The Daily Fix – Massaging positions ahead of Powell’s testimony

• Traders repositioning French election hedges post 2nd round vote
• The USD halts a 7-day losing run – cable sold again above 1.2820
• Gold longs liquidate and in broader commodity sell-off
• Bitcoin buyers absorbing heavy selling below 56k
• US equity held in by the AI-rated plays
• Opening calls for Asia equity

Traders have started the week off massaging positions - trimming longs in gold and silver, and cutting back on USD shorts, while activity in US equity indices has been balanced with two-way flows.

EU equity indices have closed modestly lower, while at stock level French banks saw some interest. BNP Paribas and Soc Gen tried to forge an early session rally, but the sellers won out, closing -1.8% and 1.3%, respectively. French OAT 10-year bonds rallied, with yield -5bp to 3.16% and the OAT vs German bund spread coming in by 3bp to 62bp. There have been no fireworks in the EUR, with EURUSD now tracking in the middle of the 1.0801 to 1.0845 range seen on the day. Pockets of the trading community had been running CHF longs into the weekend as a hedge against any fallout from the French 2nd round vote, so we’ve seen these closed, with EURCHF now testing the highs of the day and notably USDCHF has found some form.

The USD index (DXY) sits +0.1%, just enough to close out 7 consecutive down days, and getting some support from the US 2-year Treasury, which has gained 3bp to 4.62%. With limited US data out, one could argue this modest sell-off was coming off a slightly overbought position, but also some trimming by way of risk management purposes ahead of today's event risk, with US NFIB small business Optimism survey (due at 8 pm AEST), and then Fed Chair Jay Powell testifying to the Senate Banking Committee (00:00 AEST). The larger percentage changes were seen in USDSEK and USDNOK, with the NOK impacted by Brent crude rolling over -1%.

GBPUSD attracts good interest, with traders fading rallies above 1.2818, where we can see on the daily timeframe that this is the level that the cable bulls really need to see a firm close above to get this pumping towards 1.2900+. AUDUSD printed a higher high (0.6760) but has failed to hold above Friday's high (0.6753) and the buyers have lost up the impetus to push higher – a downside break of 0.6709 should lead to increased closing of recent AUD longs. Westpac consumer confidence and NAB business confidence are due today in Australia, but unless we get an utter collapse in these data points, then I would not expect either survey to move AUD assets.

Gold sits at $2359 (-1.4%) which seems somewhat extreme relative to the moves in the USD or US bond markets – we’d seen sellers play out all through European and early US trade, but when things got cranking in the meat of US trade, we saw the price drop from $2374 to $2351, and we’ve consolidated since. A flush out of longs after the run of form perhaps, but we see this as part of a broader commodity sell-off on the day.

Crypto has seen good interest too, with Bitcoin and Ethereum finding better buying interest. Supply has been a big concern and the known overhang from the liquidation related to Mnt Gox and the German Federal Criminal Police Office – that said, the markets know there is an endpoint to the liquidation of these coins, and the daily charts suggest that a base is building and the buyers are taking down everything being offered below 56k (Bitcoin) and 2950 (Ethereum) – it’s too aggressive to convincingly say these coins have put in a low from the drawdown that started in early June - but I am a buyer of strength, and would really want to see a push through 58,500 to get me interested.

In equity land, small caps found some love with the Russell 2k closing +0.6%, while the NAS100 closed +0.2%. The S&P500 notched up its 35th record high, trading into 5583 in early cash trade, but ultimately closing little changed at 5572 – the 50th percentile of the 21-points range seen in the cash equity session. 56% of S&P500 stocks closed higher, and while Apple came to the party (+0.7%), it was the AI-related plays that put in the points, with Nvidia (+1.9%), Super Micro Computers, AMD and Marvell feeding off moves from Taiwan Semi (+3%) which is in beast mode and receiving multiple broker upgrades. Hardware names worked well with Dell (+5%) finding a solid move off the 50-day MA. Energy and communication services sectors unperformed on the day.

Turning to the Asia equity open, and as we look ahead to comments from Jay Powell, our opening index calls look mixed, with the ASX200 eyed to open at 7784 +21p (0.3%), NKY225 +153 (+0.4%) and the HK50 (-0.2%). While the ASX200 continues to chop around in a sideways range, we see the NKY225 still the most constructive of the Asian bourses, but finding tough work to break the March highs, and this index needs to be on the radar, should we get some renewed weakening of the JPY, and an upside break of 41140, for a potential continuation rally.

The HK50 is headed the opposite way and trading at the weakest levels since late April, with price printing a lower low and trading at the weakest levels since late April in this bearish trend it held since mid-May – something needs to inspire to turn this ship around, as for now rallies are to be sold.

Good luck to all,