The dust is settling on an incredibly hectic 48 hours in financial markets. A deluge of important central bank updates are being digested and traders are trying to figure out where this all leaves positioning. The bias is towards risk aversion this morning as once more yesterday the bulls have failed around key resistance levels on major indices. The sharp rise in Omicron infection rates in major economies remains a threat to economic recoveries. With US Treasury yields bond yields looking limp, there seems to be a lack of traction in the elevated volatility from yesterday’s moves. The final Eurozone inflation data is the only significant data of note on the calendar.
Main drivers: Markets edging slightly risk negative; the BoJ holds steady as expected; UK retail sales beat expectations; one Fed speaker later; Economic calendar: Eurozone final inflation
- Broad sentiment mixed to slightly negative: European indices have opened slightly weaker after another Wall Street bull failure sell-off into the close. Forex majors are reflecting this risk aversion with AUD and NZD underperforming whilst JPY is slightly stronger. Gold and silver rallying whilst oil is weaker also plays into this.
- The BoJ stands steady: interest rates held at -0.10%, with yield curve control maintained (10-year yield target at 0%). All as expected. [JPY neutral]
- UK Retail Sales beat: Both headline (+4.7% YoY versus 4.2% exp) and core (+2.7% versus 2.4% exp) beat forecasts. [GBP supportive]
- Omicron cases jumping in the US: cases are up 40% over the past month [risk negative]
- Central bank speakers: the first Fed member speech in the wake of the FOMC decision:
- FOMC’s Waller (permanent voter, leans hawkish) speaking at 1800GMT
- Eurozone final inflation (at 1000GMT) November inflation is expected to be unrevised with headline inflation of 4.9% (final October 4.1%) and core inflation also unrevised at 2.6% (final October 2.0%)
Broad outlook: an edge of risk aversion is creeping back into markets as we approach the end of the week. Safe-haven assets are outperforming this morning with JPY leading major forex, and gold continuing to climb. Indices are slightly weaker.
Forex: Safe haven majors (JPY especially) performing well. GBP is holding up after positive retail sales. AUD and NZD are underperforming.
- EUR/USD yesterday’s rebound has stalled around the resistance at 1.1355 and is under the key range resistance at 1.1382. Given the unwind on daily RSI to 50, we favour continuing to play the range. Support at 1.1220 and 1.1185.
- GBP/USD broke sharply higher on the Bank of England and bulls will now be looking to build support around 1.3280/1.3310 on the pullback. How markets react in the coming hours around this support could be key to whether it is a bull failure. Initial resistance at 1.3337 under yesterday’s spike high of 1.3374.
- AUD/USD looked to be finding traction on a breakout but the move is steadily unwinding now. Holding back under 0.7170 would be worrying for the bulls. Below 0.7145 would add to corrective momentum.
Commodities: precious metals finding recovery traction, oil drifting lower.
- Gold has recovered through resistance at $1790/$1800 and will be looking to hold the move now. A break above $1815 would be bullish confirmation of a decisive shift in sentiment and open $1835/$1845.
- Silver has improved significantly in the past 48 hours. Holding a move above $22.60 would suggest building recovery traction. Next resistance c. $23.00. Bulls will look to build higher low support around $22.20/$22.40 on any near-term pullback.
- Brent Crude oil outlook is increasingly mixed as an attempted recovery just rolls over again. This is leaving the market ranging between $72.85/$77.20. Daily technicals still hint towards selling into strength, with the falling 21-day moving average a gauge of resistance.
Indices: another bull failure leaves markets increasingly choppy within ranges.
- S&P 500 futures failing around the 4740 previous all-time high and unwinding sharply leaves the outlook stuck in a near term range 4596/4741. Technical indicators are highly uncertain and with volatility elevated, breaking moves are repeatedly failing.
- DAX falling over around 15,695 has left the market stuck in a range between 15,425/15,870. Technical indicators suggest the range continues, but there is a mild negative bias this morning.
- FTSE 100 continues to be an outlier of the major indices. Positive signals are now coming after a corrective period. A move above 7302 would improve the outlook for a retest of 7400 again. The importance of 7225/7245 support is growing.