AUD Outperforms, WTI Back in Contango, CNY Slides - US Market Open

2018-10-18 13:49:00 Justin McQueen

MARKET DEVELOPMENT – AUD OUTPERFORMS, CNY SLIDES, WTI BACK IN CONTANGO

AUD: The Australian Dollar is outperforming in the G10 space this morning. This is largely on the back of the jobs report overnight in which the unemployment rate dropped to the lowest level since 2012. However, the sizeable drop had been led by the fall in participation, suggesting that the jobs reports may not be as strong as the unemployment rate implies. The Australian Dollar remains technically weak with the descending trendline from 2018 peak still intact, while 50DMA also provides topside resistance.

CNY: The latest FX Treasury report did not label China as a currency manipulator. Although, the report did single China by stating that China’s FX practices deviate from the norm, which in turn suggests that the US are sending a strong message to China that they are being watched very closely. Subsequently, this is unlikely to ease the current tensions between China and the US over trade. The Yuan is weaker against the greenback, eying a move towards 6.95 and moving ever so closer to the psychological 7.00 handle.

Crude oil: Both Brent and WTI crude futures are firmly in the red this morning as they continue to feel the repercussions from yesterday’s build in US crude stockpiles. Alongside this, a bearish development has appeared with the WTI curve now moving into contango (Spot price lower than forward contract), typically this suggests a negative roll yield, prompting speculators to hold bearish bets.

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IG Client Sentiment: AUDUSD Chart of the Day

AUDUSD: Data shows 60.8% of traders are net-long with the ratio of traders long to short at 1.55 to 1. In fact, traders have remained net-long since Sep 24 when AUDUSD traded near 0.727; price has moved 1.9% lower since then. The percentage of traders net-long is now its lowest since Oct 02 when AUDUSD traded near 0.71871. The number of traders net-long is 7.0% lower than yesterday and 14.1% lower from last week, while the number of traders net-short is 21.8% higher than yesterday and 43.7% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests AUDUSD prices may continue to fall. Yet traders are less net-long than yesterday and compared with last week. Recent changes in sentiment warn that the current AUDUSD price trend may soon reverse higher despite the fact traders remain net-long.

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