After Supply Hype, Beware of Expectation Differences

Summary:

It is widely expected that OPEC+ will announce a significant oil production cut this Wednesday to push up oil prices, and oil prices have risen sharply in response, so beware of expectation differentials.

SELL WTI

Close Time

CLOSED

85.600

Entry Price

82.500

88.000

76.427 -0.162 -0.21%

240.0

Pips

Loss

82.500

88.004

Exit Price

85.600

Entry Price

88.000

Fundamentals

ISM released September U.S. Manufacturing data on 3rd local time, ISM Manufacturing PMI recorded 50.9, a new low since May 2020.

Russia's Nord Stream Pipeline 1 and 2, which transmits natural gas to Europe, leaked in four places, and the resumption of gas is far away, exacerbating energy supply tensions in Europe. OPEC and its oil production cut allies will hold a ministerial production policy meeting on October 5, and it is widely expected that the organization will announce significant production cuts to push up oil prices, with holdings expected to be as high as 1-2 million BPD, pay close attention to whether the OPEC resolution meets expected, the current market price has Price-in, beware of the expected difference.

Technicals Analysis

From the 4-hour chart, the upward channel of the candlesticks is still smooth, but there is some resistance near $86. At present, depending on the unsettled news to rush higher, the foundation is not firm, beware of retracement. WTI: After Supply Hype, Beware of Expectation Differences_1

WTI: After Supply Hype, Beware of Expectation Differences_1

Trading Recommendations

Trading direction: short

Entry point: 85.600

Target: 82.500

Stop Loss: 88.000

Support: 83.500, 82.500

Resistance: 87.000, 89.000

Risk Warnings and Investment Disclaimers

You understand and acknowledge that there is a high degree of risk involved in trading with strategies. Following any strategies or investment methodologies is the potential for loss. The content on the site is being provided by our contributors and analysts for information purposes only. You alone are solely responsible for determining whether any trading assets, or securities, or strategy, or any other product is suitable for you based on your investment objectives and financial situation.

Turning Point Has Come and the Bull Target of 1.4000 Must Be Given Up

Eva Chen

Summary:

SELL USDCAD

Close Time

CLOSED

1.36100

Entry Price

1.32070

1.38360

1.35606 -0.00115 -0.08%

226.0

Pips

Loss

1.32070

1.38362

Exit Price

1.36100

Entry Price

1.38360

Fundamentals

The USDCAD fell below the 1.3600 level during the Asian session and recovered to near the daily high in the early European session. However, the USDCAD even fell below the early Asian session lows due to the lack of follow-through on the upward momentum and the heavily quoted development around the USD. Therefore, here comes the turning point, and the previous bearish move to the target of 1.4000 must be abandoned.

Factors driving the CAD's strength include market expectations that OPEC+ will continue to support crude oil prices and commodity-linked CAD with its largest production cut since the 2020 COVID-19 outbreak. This, together with the prevailing USD selling bias, adversely affected the USDCAD and supported the prospect of a (downward) widening correction from the current level of the USDCAD to its highest level since May 2020.

Indeed, the US Dollar Index (USDX), which measures the USD's performance against a basket of currencies, hit a week-and-a-half low as Treasury Securities yields continued to fall. At the same time, the Bank of England (BOE) reiterated its purchase of up to GBP 5 billion of long-term gilt-edged bonds, dragging the yield on U.S. Treasury Securities off the multi-year high hit last week and weakening the USD as an important factor in the downward pressure on the USDCAD.

In addition, market participants remain concerned that a further global economic downturn will weaken fuel demand. This will limit the strong rise in crude oil and help further limit the downside space for the USDCAD. This makes it prudent to wait for a strong subsequent sell-off before confirming that the spot price has reached its recent peak.

And in terms of broader central bank policy, the market now expects the Bank of Canada (BOC) to continue its rate hikes in its next two meetings and begin easing policy as early as Q1 of 2023. If the BOC were to validate this shift in expectations, the price of the USDCAD would likely depend largely on U.S. yields. Instead, early pricing by the BOC at the end of the tightening cycle will lead the market to make a new assessment of the USDCAD. Our early assessment of USDCAD in Q4 is now in the 1.3250 and 1.4100 range.

Uncertainty over BOC policy and high sensitivity to risk sentiment led us away from the resilient view we held on the CAD in Q3. As a result, we now see USDCAD ending the fourth quarter at around 1.4100.

USDCAD: Turning Point Has Come and the Bull Target of 1.4000 Must Be Given Up_1

Technical Analysis

After three consecutive weeks of gains, the USDCAD fell below last week's low of 1.3557, signaling the official end of the bull target to 1.4000 in the near term.

The USDCAD failed to gain further upside in line with our expectations after a small break above the previous high at 1.3833 earlier on Monday. However, the USDCAD failed to hold further above the key support at 1.3567 after retesting it and broke below the early Asian session low at 1.3567, signaling a downside move in the near term. The move is supported by the structural pattern.

In the 4H timeframe, the early short-term SMAs form a death cross, which is further confirmed (a death cross) in the 1D timeframe. This pattern means that any higher price is an opportunity to short. It is recommended to go short at the highs.

Trading Recommendations

Trading direction: Short

Entry price: 1.3610

Target price: 1.3207

Stop loss: 1.3836

Deadline: 2022-10-18 20:00:00

Support: 1.3495, 1.3343

Resistance: 1.3567, 1.3665

Risk Warnings and Investment Disclaimers

Mutual Pursuit Seems to Fade with Less-than-expected Australian Fed Rate Hike

Eva Chen

Summary:

The Australian Fed is expected to raise interest rates further in the coming months, but the rate will be lower than the market expects. Inflation is expected to peak later this year and then fall back to a range of 2% to 3%. Medium-term inflation expectations remain well anchored and it is important to keep this in place.

SELL AUDUSD

EXP

EXPIRED

0.66400

Entry Price

0.63620

0.67700

0.66357 -0.00111 -0.16%

Pips

EXPIRED

0.63620

0.63147

Exit Price

0.66400

Entry Price

0.67700

Fundamentals

The Australian Fed raised rates by 25 basis points to 2.6% on Tuesday; the highest level in nine years, although lower than the 50 basis points expected by the market. This is the most aggressive tightening cycle for the Australian Fed as they are catching up with other central banks; however, the mutual pursuit seems to be fading.

The fact that the Australian Fed did not raise rates by 50 basis points does suggest that they are nervous about the wobbly economy, that household budgets remain a "significant source of uncertainty" and that the full impact of higher mortgage rates has yet to be fully realized.

As they mentioned in their September statement, inflation is expected to increase "by about 7.75% over 2022," which is still more than 2.5 times the current cash rate. However, as Lowe later testified to Parliament on September 8, with inflation expected to be around 2.5%, it makes more sense to base policy adjustments relative to inflation expectations on the current level of inflation.

The break-even rate, a market indicator of inflation expectations, is currently below the current cash rate, suggesting that the policy is restrictive. As long as inflation expectations remain at the upper limit, the case for the Australian Fed to pause or even confirm the end of its tightening cycle will increase.

A recent poll suggests that the Australian Fed will raise rates to 3.35% (or higher) by the end of the year. With two more meetings this year, the market seems to be leaning towards a single 25 basis point hike at the November and December meetings at the moment. However, we suspect that we will even see the Australian Fed suspend the rate hike in December and reassess it in February next year, which would leave the November hike adjusted to 25 basis points and the rate at 3.1% by year-end.

AUDUSD: Mutual Pursuit Seems to Fade with Less-than-expected Australian Fed Rate Hike_1

Technical Analysis

As the market bounces off the June lows, the stochastic oscillator is forming a bullish divergence. It has become quite tough for AUDUSD to get back to the 200-day SMA at 0.7000 again; therefore, we prefer to seek higher bearishness until sentiment deteriorates again.

In the 1D timeframe, the Australian dollar remains within the established downtrend and broader bearish channel. In the 4H chart, bulls continue to be pressured by the declining trendline and a potentially symmetrical triangle forming below the monthly pivot point. While the intraday bias remains neutral and a stronger recovery will be seen, the upside will be limited by support-turned-resistance well below 0.6756. Given that the Fed remains hawkish despite higher benchmark rates and the Australian Fed is easing, we remain bearish on the AUDUSD trend and we would prefer to see a break of new lows and seek a bearish reversal around resistance. And a break of the 0.6362 level would resume a larger downtrend. It is recommended to go short at the highs.

Trading Recommendations

Trading direction: Short

Entry price: 0.6640

Target price: 0.6362

Stop loss: 0.6770

Deadline: 2022-10-18 20:00:00

Support: 0.6449, 0.6393, 0.6362

Resistance: 0.6551, 0.6576, 0.6669

Risk Warnings and Investment Disclaimers

Dollar Pullback, But Not for Unilateral Gaming

King Ten

Summary:

The Institute for Supply Management (ISM) released the U.S. September PMI data to decline seriously, still above the boom-or-bust line; with the U.S. dollar pulled back slightly, it is appropriate to treat the USDCNH with oscillation during the Chinese National Holidays, and it is not advisable to play excessively unilaterally.

BUY USDCNH

Close Time

CLOSED

7.05000

Entry Price

7.14000

7.02000

7.12449 -0.00725 -0.10%

300.0

Pips

Loss

7.02000

7.01989

Exit Price

7.05000

Entry Price

7.14000

Fundamentals

The Institute for Supply Management (ISM) released September data on the 3rd local time, and the ISM Manufacturing PMI recorded 50.9, a new low since May 2020, with a larger decline than the 52.8 in August; the Manufacturing New Orders Index was 47.1, and the Manufacturing Prices Paid Index was 51.7. Although the Manufacturing PMI index is still above the boom-or-bust line and continues to expand, the growth rate is at the lowest level since the outbreak started to recovery.

The Manufacturing New Orders Index contracted for the third time in four months, also indicating weak demand, and the Manufacturing Price Payment Index has fallen to its lowest level since June 2020, which also shows that the aggressive rate hikes to fight inflation have achieved some success, pending continued observation of the effect.

The dollar has seen a slight softening, but we must also see the tough attitude of the U.S. Hawks. The high point of the policy rate for the year has not really arrived yet, and the U.S. labor market is still hot. The inflation issue is not a quick fix, and it is not advisable to play unilaterally with the dollar continuing to weaken, and it is important to wait for the non-farm payroll data on Oct. 7.

Technical Analysis

From the daily chart, USDCNH upward trend has not yet changed, and this rally started from 6.75 to 7.27 and has now retraced 40% from the high, below the challenge of support near the 20-day SMA, and you can rely on the 20-day SMA to establish a long single. USDCNH: Dollar Pullback, But Not for Unilateral Gaming_1

USDCNH: Dollar Pullback, But Not for Unilateral Gaming_1

Trading Recommendations

Trading direction: long

Entry point: 7.0500

Target: 7.1400

Stop loss point: 7.0200

Support: 7.0200, 7.0000

Resistance: 7.1000, 7.1400

Risk Warnings and Investment Disclaimers

Follow the Trend as the Strong Momentum of Bear Covering

Eva Chen

Summary:

The drop in U.S. Treasury Securities yields severely affected the USD and supported gold prices. While the Fed's tough expectations will limit the gains, the impact of bear covering's impulse will push gold prices through previously unfinished tests.

BUY XAUUSD

Close Time

CLOSED

1721.21

Entry Price

1745.00

1685.00

2042.62 +1.67 +0.08%

362.1

Pips

Loss

1685.00

1684.89

Exit Price

1721.21

Entry Price

1745.00

Fundamentals

Gold is gaining momentum through its overnight (U$1,680-$1,690) supply zone. In the early European session, strong follow-through buying pushed gold prices to their highest level in three weeks. Meanwhile, the USD's further retreat from the 20-year high it touched last week has been a key factor driving the dollar-denominated gold price higher. And the Bank of England (BOE) stepped in to buy up to GBP 5 billion of long-term British government bonds, which pulled U.S. Treasury Securities yields away from multi-year highs and continued to weigh on the USD.

On top of that, heightened fears of a further downturn in the U.S. and European economies provided additional support for safe-haven gold. Monday's disappointing U.S. data further fueled concerns. The data showed a slight increase in manufacturing activity in September, but the growth was the lowest rate in recent years. In terms of the details, new orders fell more than 4 points, while employment fell 5.5 points, possibly signaling a weak non-farm payrolls report on Friday.

The weakness in the data has, to a greater extent, helped to offset risk sentiment and has done little to weaken the generally bullish sentiment surrounding gold prices. That said, the prospect of more aggressive tightening by major central banks will act as a headwind for unyielding gold, dampening any further gains, at least for now.

Market participants are now looking forward to the U.S. September non-farm payrolls report scheduled for release on Friday. The report will play a key role in influencing the Fed's future path of interest rate hikes. In turn, this will help investors determine the next direction for the USD and gold prices.

At the same time, traders will also get more trading leads from the broader risk sentiment, which will include turnover data for JOLTS vacancies on Tuesday and factory orders and U.S. Treasury Securities yields.

XAUUSD: Follow the Trend as the Strong Momentum of Bear Covering_1

Technical Analysis

Gold prices formed an initial bullish continuation signal after breaking out of the US$1680-1690 supply zone yesterday. This follows two trading days with a double Doji Star oscillation trend without direction.

A weaker dollar has helped push gold prices back into strength, but the near-term bullish structure remains fragile and the rally will be short-lived as strong Fed rate hike signals will continue to support the USD, thus weighing on gold prices.

However, in the 1D timeframe, although still deep in negative territory. The gold prices rose based on the Bollinger middle band and uptrend golden cross of the (5,10) SMAs, strengthening the short-term bullish momentum. From the previous two days of the "double Doji Star" after the close of the trend pattern, at present, the bulls occupy the absolute leading position. And from a more distant technical development, the US$1745 level that the bulls had to defend previously (although it has failed) will be tested in the next round of rallies. If this is the case, the idea is completely clear. It is recommended to try to go long.

Trading Recommendations

Trading direction: Long

Entry price: 1711

Target price: 1745

Stop loss: 1685

Deadline: 2022-10-18 20:00:00

Support: 1690, 1687, 1680

Resistance: 1723, 1730, 1740

Risk Warnings and Investment Disclaimers

Weak Economic Data, but No Change in Oscillation Pattern

King Ten

Summary:

Weak economic fundamentals and tight supply continue to gamble; it is recommended to adopt an oscillating mindset in the short term.

BUY COPPER

Close Time

CLOSED

7530.000

Entry Price

8000.000

7250.000

8453.545 +1.250 +0.01%

859.5

Pips

Profit

7250.000

7538.595

Exit Price

7530.000

Entry Price

8000.000

Fundamentals

On the macro front, ISM released its September data on October 3 local time. ISM manufacturing PMI recorded 50.9, a new low since May 2020 and a larger decline from 52.8 in August, with the manufacturing new orders index at 47.1 and the manufacturing prices paid index at 51.7. The manufacturing PMI, while still above the boom-or-bust line, continued to expand, but the growth rate was the lowest since the resurgence of the pandemic. Meanwhile, the manufacturing new orders index contracted for the third time in four months, which also indicates weaker demand.

In terms of inventories, the three major global exchanges are at historically low levels. And the extremely low inventory situation in the previous period gradually improved after mid-September. For LME inventories, after the wave of domestic copper exports, LME inventories stepped on a downward path, with European inventories being particularly tight. Since mid-September, LME inventories have steadily picked up, with a weekly increase of 22,725 tons to 124,725 tons, though still 101,450 tons lower than the same period last year. Comex inventories fell 989 short tons weekly to 45,262 short tons, 7581 short tons less than the same period last year. The total inventory of the three major exchanges is 202,683 tons, 318,742 tons lower than the same period last year. Compared with the same period in previous years, the inventory is still low, which will constitute some support for copper prices.

Overall, the weak economic fundamentals and tight supply continue to gamble. Still, the pattern of oscillation is generally maintained during the year, with copper prices ranging from 7200-8200 unchanged.

Technical Analysis

In the daily chart, copper prices are oscillating at the Lower side of this round, and the K-line pattern is rather solid, currently standing on the 20-day SMA. It is recommended to try to go long relying on the position near the 20-day MA.

COPPER: Weak Economic Data, but No Change in Oscillation Pattern_1

Trading Recommendations

Trading direction: Long

Entry price: 7530

Target price: 8000

Stop loss: 7250

Support: 7400/7250

Resistance: 7600/8000

Risk Warnings and Investment Disclaimers

Stagnate at 145.0 Mark, with Risk of Triggering Another Government Intervention

Winkelmann

Central Bank

Summary:

The depreciation of the JPY has eased significantly after the Japanese government intervened in the currency market. The JPY is below the trigger point of intervention at the 145.0 mark. Whether this level can be held will determine the subsequent direction of the JPY.

SELL USDJPY

Close Time

CLOSED

145.000

Entry Price

140.000

148.100

147.391 -0.066 -0.04%

310.0

Pips

Loss

140.000

148.178

Exit Price

145.000

Entry Price

148.100

Fundamentals

Since this year, while the Federal Reserve (Fed) and many other central banks have raised interest rates, the Bank of Japan (BOJ) has persisted with its loose monetary policy. While Japanese inflation has risen above 2%, BOJ officials have not seen confirmation that Japan will see sustained wage increases. There are still challenges to achieving the BOJ's 2% inflation target. Meanwhile, the JPY has been weak among G10 currencies. With the Fed continuing to reinforce its hawkish stance, the US-Japan yield spread continued to widen, boosting the USDJPY to new yearly highs.

However, the market is gradually digesting expectations of a 75 basis point interest rate hike by the Fed in November, and the decrease in manufacturing PMI has increased market fears of a recession in the US. The US dollar (USD) then weakened significantly. In addition to the recent strong intervention by the Japanese government, the depreciation of the JPY has taken a breather. Japanese Minister of Finance Shunichi Suzuki recently stated that the foreign exchange movements will continue to be monitored and that necessary countermeasures will be taken against excessive foreign exchange fluctuations at any time. It indicates that Japan is becoming increasingly active in attempting to maintain the JPY exchange rate. With reference to the previous trigger point for intervention at the 145.0 mark, it is highly critical for this level to be held.

Technical Analysis

Since this year, the USDJPY has been rising, once approaching the 146.0 mark and refreshing the highs of more than 20 years. However, the short-term ascending momentum has weakened, and the USDJPY has been resisted at 145.0 for four consecutive weeks. The 145.0 level is a strong resistance level and a trigger point for BOJ intervention. Meanwhile, the 4-hour chart shows that USDJPY continues to hover sideways at highs, and the indicator RSI shows continuous negative divergence, increasing the possibility of a sharp pullback in the short term.

With a weakening USD, it is recommended to go short at highs. You can try to go short when the price rallies and then stabilize without breaking above 145.0. The target is set near the support level at 140.0, with a stop-loss above 147.67.

Trading Recommendations

Trading direction: Short

Entry price: 145.0

Target price: 140.0

Stop loss: 148.1

Support: 142.0/140.0

Resistance: 146.0/145.0

Risk Warnings and Investment Disclaimers

King Ten

Analyst

Focus on macroeconomic analysis with extra attention to the geopolitical impact on financial markets.

Ranking

Articles

316

Win Rate

0.00%

P/L Ratio

0.34

Focus on

XAUUSD, WTI, COPPER

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After Supply Hype, Beware of Expectation Differences

Fundamentals

Technicals Analysis

Trading Recommendations

Turning Point Has Come and the Bull Target of 1.4000 Must Be Given Up

Fundamentals

Technical Analysis

Trading Recommendations

Mutual Pursuit Seems to Fade with Less-than-expected Australian Fed Rate Hike

Fundamentals

Technical Analysis

Trading Recommendations

Dollar Pullback, But Not for Unilateral Gaming

Fundamentals

Technical Analysis

Trading Recommendations

Follow the Trend as the Strong Momentum of Bear Covering

Fundamentals

Technical Analysis

Trading Recommendations

Weak Economic Data, but No Change in Oscillation Pattern

Fundamentals

Technical Analysis

Trading Recommendations

Stagnate at 145.0 Mark, with Risk of Triggering Another Government Intervention

Fundamentals

Technical Analysis

Trading Recommendations

Risk Disclosure