What are we looking at
- USD consolidating after another surge of strength: Global growth concerns have been attributed to the latest bout of USD strength. This remains a narrative that should continue to support the USD gains.
- GBP reaction to UK Government resignations: Remarkably, GBP has been supported despite the increased political risk that has come with the resignation of finance minister Sunak and the health minister. Something that brings about the demise of a chaotic UK Prime Minister Johnson may even generate support for GBP.
- Indices find support: After huge selling pressure yesterday, European indices have found support from a late Wall Street rally. Rallies have tended to fizzle out very quickly in recent weeks.
- Data trading: ISM Services will be watched as the main data to impact markets. Negative surprises have consistently helped to strengthen USD in recent weeks. Also, watch for the FOMC minutes driving some volatility later in the US session.
After the Independence Day public holiday, US traders returned to their desks yesterday seemingly hell-bent on buying the US dollar. As US bond yields continue to pull lower, there are mounting concerns that negative growth trends will drive recessionary conditions. Trading for this leaves the USD as the standout asset. Another surge of USD strength is having significant consequences for forex and commodities alike. EUR/USD has broken down to levels not seen in 20 years, whilst the gold has also broken key support and oil has fallen significantly.
This morning we see a degree of calm drifting over markets. Forex is in consolidation with a pause for breath, whilst a late rally on Wall Street is allowing European indices to play catch up. However, US futures are tentatively higher this morning and traders will be mindful that rallies appear to be increasingly short-lived. Downtrends remain firmly intact and risk rallies will remain a chance to sell whilst recession concerns dominate the thoughts of market participants.
There is a key US focus on the economic calendar today. The ISM Non-Manufacturing PMI is the key focus for traders, expected to decline for six months in the past seven. Markets will also be watching for other components of the ISM data such as Employment that are close to contraction. The JOLTS jobs data will also be eyed, with the Openings set to decline more than the Quits rate. The FOMC minutes for the June meeting will be also watched later in the US session.
Market sentiment looks relatively settled: After the huge risk sell-off yesterday and USD strength, there is a basis of calm that has formed today. A rebound in European markets is a catch-up on a late Wall Street rally. However, USD is consolidating, with a slight pullback on yesterday’s gains.
Treasury yields edge higher: Yields are a shade higher this morning as there is a slight unwind to yesterday’s sharp move lower.
UK Government ministers resign: The position of UK Prime Minister Johnson is looking increasingly precarious as two very senior ministers resigned last night. Chancellor Sunak (finance minister) resigned citing integrity but also ideological reasons. Health Secretary Javid resigned on integrity grounds too. This leaves the embattled PM Johnson under mounting pressure from his own party. It is interesting to see that GBP was unmoved (relative to EUR moves) last night and has started to tick higher this morning.
German Factory Orders hold up: Factory Orders had been expected to decline again in May but managed to grow slightly by +0.1% (consensus was -0.6% MoM)
Cryptocurrencies mixed: It was interesting to see that despite the massive risk sell-off yesterday, cryptocurrencies such as Bitcoin, Ethereum and Litecoin held up well. Bitcoin was +3% higher, however, has dipped back today by over -1% and is back around $20,000 again.
- US ISM Non-Manufacturing PMI (1500BST) The services PMI is expected to fall to 54.3 in June (from 55.9 in May).
- US JOLTs Job Openings (1500BST) Openings are expected to decline to 11.0m in May (from 11.4m in April). The Quits rate is also expected to decline to 4.3m (from 4.42m).
- FOMC minutes (1900BST)
Major markets outlook
Broad outlook: Sentiment is looking calmer this morning, as the dust settles on yesterday’s big risk sell-off.
Forex: The main move is a JPY decline, whilst there is little direction on other major currencies
- EUR/USD broke below the 1.0325 December 2016 low to levels not seen since 2002. There is all but no support that is preventing a move back towards parity now. The old support between 1.0325/1.0365 is now an area of overhead supply and is resistance for any pullback rally that may be seen near term. Yesterday’s low at 1.0235 is tentative support.
- GBP/USD saw an intraday breach of the 1.1935 June low yesterday, but the market has started to settle and potentially build support near term around 1.1900. It is interesting to see an intraday rally this morning. A technical rally could find momentum if 1.1975 initial resistance can be decisively overcome. There could be scope for a rebound towards 1.2100/1.2160 overhead supply.
- AUD/USD saw a bull failure at the four-week downtrend and another decisive close below the old support band 0.6830/0.6870. Rallies are a chance to sell within the downtrend and 0.6830/0.6870 is an area of overhead supply now, for moves towards the 0.6650 area in due course. Lower highs are in place leaving resistance at 0.6895/0.6920.
Commodities: Precious metals remain a sell into strength, whilst oil is trying to recover after yesterday's sharp sell-off.
- Gold had a big surge of selling pressure yesterday to decisively break below the support at $1784/$1786. This has now effectively driven a clean break of a band of support that has been a basis of old key lows between $1780/$1805. This is now an area of overhead supply and will be seen as a sell zone for near-term rallies. The market is relatively settled today but we favour continued downside pressure on $1750 as the next support.
- Silver has continued lower in recent days towards the next band of support that starts around $18.95. An intraday rebound this morning is seeing the market build initial support and with the RSI hitting the mid-20s there is potential for a near-term technical rally. We would though continue to see rallies as a chance to sell. Initial resistance is at $19.38 and then more considerable between $20.20/$20.45.
- Brent Crude oil saw a massive correction of over -10% yesterday but the market is trying to swing back higher this morning and is over +2% higher. Once the volatility begins to settle we can get a gauge of the lasting legacy of yesterday’s breakdown. However, the market just remains very choppy within the growing medium-term trading range. There is a basis of support between $98/$102, with yesterday’s low at $103.50. The notable initial resistance is now $107.65/$111.00.
Indices: An intraday rally into the close on Wall Street is helping European markets to recover, but for how long?
- S&P 500 futures have actually held up relatively well in recent sessions, despite the surge of negative risk appetite. Daily candles show that early selling pressure is finding buyers, with support firming around 3741. However, equally, there is also a lack of upside traction in any move higher and once more this morning there is a consolidation to the rebound. There is resistance between 3876/3948.
- German DAX had an intraday breach of the 12,436 key March low before a near-term rebound set in. However, there is a barrier of a four-week downtrend around 12,800 today and near-term rallies continue to falter around old key lows. The resistance is subsequently around 12,600 initially today. Further pressure on 12,436 is likely, with a breach seeing the next support not until 11,300 area.
- FTSE 100 retains a sense of volatile swings on a near-term basis but no trend. This makes for difficult positioning, however, the market is trading between support around 6970/7015 and up towards resistance of 7300/7370. The RSI is consistently below 50 and suggests that rallies are a struggle. An intraday rally this morning is into the mid-point of these levels, leaving a volatile near-term outlook, with a negative bias.
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