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US Equities stormed to new all-time highs in the N/Y session as the market gears up for a potential series of rate cuts. This morning US futures have opened pretty muted though still near their highs, ESU5 -0.10%, NQU5 -0.05%. The AUD performance has been mixed in the crosses with underperformance in GBP/AUD the standout.

• EUR/AUD - Overnight range 1.7856 - 1.7922, Asia is currently trading around 1.7915. The direction US stocks ultimately decide on following will ultimately have a direct impact on the direction of this pair. It is currently comfortable in the middle of its 1.7650/1.8050 range, but with price having based on multiple occasions towards 1.7800 it could be building for a retest of the highs.
• GBP/AUD - Overnight range 2.0594 - 2.0659, Asia is trading around 2.0610. The pair continues to find good demand towards the lower end of its 2.0400 - 2.1050 range; it has bounced nicely to move back into the middle of its wider range. I would suspect some sellers initially around this 2.0750/2.0800 pivot but a sustained move through this area would see the focus return back to the 2.1000 area.
• AUD/JPY - Overnight range 96.22 - 96.69, Asia is trading around 96.45. The pair has bounced and is testing its first resistance around the 96.50/97.00 area. There should be sellers around here initially, a sustained break below 94.50/95.00 is needed to signal a deeper move lower or a break above 97.50 though would negate this and would reinstate the momentum higher.
• AUD/NZD -  Overnight range 1.0952 - 1.0969, the cross is dealing in Asia around 1.0965. The Cross continues to trade sideways after stalling towards the 1.1000 area once more. The range looks to be 1.0850-1.1000 for now.

Fig 1: GBP/AUD spot 2H Chart

Source: MNI - Market News/Bloomberg Finance L.P

The Russell 2000 has been heavily sold recently by hedge funds to express their view on growth, but the CPI print overnight has seen the market begin to price in a series of rate cuts. US equities have roared higher on the back of this with the Russell leading the charge +2.99%. With short positioning at extremes it leaves the market vulnerable, a break back above 2300/22350 could start seeing some of these shorts having to capitulate. This could give the Russell the energy it needs to have a look at its previous highs back towards the 2500 area.

• Guy LeBas on X: “I dunno what this means, but the dirtiest, most obvious shorts are all up the most today.”
• Sean D.Emory on X: “Small and mid caps will work best when the market senses an all-clear on rate cuts and a stable macro backdrop. Today was a glimpse, small and mid caps outperformed large caps by 2–3x. It won’t be a straight line, but this is where the value sits.”
• Daily Chartbook on X: "Over July 22nd - August 5th, Hedge Fund short sold $4.3bn - the largest 2 week amount for at least the past 10 years. The resultant level of outstanding shorts in notional terms also marked a new high. -GS Quinn.” See Fig.1 Below.

• Andreas Steno Larsen on X: “If we get three rate cuts, Russel is going to explode to the upside.”

  Fig.1: Hedge Fund Russell 2000 Length

  

  Source: MNI/@dailychartbook/Goldman Sachs

  Fig. 2: Russell 2000 Daily Chart

  

  Source: MNI - Market News/Bloomberg Finance L.P

• The PBOC issued CNY118.5 bn of 7-day reverse repo at 1.4% during this morning's operations.
• Today's maturities CNY138.5bn.
• Net liquidity withdrawal CNY20bn.
• The PBOC monitors and maintains liquidity in the interbank system through the issuance of reverse repo.
• The CFETS Pledged Repo Deposit Institutions 7 Day Weighted is at 1.41%, from prior close of 1.44%.
• The China overnight interbank repo rate is at 1.31%, from the prior close of 1.30%.
• The China 7-day interbank repo rate is at 1.41%, from the prior close of 1.48%.