Overview
There is less than a week left before markets know who will be on the US presidential seat. But before that, markets will have to get over a slew of big tech earnings and US labour data this week. With the S&P 500 trading near its previous record, expectations for corporate earnings are high and even a slight miss in expectations could be a trigger for some aggressive unwinding.
This morning, AMD was dragged more than 7% lower in after-hours trading, as investors find fault with its lower-than-expected revenue outlook. Alphabet presented a different story however. The company’s guidance that its artificial intelligence (AI) investments were “paying off” seem to validate a new growth story for its maturing ad business, while its cloud business grew at the fastest pace in eight quarters. Its share price is up close to 6% after-market.
The economic data front pointed to broad resilience over in the US. While there is a downside surprise in US September job opening numbers, there was some shrug-off from markets as the temporary impact from Hurricane Helene may seem to distort the underlying labour trend. Apart from the short-term ‘noises’, the broader economic trend leans towards a series of upside surprises over the past two months. Overnight, US consumer confidence had also pulled ahead of consensus by a wide margin, coming in at 108.7 versus the estimated 99.5.
This week, we look at the AUD/USD and EUR/GBP.
AUD/USD: Nearing crucial upward trendline support
The AUD/USD has retraced close to 5.8% since the start of this month, dragged down by a stronger US dollar while more clarity still awaits over China’s fiscal stimulus. The risks ahead could be a Trump victory in the US elections and particularly, a ‘Red Wave’ scenario, which could mean easier pass-through for higher tariffs and higher deficit. That will support further strength in the US dollar.
For now, elevated core Australia’s inflation data, alongside continued resilience in the labour market, suggests that any rate cuts from the Reserve Bank of Australia (RBA) may be a 2025 discussion and will likely be a process of several cut-and-hold. That may have been priced to a large extent based on current rate expectations, with sentiments to take its cue from the US dollar.
The AUD/USD is now inching towards a crucial upward trendline support at the 0.653 level, which has supported higher lows since October 2023. Defending this level may be key for buyers, with any failure to do so potentially paving the way for a move back towards its 2024 lows at around the 0.636 level. For now, the risk-reward for longs look attractive at current level, with any bounce from the trendline could leave the 0.665 level on watch as a potential first price target.
