As macro market themes heat up, trading sessions have been volatile. Frustrated traders can take heart knowing that there is opportunity in periods of market adjustment, writes Amelia Bourdeau Monday. She’s presenting at TradersExpo Las Vegas Nov. 12-13.

 

As macro market themes heat up, trading sessions have been volatile. Frustrated traders can take heart knowing that there is opportunity in periods of market adjustment, writes Amelia Bourdeau Monday. She’s presenting at TradersExpo Las Vegas Nov. 12-13.

Some of the macro themes impacting markets include: Fed tightening and its impact on U.S. equities, U.S. earnings season results, questions about the ongoing strength of the U.S. economy, China’s currency depreciation, uncertainties for the UK surrounding Brexit negotiations and Italy’s budget fight. These macro themes will be in play this week. In this note, I will take a look at event risk.

It is another big week for tech earnings, with Apple and Facebook both reporting earnings for the fiscal quarter ending September 2018. Facebook, a FANG member, will report earnings on Tuesday, and Apple on Thursday, November 1, both after the market close.

Last week, Alphabet (GOOG) and Amazon (AMZN) both reported earnings on Thursday. Various disappointments in their respective earnings releases caused both stocks to fall on Friday, leading to larger U.S. equity index losses. Take a look at what U.S. dollar/Japanese yen (USD/JPY) did on that day and throughout last week’s volatile U.S. equity sessions (chart below).

The chart above shows Nasdaq vs. USD/JPY. On days with heavy US equity losses, JPY, a safe-haven currency generally strengthens vs. USD. So, I will be paying attention to intra-day trading opportunities in USD/JPY next week, especially if Facebook or Apple earnings releases disappoint. If that is the case, follow-on price action in the next trading sessions may lead to wider equity index losses and strengthen JPY. USD/JPY support levels to watch are: 111.60 and 110.85.

The Chinese yuan (CNY) is the weakest it’s been in about a decade and is approaching the key level of 7 per USD, which if breached could spur further yuan selling. Chinese authorities warned last Friday against further CNY weakness and CNY backed off the level a bit. According to the WSJ, Pan Gongsheng, a vice governor of the People’s Bank of China, said, “For forces that try to short renminbi, we fought hand to hand a few years ago, and we are very familiar with each other.”

I am watching “7” with an interest in Australian dollar/USD (AUD/USD). AUD/USD has been dragged lower by CNY weakness – as seen in the chart below.

The chart shows AUD/USD vs. USD/CNY. Note, that USD/CNY is on the right axis, which has been inverted, so the white line, USD/CNY, moving lower means CNY is weakening vs. USD toward the 7 level. AUD/USD also has been weak and is approaching a key support level of 0.7000, support levels below that include 0.6900 and 0.6827 – the Jan. 15, 2016 low. If USD/CNY breaks 7, then AUD/USD may move below 0.7000 support and put that 2016 low in play.

The UK releases its annual budget on Monday and the Bank of England has a policy meeting, releases forecasts, and holds a press conference on Thursday. But, for the British pound (GBP), it’s all about Brexit. No change in monetary policy is expected by the BoE. However, in the press conference, BoE Governor Mark Carney will have to navigate a minefield of Brexit questions, which could move GBP around. GBP/USD is coming off of a 1.9% drop last week, so it could take fresh negative Brexit headlines/Carney comments to move it lower. But, I will be watching GBP/USD support levels at 1.2800 and 1.2662 – the August 15 low.

U.S. payrolls are generally a market mover, and this Friday, October employment data are released. The market consensus, reported by Bloomberg, expects a 193k rise payrolls. This is compared to a headline payroll number of 134k in September, which was disappointing, but was weighed on by hurricane effects.  For a payroll result below expectations, I look for JPY to strengthen vs. USD. For a payroll result on or above the consensus expectation, I look for EUR/USD to weaken (i.e. USD to strengthen vs. EUR) given the diverging economic growth between the U.S. and Eurozone. Note, that Q3 Eurozone GDP is released on Tuesday and a 0.3% q/q result is expected. EUR also remains on its back foot due to Italy’s budget fight. When August payrolls, released September 7, came in stronger than expected, EUR fell 0.6% vs. USD on the day. EUR/USD support comes in at 1.1340 area, 1.1300.