Forex volatility jumped in the early U.S. session, particularly in the Aussie as risk sentiment quickly shifted negatively. Is there momentum in the sell-off and will AUD/CAD bears benefit?
Before moving on, ICYMI, today’s Daily London Session Watchlist looked at an opportunity forming on GBP/JPY risk sentiment weakens, so be sure to check that out to see if there is still a potential play!
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Fresh Market Headlines & Economic Data:
- U.S. weighs sanctions on Chinese officials, firms over Hong Kong
- Trump says White House will ‘do something’ about Hong Kong issue by end of week
- U.S. Mortgage demand from homebuyers shows unexpectedly strong and quick recovery, as applications spike 9% from a year ago
- Richmond manufacturing index rose from a record low of −53 in April to −27 in May
- EU unveils plan to borrow 750 billion euros to aid economic recovery
- ECB’s Lagarde says Europe’s pandemic slowdown probably won’t be mild
- UK lockdown drives fastest growth in grocery sales for over 25 years
- Swiss National Bank says expansive policy more important in pandemic
Upcoming Potential Catalysts on the Economic Calendar for U.S. & Asia:
- Fed Bullard speech at 4:30 pm GMT
- Fed Beige book at 6:00 pm GMT
- API Oil stock change at 8:30 pm GMT
- Australia Private capital expenditure at 1:30 am GMT (May 28)
What to Watch: AUD/CAD
The risk mood turned negative during the morning U.S. session, possibly on a turn in U.S. tech stocks, or maybe on geopolitical worries of rising tensions between the U.S. and China over Hong Kong rule changes and protests.
Whatever the case may be, the shift in sentiment knocked the Aussie lower during the session, including AUD/CAD, which dropped well over its daily ATR of around 73 pips from the session open.
The question now is, and as always, “Where to next?”
Well, we’ve got a couple of potential catalysts for volatility for both the Aussie (Australia Private capital expenditure) and the Loonie (API Oil stock change) coming in the Asia session, to potentially keep the downside momentum going if the AU data disappoints while the oil inventory data surprises with a big decrease in inventory.
This scenario could push the pair lower to the next support area around 0.9050, well within the normal volatility range.
If the opposite scenario occurs, and we see a shift back in risk sentiment towards positive, the bulls could step back in at current levels.
One argument for buying support could be today’s move being “overextended” as signaled by the Stochastic indicator.
This would be even more interesting for the bulls if the pair made it down to the 0.9050 support area before the data is released.
