Tue, Sep 27, 2022 @ 03:43 GMT
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Aussie Dived But a Bottom Around the Corner?

Extending fall in commodity prices and recession fears were the main theme in the markets last week. Australian Dollar ended as the worst performer, followed by New Zealand Dollar, and then Sterling. However, Canadian Dollar was surprisingly the strongest one, partly helped by resilient oil prices.

Meanwhile, extended pull back in US and European benchmark treasury yields boosted the Japanese Yen. Dollar was some what supported by mild risk-off sentiment, but capped by weakness in yields. Swiss Franc’s appeared to be losing some momentum after a powerful, broad based rally. While Euro was weak initially, it was saved by buying in some crosses and ended mixed.

NASDAQ should bottom above 10k and stage bullish reversal

NASDAQ quickly retreated after edging higher last week and closed lower at 11127.84. Deeper decline cannot be ruled out yet. But downside potential should be limited and the case of reversal is building up. Bullish convergence condition is already seen in daily MACD. More importantly, NASDAQ is now close to a long term cluster support zone, including 55 month EMA (now at 10366.31, 61.8% retracement of 6631.42 to 16212.22 at 10291.28, and 38.2% retracement of 1265.52 to 16212.22 at 10502.58.

That is, NASDAQ should finally bottom above 10k handle. Break of 11677.68 resistance will turn focus back to 55 day EMA (now at 11924.66). Sustained break there should start the second leg of the corrective pattern from 16212.22, and target 14646.90/16212.22 resistance zone.

10-year yield lost 3% handle, but strong support expected at around 2.7%

10-year yield tumbled last week as the correction from 3.483 high extended and lost 3% handle. Recession fears and disappointing economic data prompted some more recession fear. Nevertheless, it should noted that TNX did close notably higher than Friday’s low at 2.791, which could be a sign of stabilization.

For now, it’s in correction to the up trend from 1.343 and strong support is likely at 2.709, which is close to 38.2% retracement of 1.343 to 3.483 at 2.665, to contain downside, and set the range for a sideway pattern. However, sustained break of 2.6655 could trigger even steeper fall to 61.8% retracement at 2.160. If this unlikely scenario happens, it would be a rather negative sign.

Dollar index  recovered but risk stays on downside

Dollar index recovered last week but failed to break through 105.78 high. It’s partly supported by mild risk-off sentiment, but capped by falling treasury yields. But still, risk of a medium term correction is growing. In particular, the pull back could be quick sizeable if stocks do reverse. Break of 103.67 support will complete a small double top pattern. In this case, DXY should fall through 55 day EMA (now at 102.88), and possibly even further to 38.2% retracement of 89.52 to 105.78 at 99.46.

AUD/CAD extended down trend as Aussie weighed down by falling metal

Aussie’s falls broadly last week as weighed down heavily by falling base metal prices. On the other hand, Canadian Dollar was resilient as oil prices stayed range bound. AUD/CAD extended the medium term down trend from 0.9991 high. Such decline could still be a correction to the rebound from 0.8058 (2020 low). But whether or not, outlook will stay bearish as long as 0.8916 support turned resistance holds. Next target is 100% projection of 0.9991 to 0.8906 from 0.9514 at 0.8429.

Copper’s down trend continued last week and dipped further to as low as 3.554. It’s now close to 50% retracement of 2.0400 to 5.0332 at 3.5366. Oversold condition (in both daily and weekly RSI) could help copper stabilizes at current level. Break of 3.848 resistance will argue that the five wave sequence from 5.0332 high has completed, and bring stronger rebound back to 55 day EMA (now at 4.191). Such development could at least help slow Aussie’s selloff.

However, firm break of 3.5366 will bring deeper fall to 61.8% retracement at 3.1834 and possibly below. That would give Aussie additional selling pressure.

Gold hesitated to follow the even weaker silver

Talking about metals, the fortune of gold and silver was rather different. Silver reacted more to the selloff in industrial metal, and resumed the down trend from 30.07. Such decline could still be a corrective move to rise from 11.67 (2020 low). But whether or not, outlook will stay bearish as long as 22.50 resistance holds. Next target is 100% projection of 30.07 to 21.41 from 26.93 at 18.27.

On the other hand, gold quickly recovered after breaching 1786.65 to 1784.25. It’s partly supported by the extended pull back in treasury yields. But still, the decline from 2070.06 is still in progress and should target 61.8% projection of 1998.23 to 1786.65 from 1878.92 at 1748.16 on next fall.

Still, such decline is seen as the third leg of the consolidation pattern from 2074.84 (2020 high). Based on current structure, while break of 1748.16 cannot be ruled out, downside should be contained above 1682.60 support (38.2% retracement of 1046.27 to 2074.84 at 1681.92).

AUD/USD Weekly Outlook

AUD/USD’s down trend from 0.8006 resumed last week and dropped to as low as 0.6762. Strong support could still be seen from 0.6756/60 cluster support to bring rebound. On the upside, above 0.6918 resistance will indicate short term bottoming, and turn bias back to the upside for 0.7282 resistance. However, sustained break of 0.6756/60 will carry larger bearish implication and target 0.6461 fibonacci level next.

In the bigger picture, price actions from 0.8006 are seen as a corrective pattern to rise from 0.5506 (2020 low). Strong support is expected from 50% retracement of 0.5506 to 0.8006 at 0.6756 to complete the pattern. This coincides with 100% projection of 0.8006 to 0.7105 from 0.7660 at 0.6760. However firm break of 0.6756/60 will raise the chance of bearish reversal and target 61.8% retracement at 0.6461.

In the long term picture, rejection by 0.8135 resistance suggests that the long term down trend from 1.1079 (2011 high) is not ready to reverse. Yet, the structure of the fall from 0.8006 still argues that it’s a corrective move. Hence, break of 0.5506 low is not envisaged for now. The long term outlook stays neutral first, and will be reassessed later after the fall from 0.8006 completes.

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