Daily Market Outlook, September 7, 2023

Daily Market Outlook, September 7, 2023Munnelly’s Market Commentary… Asian equity markets faced headwinds as they followed the negative lead from the US, where both stocks and bonds retreated in response to hawkish ISM Services data. Additionally, market participants analysed the latest Chinese trade figures. The Nikkei 225 index experienced a turbulent day, initially benefiting from a weaker currency and optimistic reports regarding the Japanese government's plans to implement economic measures in October. However, as the trading session unfolded, the index succumbed to selling pressure. In line with the downbeat sentiment, the Hang Seng index and the Shanghai Composite both declined circa 1%. Chinese trade data revealed a persistent contraction in both exports and imports, although it didn't reach the dire levels initially anticipated. Concurrently, the tech sector faced mounting pressure, triggered by tensions following the FCC chair's call for US government agencies to address the threat posed by Chinese cellular connectivity modules. Additionally, a lawmaker's request for an investigation into SMIC, citing potential violations of US sanctions by supplying components to Huawei, further weighed on tech stocks. Furthermore, China made headlines by reportedly banning government officials from using iPhones at work and expressing intentions to expand this restriction to state-owned enterprises and government agencies, adding to the overall geopolitical complexities affecting the market.The US dollar maintains its dominant position against all major currencies, surging to a fresh 10-month high against the Japanese yen, even as warnings from the Japanese finance ministry persist. Against the euro, the dollar remains near the three-month high it reached on Wednesday. Traders appear more inclined to rely on economic data than on statements from European Central Bank officials, who suggest that the tightening cycle might not be over in advance of next week's policy meeting.Stateside Federal Reserve officials are set to address a fintech conference hosted by the Philadelphia Fed, though they will soon enter a blackout period on public comments as they approach their own policy meeting and notably ahead of next week’s US inflation dataMeanwhile, the G-20 meetings are commencing in India, providing additional opportunities to assess the global economic landscape. Notably absent from this gathering is Chinese President Xi Jinping, a development raising concerns. Not only is the Chinese economy a significant global risk, but this decision also continues the trend of China distancing itself from Western involvement; similarly, Russian President Vladimir Putin will also be absent from the event.FX Positioning & Sentiment Understanding the positioning of FX traders is crucial, and one reliable source for unbiased insights is the Commodity Futures Trading Commission (CFTC) data. This data serves as a valuable guide for those seeking to assess the impact of speculation on currency markets. The rule of thumb is that the larger the wager, the more significant its influence, often leading to substantial market reversals. An illustrative example from 2018 demonstrates this principle when the EUR/USD currency pair experienced a decline after traders placed a hefty $23 billion bet on the euro's appreciation. Conversely, the pair surged from its low in March 2020 when traders were heavily betting, with over $15 billion, on its depreciation. However, it took a downturn shortly after reaching a record speculative long position of $31 billion in August 2020. This year, the EUR/USD witnessed a drop as bets on its appreciation exceeded $25 billion. Notably, an anomaly occurred in the previous year when EUR/USD rallied from its September low, despite limited bearish bets from traders. This contrasted starkly with other surveys that indicated significant bets on a stronger US dollar. Broader estimates suggested that dollar bets and investments were exceptionally overcrowded, possibly constituting one of the largest long positions in history. The subsequent reversal in market sentiment validated these estimates. Nonetheless, it's essential to acknowledge that traders were positioned long on the dollar, and this awareness, combined with the broader consensus regarding the overcrowded long positions, should serve as a cautionary signal for market participants.CFTC Data As Of 31-08-23Tuesday close of Aug 30-Sep 5 spec IMM period saw $IDX +1.17%Less-dovish Fed rate expectations stoke USD bidUSD rise hints Fri's spec data may show reduced USD shortEUR$ -1.42% in period amid EZ growth concerns, end of hike cycleEuro net spec long well off May high +187k contracts, now +147k$JPY +1.23% in period; US-JY rate divergence keeps yen on back footYen net short may have diminished after Kanda's spec rebukeGBP$ -0.68% in period, global growth concerns drag GBP lowerUK rate dominance in near-term tempers GBP$ declineAUD$ -1.57%, China growth concerns, steady RBA view weighs on AUD (Source: Reuters)FX Options Expiries For 10am New York Cut (1BLN+ represent larger expiries, more magnetic when trading within daily ATR)EUR/USD: 1.0675-80 (513M), 1.0700 (1.85BLN),1.0810-15 (555M), 1.0820-25 (480M), 1.0880-90 (661M)USD/JPY: 144.95-145.05 (610M), 146.83 (200M), 147.20 (245M)GBP/USD: 1.2550-55 (258M), 1.2575 (200M)1.2700 (1BLN), 1.2750 (561M), 1.2795-00 (602M)EUR/GBP: 0.8570 (232M), 0.8600 (208M), 0.8630 (320M) 0.8705 (386M)AUD/USD: 0.6400-10 (750M), 0.6480-85 (490M)0.6520 (450M), 0.6560 (510M), 0.6590-00 (802M)AUD/NZD: 1.0850 (203M), 1.1050 (300M)Overnight Newswire Updates of NoteUS Futures Little Changed As Focus Shifts Back To Path Of RatesAsia Markets Mostly Lower As Investors Assess China Trade DataFed’s Beige Book Shows Slower Activity Growth, Hiring In SummerTwo Senate Votes Advance Biden Goal Of Greater Diversity At FedPres Biden Set To Woo Back Allies As Putin, Xi Skip G-20 SummitChina Hawk Kurt Campbell Leading Candidate For Deputy At StatePBoC Gives Yuan Unyielding Support For Record 54 Straight DaysChinese Exports Tumble For Fourth Consecutive Month In AugustBoJ Official Nakagawa: Call For Keeping Ultra-Easy Policy For NowRBA Outgoing Lowe Says Productivity Boost Key To Tame InflationAustralia’s Trade Surplus Narrows In July After Mining Exports FallBank Of England’s Bailey Signals Rate Hikes May Be Near An EndTexas Declares Grid Emergency After Heat Stokes Power DemandUnited Auto Workers Plan Counteroffer To Ford As Deadline Looms(Sourced from Bloomberg, Reuters and other reliable financial news outlets)Technical & Trade ViewsSP500 Bias: Bullish Above Bearish Below 4500Above 4500 opens 44540Primary resistance  is 4450Primary objective is 426620 Day VWAP bullish, 5 Day VWAP bearishEURUSD Bias: Bullish Above Bearsih Below 1.0810 / 1.07 Target Hit, New Pattern EmergingAbove 1.09 opens 1.095Primary resistance is 1.1066Primary objective is 1.066020 Day VWAP bearish, 5 Day VWAP bearishGBPUSD Bias: Bullish Above Bearish Below 1.2560Above 1.2650 opens 1.27Primary resistance  is 1.2750Primary objective 1.2320 Day VWAP bearish, 5 Day VWAP bearishUSDJPY Bias: Bullish Above Bearish Below 146.50Below 146 opens 144.90Primary support 143.90Primary objective is 15020 Day VWAP bullish, 5 Day VWAP bullishAUDUSD Bias: Bullish Above Bearish Below .6450Above .6525 opens .6575Primary resistance  is .6620Primary objective is .632020 Day VWAP bearish, 5 Day VWAP bearishBTCUSD Bias: Bullish Above Bearish below 26175Above 28200 opens 30000Primary resistance  is 28175Primary objective is 2330020 Day VWAP bearish, 5 Day VWAP bearish