The huge swings of sentiment on Wall Street reflect how volatile and nervous market participants have become in front of the Fed meeting on Wednesday. Add in the heightened tensions on the Russian/Ukrainian border and we have a cocktail of difficult markets to navigate. Despite the huge intraday recovery on Wall Street last night, sentiment has not followed through with further recovery today. Safe-haven assets are outperforming again and higher risk assets are under pressure. The pressure is mounting on the Federal Reserve meeting tomorrow. How does the FOMC guide for its tightening cycle with markets increasingly fearful?
US Consumer Confidence is prime on the economic calendar today, with the Fed speakers in blackout period ahead of tomorrow’s meeting.
Main drivers: Still a difficult outlook for risk assets; US futures back lower again; safe havens again outperforming; tensions remain high at the Russia/Ukraine border; Australian inflation higher than expected; Economic calendar: US Consumer Confidence.
Sentiment swinging around: Wall Street managed a remarkable rally into the close last night. However, despite European indices playing catch up with a minor rebound early today, there is still a risk negative bias to US futures, forex majors, and commodities.
Market moves are tentative ahead of the Fed: Any risk recovery, even from oversold may struggle for traction ahead of the FOMC meeting on Wednesday.
Safe haven bias threatens again: Higher risk assets are again beginning to slip back. US bond yields are moving lower again (US bond bought as a safe haven appeal), along with JPY and USD outperforming in forex and silver falling back in commodities. US index futures have swung back lower again, with the high growth NASDAQ underperforming
Support will be tentative in front of the Fed: With volatility elevated (VIX is above 30 this morning), markets are likely to remain on edge and spike around on very little in the next couple of days. The Fed meeting on Wednesday will likely be crucial to whether this can settle down [High volatility]
Russia/Ukraine tensions remain heightened: Suggestions of US troops being activated in Ukraine. [Risk negative]
Aussie inflation jumps: The Trimmed Mean CPI (RBA’s preferred measure) has jumped to 2.6%, versus the 2.4% expected. This adds pressure on the RBA to tighten. This would be supportive for AUD but the focus is on risk appetite today instead. [AUD supportive but volatile]
Crypto recovery? Yesterday’s intraday rally showed signs of support. Bitcoin rebounded sharply intraday yesterday to form a “bullish key one-day reversal”. However, this needs to continue higher again today to be confirmed. Bitcoin is currently c. -2% on the day.
Central Bank speaks: There are no Fed speakers scheduled for today, the members are in a blackout period in front of the FOMC meeting on Wednesday.
- US Consumer Confidence (at 1500GMT). Confidence is expected to decline to 111.4 in January (from 115.8 in December)
- Richmond Fed Manufacturing (at 1500GMT). The survey is expected to drop to +14 (from +16)
Broad outlook: Sentiment is choppy and uncertain but with a bias towards safe havens today.
Forex: AUD is holding up well after Australian inflation, with a bias towards JPY and USD.
- EUR/USD is breaking the support of the shallow uptrend channel as support around 1.1300 is being chipped away. A breach of the 1.1270/1.1280 a key higher low support would turn the market corrective again. The importance of resistance at 1.1360/1.1385 is increasing again.
- GBP/USD is looking to stabilize this morning after the sharp negative candle yesterday. The support band 1.3410/1.3490 needs to hold to prevent the outlook from turning negative again on a medium-term basis. Resistance at 1.3570/1.3600 is key now.
- AUD/USD has now broken the support at 0.7130 to confirm the end of the recovery. How the market now reacts around 0.7170/0.7185 will be key as this is now resistance. A close under 0.7120 puts pressure on 0.7080 next important support.
Commodities: gold is consolidating, silver sliding back. Oil is increasingly struggling to find consistent buyers now.
- Gold has formed a consolidation above $1828/$1832 which will encourage the bulls. However, it has been unable to overcome the resistance of $1844/$1848 and is again just slipping back within the consolidation this morning. Above $1848 opens the way towards $1877.
- Silver is engaging a retracement back towards the $23.25/$23.45 breakout support band. Initial resistance is now at $24.0/$24.10.
- Brent Crude oil is now breaking the big uptrend of the past five weeks. There is a growing sense that the resistance at $89.55 will be a key high as lower highs and lower lows start to form. Support in the band $85.00/$85.75 is now key.
Indices: Huge volatility and wild swings across Wall Street. Last night’s rebound is being retraced today. European markets are catching up on the rally late last night, but have struggled and the move is waning now.
- S&P 500 futures rebounded around 5% off 4213 but the rally has faltered at 4411 and is now falling away again. These are now the key levels to watch. Daily and intraday momentum remains negatively configured and intraday gains are being sold into.
- DAX has fallen from the top of the medium-term range to now test the lows. However, once more the suggestion is that intraday drops into 14,800/15,000 are still finding buyers. A rebound from 14,832 has faltered at 15,284 and has fallen away again. Initial resistance at 15,225 needs to be overcome to generate positive momentum now.
- FTSE 100 with a sharp intraday fall to 7235 but the rebound is faltering this morning. The resistance forming at 7396 which is around the old 7400 pivot area adds to the importance of this level. Initial support at 7315.