Trader thoughts - key levels to watch as we head to month-end

After the close, a flurry of activity has resulted in some lively trading flow, with Robinhood, Twitter, Microsoft and Alphabet all hitting the wires at the same time. While we’d been expecting movement in Twitter, but it's HOOD where the big moves have taken place, as traders focus on the loss in momentum in many of its metrics and the guidance on Q4 revenue which is 35% below the streets estimates – I can sense the shorts circling here.

Earnings aside, tomorrow’s ECB meeting should be a non-event, or better phrased a ‘low vol’ event, but it should set the stage for a far more intense and market-moving ECB meeting in mid-Dec. In the lead-in, traders are generally running short EUR positions and with EURUSD below the 5-day EMA the risk is we head towards the 18 October low of 1.1571 – there has been little change in EU bonds on the day, but when we look at rates pricing, the ECB will really want to cement a notion that rates hikes are simply not on the agenda, especially when they will be buying bonds through 2022 – still, if we look into 2 years’ time rates are expected to rise out of negative territory.

Bullish EU/UK equity markets

EU equity markets look strong, perhaps aided by EUR weakness, but the GER40 has broken above the 50- and 100-day MA and eyeing a new all-time high above 16030 in the cash. Despite several uncertainties in the UK (COVID, Brexit news, the Budget) which are promoting volatility in GBP, the FTSE100 has broken out of the recent consolidation range and now sits at the highest level since Feb 2020 – importantly, we ask whether it can break to new highs?

What’s 7.8% between friends? Looking at the FTSE100 internals, we’re not seeing euphoria at this stage – 60% of companies are above the 200-day MA, 65% above the 20-day and 7% of companies trade at a 4-week high. In fact, only 6% have an RSI above 70.

Happy to stay long risk given the tape – the UK100 and FRA40 notably given the price action, shape and feel. By way of arb positions, I am assessing long CAC and short US500 index exposures – it seems tactically prudent to wait until the mega-cap US names have come out with earnings on Thursday and then look at the ratio, as well whether to convert both legs into USDs.

Crude front of mind

Crude gets the focus yet again – Brent has broken to new highs in this run and the resistance from the channel kicks in at $88.70. Nat Gas is down smalls, but the focus from clients is Brent and WTI crude, which is marching higher. We’ve seen a build of 2.32m barrels in the API inventory report, and this will increase expectations of a bigger than expected build in the DoE report (01:30 AEDT today) – a small crude negative.

Looking towards next week, and the market is already running the ruler on Thursday’s OPEC meeting – it will be a huge 24 hours for traders – the FOMC (to start tapering) and BoE meeting (12bp of hikes priced) and OPEC, and conveniently coming the day before non-farms. Seems like it could be a lively time in markets!

In some way the OPEC meeting could be the most important for broad markets – if OPEC make no changes and offer the view that there are still too many vulnerabilities given COVID trends, then crude should trade higher and that could further boost inflation expectations.

Monthly chart of Brent Crude

(Source: Tradingview - Past performance is not indicative of future performance)

I know monthly charts and CFDs don’t mix too well – but flip to the Brent monthly timeframe and we’ve seen the multi-year trend break – unless we see something truly negative then we should close out the month above here. The bulls however, want more and that means a monthly close above $86.71 (1 Oct 2018 high) – that is where we find ourselves now, and if we see that then $100 becomes very real.

For those who missed, I made the argument that Brent above $100 could be a key trigger for Gold to break $1833. We’ve now seen the re-test of the June downtrend and the bulls will want to see a move through 1808 to feel good for 1833 – buy stop orders are often good tactical orders for trading momentum.

Daily of AUDUSD

(Source: Tradingview - Past performance is not indicative of future performance)

Aussie CPI due at 11:30 AEDT – watch AUD exposures

All eyes on the AUD today, with Q3 CPI in play at 11:30 AEDT – the trimmed mean measure is expected to push up 20bp to 1.8%, with headline CPI falling 70bp to 3.1%. The trimmed mean measure is the one the RBA watch most closely. The probability is it comes in line with expectations, maybe a small miss/beat, but unless we see trimmed mean at or above 2% or below 1.6% then the AUD shouldn’t move too intently.

The AUD has been the best performer on the day with AUDJPY having a renewed tilt at recent highs. EURAUD is toying with a downside break and firm move through 1.5458 and a number at 1.9% should see this cross pull lower. AUDUSD holds the bull channel and offers a simple guide on flow – stay long in this structure, and react accordingly.