The biggest development in the markets last week was the surprised agreement by OPEC to cut production. The news boosted oil price up and helped lift commodity currencies. WTI crude oil jumped to close at 48.24 and would likely have a take on 50 handle again this week. Risk appetite in general, however, was limited by worries over Deutsche Bank (DE:DBKGn) as stocks were stuck in range. A number of central bank officials spoke during the week but provided little inspirations to the markets. In the currency markets, Kiwi, Aussie and Loonie were the three strongest ones respectively. Yen and Swiss Franc ended as the weakest ones while Dollar, Euro and Sterling were mixed. For the week of September as a whole, Sterling was indeed the weakest major currency but lost some downside momentum as it's facing support levels against Dollar, Euro and Yen. Focus will turn back to US job data this week but considering that US presidential election is just six weeks away, any reactions could be short lived.
For the near term, strength in oil price would likely remain a theme in the financial markets. However, we're skeptical on the overall risk sentiments elsewhere, in particular in stock markets. Thus, the net effect on commodity currencies is uncertain. For example, DJIA continued to gyrate around a flat 55 days EMA last week. The price actions since second week of September are clearly sideway consolidative. That is, fall from 18668.43 is not finished. We'd holding on to the view that rise from 15450.56 has completed at 18668.43 on bearish divergence condition in daily MACD. And the fall from there is at least a near term correction that should extend to 38.2% retracement of 15450.56 to 18668.43 at 17439.20.
Chinese stocks could be another factor that's limiting risk appetite and strength in Aussie and Kiwi. The SSE (LON:SSE) composite suffered some selling since reaching 3140.44 back in August and the break of 55 days EMA again indicates some near term weakness. Also, firstly, bearish divergence condition is seen in daily MACD. Secondly, the index was rejected by both 55 weeks EMA and 50% retracement of 3684.56 to 2638.30 at 3161.43. Thirdly, the structure of the rebound from 2638.30 are clearly corrective. Thus, risk of steeper selloff is getting higher at this point. And acceleration below 3000 handle could send the index back to 2781.23 support.
Dollar index continued to engage in sideway trading last week without making any progress. More consolidative trading would likely be seen leading to non-farm payroll report this week. Currently, fed fund futures are pricing in nearly 62% chance of rate hike in December. But that would very much depend on incoming data as well as the presidential election in November. Dollar's fate would depend on whether fed will finally deliver that highly anticipated rate hike. Technically, price actions from 91.91 are having a corrective look. Above 96.33 could bring near term rise to 97.56 but we'd be cautious on strong resistance from there to limit upside. Meanwhile, below 94.07 will bring a test on 91.91/93.01 support zone.
Regarding trading strategies, we're holding on to the GBP/USD short entered as 1.2997. The pair lost much downside momentum ahead of 1.2865 support. But recovery was not strong enough to alter our bearish view. That is, consolidation from 1.2794 is completed with three waves up to 1.3444 and we'd anticipate a test on 1.2794 in near term. And break will extend the larger down trend to next projection level at 1.2457. We'll stay short in the pair with a stop at 1.3120.
We'd try to buy Canadian dollar this week to capture the strength in WTI oil which is expected to break through 50 handle. Recent sideway trading in EUR/USD since 1.1365 suggests that rise from 1.0911 would possibly extend with at least a breach of 1.1365. USD/JPY recovered ahead of 100 handle but strength was weak. And, USD/JPY is also held inside medium term falling channel and below 55 days EMA. Downside break out in the pair could be imminent as the consolidation pattern from 98.97 low is about time to finish. Hence, we'd prefer to sell Dollar against Canadian. We'll try to sell USD/CAD on break of 1.2999 this week.