It’s a tough market, and we are in the process of seeing fairly messy price action in equities, and for those long here, one consideration is that the USD has a renewed bid and we are seeing good selling play out in US fixed income again.
My long idea on NASDAQ 100 has been held back by these mentioned dynamics, and while I maintain my stop at 7158, I would be cutting back a touch on the position and keeping sizing to a minimum. The S&P 500, perhaps, looks the more bullish of the two and if you look at the daily candle we can see strong buying coming in off the session low of 2781, so the market is still finding good support. I need the bulls to step up, but with no key corporate earnings until next week it seems the catalyst to drive the index higher is perhaps lacking. While still in its infancy, it’s worth highlighting that we have seen 11% of S&P 500 corporate report quarterly earnings thus far, with 89.2% beating consensus earnings-per-share (by an average of 4.3%), while 69% have beaten on sales. Those with bullish exposures, need the meat of earnings to come sooner-rather-than-later, as this seems like the most likely bullish catalyst out there. 
The Fed minutes have caused a slight hawkish re-pricing in both the rates and bond market, and the prospect that we see a push in the US 10-year Treasury into the recent cycle highs into 3.25% is real, given the technical break of the consolidation pattern. We can also see that US inflation expectations have remained unchanged overnight, and that has seen ‘real’ (or inflation-adjusted) yields moving into 1.06% – a new cycle high. 
(US 10yr Treasury)

With a steepening of the US fixed income yield curve, a bid in the USD index and higher real yields, one could argue that we could be seeing a further capital re-allocation into US markets. However, playing devils advocate to this view and as many have argued, last week’s pick-up in volatility was partially a result of very concentrated positioning in US assets, with global money managers having too much-unhedged exposures here. Of course, should the result of higher US yields be that we see fund flows to the US, then this just sucks liquidity out of other geographies, such as emerging markets and it’s no surprise that we see Chinese equity indices lower by 1.5%. China literally can’t find a friend and every rally is sold. 
The bearish breakdown in US crude is a negative for inflation expectations, and the break of the August uptrend at $71.09 on the 6.9m barrel build in crude inventories has been noted. There has been limited follow-through selling through Asia today, but, it would not surprise to see a test of the 200-day MA ($67.29) in the short-term and recall, US crude had a strong bounce off this average on 16 August, So, given the market has respected the 200-day MA before, it becomes just a touch more credible as a support level. The weekly chart is one that gives incredible perspective too and one I have put out a few times. The divergence seen between price and the stochastic momentum still needs to play out, but the importance of the August lows of $64.43 can’t be stated enough. This being the double top neckline and could confirm a new trading range in crude. 
(Daily chart of US crude)

It feels like $64.46 could be tested, and I will be on high alert should the 200-day MA give way. So, the dynamic we are facing this Thursday which will need to be explored in the session ahead is weak oil, rising ‘real’ yields and a renewed bid in the USD. It all seems like a re-run of last week before the vol spike! I hold my NASDAQ long, but am cautious. 
One FX pair that my colleague Zoran Kresovic has been trading is USDCAD, and I like this as his technical view marries with the fundamental backdrop. Zoran points out the inverse head and shoulders on the daily, as well as horizontal resistance into $1.3060, where a break here suggests we could feasibly be pushing for $1.3200. One for the radar, and if crude can’t catch a bid here, then USDCAD is a is going higher.
AUDUSD has also been well traded today, and it has been noted that yesterday’s daily candle printed a bearish outside day reversal, with price trading above Tuesdays high and closing 32-pips below the low. When we see this type of price action, we need confirmation, and that means watching for price to break yesterday low of 0.7106, and then it’s on. That hasn’t played out yet, and the lows have held, largely because today’s Aussie September jobs report was reasonably upbeat, with the unemployment rate falling 30 basis point into 5%, although this was partially offset by a drop in the participation rate to 65.4%.  On the other hand, a below-consensus 5600 net jobs created was partially offset by a solid rise in full-time employment. 
The net effect has been a slight sell-off in the Aussie rates market, with 30-day interbank rates pricing now in 3.5bp of hikes by May 2019 (up from 2bp pre-jobs), while Aussie 3-year bond yields have pushed up 3bp since the release. Whether this can be sustained seems is unlikely if EM assets keep heading lower and we see USDCNH higher into 6.9325, and it looks like this important FX cross wants to go one way – higher. So, if European and US traders sell into this move, resulting in a close through $0.7106, this will confirm the bearish reversal and suggest the pair heads towards $0.7050/40. 
GBPJPY was on the radar yesterday, and it remains on high alert, and while we felt the risk was that this pair broke to the topside, the new news on Brexit is not looking too inspiring. Here, we see a slow grind lower as the weak hands who bought hoping for a convincing announcement of a workable deal reduce exposures. The idea we could see the transition period extended by one-year is interesting, but this is going to cause an uproar from the Euroskeptics and may need to pass through parliament, which seems a tall order. 
The preference is to wait for the pattern to complete and that is still the base case here, and that means a close through either ¥146.99 or above ¥149.31.  

Published by Chris Weston, Head of Research, Pepperstone