This could be a crucial Nonfarm Payrolls for markets today. The payrolls report is expected to show an improvement to 400,000 following November’s significant miss at 210,000 (550,000 had been expected). Anything above 400,000 would be USD positive. However, given the implications that a tighter labor market has for Fed monetary policy (that makes an earlier rate hike more likely) the risk would be a strong report that is not only USD positive but also negative for risk appetite.
EUR traders will also be looking out for the flash inflation data out of the Eurozone, where it looks as though inflation could be peaking.
- Main drivers: Market sentiment turns sour; Fed minutes hawkish; China Caixin Services PMI better than expected; no Fed speakers scheduled; Economic calendar: UK Services PMI, ISM Services
- Consolidation ahead of payrolls: Bond yields are looking fairly stable this morning and markets are taking their traditional consolidation ahead of payrolls later. USD is a shade weaker, whilst there is an edge of risk negative bias to indices that are mixed to lower.
- Nonfarm Payrolls report later: With the end of the taper in the next couple of months and a first rate hike potentially as soon as March, Nonfarm Payrolls becomes a hugely important data point. Any positive surprises to the consensus will be USD positive but also risk negative. [Increased volatility]
- FOMC’s Bullard hawkish: James Bullard (very hawkish, 2022 voter) has said that he supports a March rate hike and balance sheet reduction soon. This is not a huge surprise as Bullard is considered one of the most hawkish on the FOMC but still confirms recent market moves. [USD supportive, risk negative]
- Crypto currency sell-off continues: Bitcoin has fallen below the flash crash low of $42,101 this morning. The sell-off continues to new multi-month lows. Next key support c. $39,570 which was the September 2021 low. [Bitcoin selling pressure]
- Central bank speakers: there are no Fed speakers scheduled today
- Economic Data:
- Eurozone inflation (flash) at 1000GMT. The prelim reading of headline inflation is expected to fall to 4.7% (from 4.9% final November) with core inflation dropping to 2.5% (from 2.6% final November).
- US Employment Situation at 1330GMT. Headline Nonfarm Payrolls are expected to grow by 400,000 in December (up from 210,000 in November). Also looking at Average Hourly Earnings to grow by +0.4% on the month, but this would see year on year earnings growth falling to 4.1% (from 4.8% in November).
Broad outlook: Markets are tentative ahead of payrolls. There is still an edge of risk aversion to forex majors, indices and commodities.
- Forex: Mild negative bias amidst the consolidation. Higher risk AUD is again underperforming, whilst EUR is a slight outperformer. Expect volatility to ramp up later on payrolls.
- EUR/USD is ticking higher but still lacks any decisive trend around the middle of the trading range. We remain very neutral on the pair and look to continue to play this range between key support at 1.1185/1.1220 and key resistance around 1.1360/1.1385. The big 7-month downtrend is falling at c. 1.1430 today.
- GBP/USD recovery is now consolidating around the uptrend at 1.3540. Intraday breaches of the trend are a warning that 1.3600 may be a near term peak of a recovery. The higher low at 1.3430 is key with 1.3490 initial support. The near term outlook is in a state of change and whilst the volatility remains high, we have our outlook under review. We will know more post-payrolls.
- AUD/USD recovery has fallen over. Breaking the uptrend and below 0.7170/0.7185 support band, which now becomes a gauge of resistance. Near term, rallies are increasingly being sold into. A close below 0.7145 opens a test of 0.7080.
- Commodities: downside pressure on precious metals, but oil continues to look positive.
- Gold recovery has turned sour again with the market trading consistently below $1800. Key support above $1785 is holding for now, but a breach opens $1750/$1760. Initial resistance $1798/$1807.
- Silver the outlook is now negative and a close below the old higher low at $22.17 support would re-open the crucial support at $21.40 again. Initial resistance $22.20 with $22.50/$22.70 is now a key medium-term pivot resistance.
- Brent Crude oil has ticked above resistance at $82.80 but needs a closing breakout to open the next key resistance band at $86/$87. Support is growing at $79.60/$80.20. Initial resistance at $83.45.
Indices: a negative bias on Wall Street continues and weighs on European markets despite a sense of consolidation ahead of payrolls.
- S&P 500 futures have failed in the band between 4711/4742 (old support becomes new resistance), with the market just slipping back lower again today. There is minor support at 4661 but a breach would open next support at 4620/4645. We see this as a correction within the uptrend channel that should be a chance to buy, however, for now, the outlook is corrective.
- DAX early selling pressure around the European cash open has seen support at 15,965 breached. A close below opens the important support band at 15,800/15,870. However, a move below 15,800 would see more significant deterioration within the medium to long term trading range again.
- FTSE 100 is now posting near term negative signals which point to a test of the support band at 7365/7401. A move under 7365 opens a deeper correction within the uptrend channel. Above 7507 re-engages a positive near term outlook.