ASIA-PACIFIC RECAP
S&P 500 futures climbed higher during the Asia-Pacific session alongside the trade-sensitive Australian Dollar, as Chinese retail sales and industrial production figures showed the local economy’s recovery had accelerated in August.
The haven-associated Japanese Yen and US Dollar lost ground against their major counterparts while gold surged back above the $1960/oz mark.
Silver jumped as much as 1.4% as yields on US 10-year Treasuries nudged marginally lower.
Looking ahead, Euro-zone and German economic sentiment for September headlines the economic docket, as focus turns towards tomorrow’s Federal Reserve interest rate decision.

WAIT-AND-SEE ECB DRAGGING ON DAX 30 INDEX
As noted in previous reports, Germany’s benchmark DAX 30 index is at risk of reversing lower after the European Central Bank opted to maintain the status quo at its September meeting, as a ‘second wave’ of Covid-19 infections threaten to upend the nation’s nascent economic recovery.

Of course, the recent climb in coronavirus case numbers is a far cry from those seen during March-April and are yet to force the local government to reimpose economically devastating restrictions.

Nevertheless, German Chancellor Angela Merkel moved to introduce a minimum fine for failing to adhere to mask protocols and extended a ban on all major public events until next year, stating that “we will have to live with this virus for a long time to come”.

Clearly its not just Merkel who is concerned by recent health developments as the yield spread between Italian government bonds and German Bunds has noticeably widened since setting the post-crisis low in mid-August.

In fact, the widening of the risk-gauging yield spread seems to have coincided with not only the benchmark DAX 30 index’s struggles to break to fresh post-crisis highs, but also the marked increase in Covid-19 infections.

With that in mind, local Covid-19 developments may dictate the near-term outlook for regional risk assets in the absence of additional monetary stimulus from an ECB that believes that “as long as the baseline scenario remains intact, there is no reason to adjust the monetary policy stance”.

GERMAN 10-YEAR BUNDS DAILY CHART – MARCH DOWNTREND UNDER PRESSURE
Europe’s ‘safe haven’ asset, German 10-year Bunds, appear to be gearing up for a push to fresh monthly highs after finding support at the psychologically pivotal 104 level and clambering back over the 21- (104.65) and 50-day (104.81) moving averages.

Although the March downtrend continues to cap upside potential, the path of least resistance seems skewed to the upside as the RSI and MACD indicators nudge above their respective neutral midpoints and into bullish territory.

Having said that, with price yet to overcome confluent resistance at the monthly high (105.18) and March downtrend, a short-term pullback could be in the offing.

A daily close below the trend-defining 50-DMA (104.81) would probably generate a push back to confluent support at the 38.2% Fibonacci (104.28) and 200-DMA, with a break lower potentially bringing the 61.8% Fibonacci (103.23) into play.

Conversely, a daily close above the monthly high (105.18) could carve a path for price to test the April high (106.00) and would probably coincide with a period of sustained risk aversion and potentially trigger a marked discounting of Germany’s benchmark DAX 30 index.

Reference by: Daniel Moss, Analyst for DailyFX