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GBPUSD A Top Polled Dollar Reversal Candidate, Global Stocks Test Breaks

GBPUSD A Top Polled Dollar Reversal Candidate, Global Stocks Test Breaks

2020-08-04 02:30:00
John Kicklighter, Chief Strategist
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Dollar, GBPUSD, AUDUSD, Nasdaq Talking Points:

  • While there was a general boost in risk assets to start the new week, conviction came on a sliding scale from the Nasdaq (record highs) to the Dow to the DAX
  • If the Dollar manages a true bullish reversal, my Twitter poll suggest GBPUSD would be a preferred vehicle over the EURUSD or AUDUSD
  • The Aussie Dollar faces key event risk Tuesday, the ISM services report is key for the US a day further out while stimulus and Covid cases compete

Another Skewed Charge in Risk Appetite that Lacks for Conviction

The new week and month have brought a familiar sight to those tracking the fortunes of risk-based assets. An opening swell from those assets sitting on the speculative end of the risk spectrum fed the seemingly insatiable appetite of market participants that have grown numb to recession, pandemic, anemic yields and uncertain waves of volatility around events like the US election. Yet, a skew favoring reckless momentum over traditional ‘value’ is becoming more discernable even to the most indulgent bulls (learn the different style of traders in our education section). We could see this in action through this past session as the Nasdaq paced both its S&P 500 and Dow counterparts with a record high. And, in an even more concentrated field, Apple shares extended the explosion following last week’s earnings update and stock split news – though other FAANG members’ share pries were notably restricted.

Chart of Nasdaq 100 Index with 50-Day Moving Average and Overlaid with Apple Price (Daily)

GBPUSD A Top Polled Dollar Reversal Candidate, Global Stocks Test Breaks

Chart Created on Tradingview Platform

Looking further afield than just the US indices, the buoyancy made even less of an impression towards conviction. Equity benchmarks in Europe and Asia did climb through Monday, but they generally moved back up to levels that technicians say qualify as former support acting as fresh resistance. That may not be enough to keep the markets contained should enthusiasm return, but it will raise the threshold for regaining highs even further. Below, the German DAX 30 reflects this quality well with the breakdown below range support at 12,800 last week now representing a near-term ceiling. Similar chart qualities can be found in emerging markets, carry trade, commodities with risk sway and more.

Chart of Germany’s DAX 30 Index (Daily)

GBPUSD A Top Polled Dollar Reversal Candidate, Global Stocks Test Breaks

Chart Created by John Kicklighter with Data from Bloomberg

Fundamental Themes That Can Charge Global Markets and the Dollar

Speculative bearing can shift the emphasis for market moving themes according to the underlying bias. This past session, the course of the global economy seemed to be a factor at play. A remarkable number of headlines seemed to hone in China’s July manufacturing activity report from Caixin which jumped to a 9-year high and further the ‘V-shaped’ recovery narrative. Drawing less attention, the developed world PMI figures from Markit were little changed from the first update while the emerging market countries seemed to reflect on pressure in their first updates. Clearly, this is a theme that should be monitored closely, but the next big milestone on the docket in my book is the ISM service sector update Wednesday as the key sector for output in the world’s largest economy. Packing more punch but still up in the air, it is also worth keeping close eye on any favorable – or troubled – headlines around US fiscal stimulus. The extended unemployment benefits the government put into place during the height of the lockdown have expired, talks through Monday have yet to yield a replacement and the Senate goes on extended break starting Friday.

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Twitter Poll: ‘What Is Your Preferred Dollar Recovery Option?’

GBPUSD A Top Polled Dollar Reversal Candidate, Global Stocks Test Breaks

Poll from Twitter.com, @JohnKicklighter Handle

There are presently a few key factors working against the Greenback: a skew in coronavirus cases, struggle to match recession pressures with stimulus support and anticipation of localized volatility (US elections and campaigning). Yet, a turn from any of these factors could urge market interests to speculate on a relief rally. A critical factor in all trading, timing remains a key consideration. If the Dollar can mount an earnest recovery from here, it could align to the GBPUSD’s tentative hold at 1.3200. That’s perhaps why the majority of those that responded to my poll on preferred USD pair for any meaning rally chose the Cable. Further, if the masses were looking for a reason to thrown in with this pair, the post-Brexit trade struggles and Covid reopen throttling could be used as justification – not to mention the BOE decision on Thursday.

GBP/USD BEARISH
Data provided by
of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily 9% -12% -2%
Weekly 19% -22% -4%
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Chart of GBPUSD with 200-Day Moving Average (Daily)

GBPUSD A Top Polled Dollar Reversal Candidate, Global Stocks Test Breaks

Chart Created on Tradingview Platform

If conviction for the Dollar were to truly set, a benchmark like the EURUSD could be just as prone to reversal as any other. Net speculative futures positioning edged to a record high net long this past week and tails on the pair represent indecision. Further a balancing US stimulus as well as worries that outbreaks of fresh Covid cases are showing in different European locations could give fundamental traction. Yet, the presence of former resistance as new support in the decade-long trendline and Fib levels around 1.1750/00 would raise the threshold for conviction to sway in support of a breakdown.

EUR/USD BEARISH
Data provided by
of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily 4% -9% -4%
Weekly 26% -14% 0%
What does it mean for price action?
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Chart of EURUSD with Net Speculative Futures Positioning and Wicks (Daily)

GBPUSD A Top Polled Dollar Reversal Candidate, Global Stocks Test Breaks

Chart Created on Tradingview Platform

Top Event Risk Draws Attention to the Aussie Crosses

For more targeted fundamental interest, I am also keeping close tabs on the AUDUSD. The combination of the Reserve Bank of Australia rate decision this morning and fundamental pressures drawing contrast to the Aussie’s charge (a collapse in carry rates, the record high coronavirus cases and drift away from China during its resurgence) could set the groundwork for a genuine drive. Technically, AUDUSD offers up interesting levels, but this isn’t the only Aussie Dollar cross of merit to keep tabs on. I am also partial to AUDJPY, AUDCAD, EURAUD and GBPAUD.

AUD/USD BEARISH
Data provided by
of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily 5% -6% -1%
Weekly 24% -25% -5%
What does it mean for price action?
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Chart of AUDUSD with Ratio of ASX200 to S&P 500 (Daily)

GBPUSD A Top Polled Dollar Reversal Candidate, Global Stocks Test Breaks

Chart Created on Tradingview Platform

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