What we are looking for
- USD turns corrective: A shift away from the dollar has come this morning. This is showing across major forex. Previous moves like this have been short-lived and seen as counter to the ongoing trend of USD strength. However, if EUR/USD can hold above 1.0100 it would signal a more solid improvement.
- Indices continue to rebound: US futures are into a third day of recovery, with further upside potential in the move. European markets are also testing near-term resistance.
- Commodities also turning a near-term corner: Silver is leading the way higher in a risk rally, but gold is also testing near-term resistance at $1727.
- Data trading: CAD traders will need to look out for Canadian unemployment. Traders should also watch the Canadian participation rate and wage growth too.
Firstly, we would like to convey our great sadness at the passing of Queen Elizabeth II. She was an incredible woman and we thank her for her years of dedicated service. Our condolences are with the UK Royal Family. She will be greatly missed. And as Paddington Bear once said to her, “Thank you Ma’am, for everything”.
Financial markets are coming through a volatile past 24 hours and are looking at a near-term USD correction and a more positive bias to risk appetite. The Fed remains very hawkish, but the ECB has also come out with a hawkish surprise. Overnight lower than expected China inflation has also helped to improve risk appetite. With US yields holding ground today there is a notable corrective feel to the USD, seemingly with other major central banks playing catch up on the Fed. For now, risk appetite has improved overnight, and it will be interesting to see how far this move can go. Rebounds still seem to be seen as bear market rallies, with the more overpowering trend of USD strength still dominant.
The economic calendar is fairly quiet today. The only major market data of note comes from Canadian unemployment. A slight increase is expected, but it will be worth looking at the participation rate. US unemployment jumped as the participation rate increased (more people looking for jobs increases the jobless rate. Will this also be seen in Canada? Also, will Canadian wage growth stay high?
Market sentiment is improving: A shift overnight has seen the USD turn corrective and a broad risk rally is evident across commodities and indices.
Treasury yields are hovering: Treasury yields increased yesterday, albeit not as much as European yields after the ECB. There is a more settled feel this morning.
Chinese inflation is lower than expected: The CPI for August was 2.5% down from 2.7% in July. Consensus had forecast an increase to 2.8%. The PPI also dropped decisively to 2.3% from 4.2% and was lower than the 3.1% forecast.
Fed Chair Powell remains hawkish: Powell has strengthened expectations that the Fed will hike by 75bps in September. “We need to act now, forthrightly, strongly as we have been doing”. We went on to add, “My colleagues and I are strongly committed to this project and will keep at it.”
ECB is also hawkish: A 75bps hike by the ECB yesterday shows the Governing Council is determined to hike strongly for the rest of 2022. Another 75bps hike is possible in October.
Cryptocurrencies rally: Bitcoin has jumped this morning. A rally of over +6% has taken the price back above $20,600.
Three more Fed speakers are due: The FOMC’s Evans (voter in 2023, dovish) speaks at 14:00 GMT. George (2022 voter, leans hawkish) speaks at 16:00 GMT. Waller (permanent voter, very hawkish) speaks at 16:00 GMT.
- Canadian unemployment (12:30 GMT) Unemployment is expected to increase slightly to 5.0% in August (from 4.9% in July).
Major markets outlook
Broad outlook: USD turning corrective near-term. A risk rally helps commodities and indices higher.
Forex: There is considerable USD profit-taking this morning. AUD and NZD are leading a big risk rally, but JPY is also recovering.
- EUR/USD has taken a significant rally in the past 24 hours. Although there was a fair amount of intraday choppy price action yesterday, the USD has been hit this morning with a strong rebound. The move above 1.0090/1.0100 resistance now needs to hold. A close above this resistance would be an encouraging signal of recovery to test the big downtrend. For now, we remain cautious as previous bear rallies have been short-lived. A breakout above 1.0203 resistance would be the next key upside test.
- GBP/USD was subdued yesterday but has taken off in a rally this morning on the USD profit-taking. A move above 1.1610 initial resistance needs to hold. This would open a rally into the resistance band 1.1715/1.1760. There is an RSI buy signal (move above 30) which points toward a technical rally. Initial support is at 1.1560/1.1610.
- AUD/USD is driving an incredible rally this morning. The move has decisively recovered the Aussie back to the key medium-term resistance band between 0.6840/0.6870. With the RSI back around 50, the reaction around the resistance will be an important gauge. Holding above initial support at 0.6800/0.6830 would help to encourage a recovery.
Commodities: The near-term recovery in precious metals continues, with oil also moving higher near-term.
- Gold has been posting fairly wild intraday swings in each of the past three sessions and once more this morning there is another big early move. The price action has now broken a one-month downtrend .and is testing the resistance band $1720/$1727. A close above $1727 would be a sign of further recovery, especially if it came with the RSI moving above 50. The prospect of further recovery towards $1754/$1765 would then increase. Initial support is now $1704 but a close back under $1720 today would be a slight disappointment.
- Silver is leading the near-term recovery with a move above $18.60/$18.70 resistance. If this can be a closing break higher it would improve the outlook for near-term recovery, perhaps towards the key medium-term pivot band of $19.42/$19.54. The RSI back abound 50 again makes this an important pivot moment.
- Brent Crude oil has picked up from $88.25 and is trying to engage a recovery once more. However, this still has a bearish configuration to momentum and there is plenty of overhead supply to restrict a recovery. The resistance between $93.25/$95.90 is the first barrier to overcome.
Indices: A near-term recovery is forming.
- S&P 500 futures have turned a near-term corner. Wednesday’s bullish engulfing candle saw further gains yesterday and is now a move above initial resistance at 4018 this morning. A close above this resistance opens further recovery within the three-week downtrend and a test of resistance at 4072/4110. The daily RSI is up to 50 which makes this an important moment in the rebound.
- German DAX has been choppy in recent sessions but has taken momentum in a recovery this morning. The index is now testing the important resistance barrier between 13000/13150. The daily RSI has unwound to 50. So once more, this is a market testing an important near to medium-term pivot area. A close above 13150 would be a signal for a further recovery towards 13330/13430. Initial support is at 12920/13035.
- FTSE 100 has swung sharply higher this morning and is testing the resistance at 7370. Once more the daily RSI has unwound to 50 and this is an important pivot moment. A close above 7370 opens for further recovery. Holding on to the initial support band 7290/7325 sustains an improving outlook near to medium term.
This material is for general information purposes only and is not intended as (and should not be considered to be) financial, investment or other advice on which reliance should be placed. INFINOX is not authorised to provide investment advice. No opinion given in the material constitutes a recommendation by INFINOX or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.