   -  Zip Co Ltd  (Z1P.AX) 

Forex: AUD/CHF looks weak below its 200-day eMA

The US dollar index (DXY) reversed lower at our gap target around 97.80 and closed beneath the 50-week eMA for a fourth consecutive week. Prices fell to a two-day low during a risk-on session on Friday but whilst they hold above 92.00 / 200-day eMA then we see the potential for a technical bounce.

The Canadian dollar managed to claw back some of last week’s losses on Friday with a strong employment report, which saw 230.7 jobs added to the economy and unemployment fall to 7.8%. However, -33.2k full-time jobs were lost whilst 263.9k part-time jobs were added. Despite the rebound, the Canadian dollar was the weakest major currency last week, with fellow commodity FX buddies AUD and NZD taking second and third place. Meanwhile, safe-haven currencies JPY and CHF were the strongest majors after a turbulent week.

AUD/JPY bounced higher from its 200-day eMA, a scenario we discussed in Friday’s video. However, the same cannot be said for AUD/CHF which only managed a minor recovery on Friday. Tuesday’s bearish hammer marked a significant top before momentum took prices swiftly lower and cutting straight through the 200-day eMA. Given its established downtrend and increase of bearish momentum, bears may be tempted to fade into minor rallies below resistance levels around 0.6900 (prior support, round number and the 200-day eMA). Next major support for bears to target is the 0.6753 low.

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From the Weekly COT Report (Commitment of Traders)

From Tuesday 6^th 2021:

• Net-long exposure to the US dollar index (DXY) rose to its highest level since June 2020. However, according to calculations from IMM traders remain net-short the dollar by USD -$8.4 billion although short exposure was reduced by $2.24 billion.
• Conversely, large speculators are now their most bearish on the Australian dollar in a year. Whilst long exposure increased by 4.5k contracts, short exposure increased by 11.6k contracts to their highest level since March 2020.
• Net-long exposure for euro futures declined for a third week, taking it to a 1-week low.
• Traders were their least bullish on New Zealand dollar futures since August 2020.
• Long exposure to copper futures rose for a second consecutive month. Whilst long interest remained was little changed on the week, short interest fell for a third straight week.

Commodities:

Oil prices continued to rebound on Friday thanks to a weaker US dollar, falling US inventories and increased demand from China and India. Brent climbed to a two-day high and closed around the April 2019 high of 75.59 and WTI futures rose to 74.56.

Platinum futures retested its 200-day eMA from below, so we’re now waiting to see if momentum ca turn lower once again. A break above 1115 invalidates our near-term bearish bias.

Copper futures rose 1.63% last week and, similar to platinum, has failed to trigger our short bias with a break of support at 4.20. Given traders increased net-long exposure to copper futures for a second week (and remain net-long) then we are warming to the idea that perhaps copper prices may break higher after all. A break above 4.4350 resistance would be constructive to the bull-case.

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