What we are looking for
- USD threatens to turn corrective: With such a crowded long USD position may not take much to tip the USD into a near-term correction on major forex. This is already threatening as the Dollar Index has fallen this morning. A move below 108.00 would open a correction back to 107.00/107.40.
- Indices turning higher: Indices were edging back higher throughout yesterday’s session and are continuing the move today. US futures are around 1% higher in early moves.
- Commodities rebounding: The Chinese fiscal stimulus announcement has pulled commodities prices (especially metals) back higher again.
- Data trading: EUR traders will be watching for the ECB meeting minutes. Any signals of higher rates should help to support EUR. The Prelim US GDP will be the main driver for USD data traders, with an upward revision expected.
There has been another near-term shift in market sentiment. With China announcing a 1 trillion yuan fiscal stimulus (c. $145bn) for infrastructure projects there has been a flow back into higher-risk assets such as commodities and commodity currencies (such as the AUD and NZD). Traders are turning away from the USD. This is also helping equity markets to rebound after a period of weakness.
These moves are counter to the trends that were once more becoming established. We currently see the reaction as being near-term and is unlikely to be a game changer for the more established trends that had taken form. The fundamentals of USD strength, a hawkish Fed and negative growth drivers in major economies all still stand firm. There is though room for a near-term “long squeeze” on the USD, with rebounds in commodities and indices. With Fed chair Powell’s speech at Jackson Hole tomorrow, the moves may be short-lived.
It is another day stacked with US data on the economic calendar. However, the ECB meeting minutes will be watched for hawkish leans on prospective rate hikes. The revision to US GDP is the main data for the day. Q2 Prelim GDP is expected to be revised slightly higher, although technically this would still leave the US in “recession”. Jobless Claims are expected to increase once more after last week’s unexpected decline. This would resume the recent trend of mild increases. Also, look out for the Kansas Fed survey which is expected to deteriorate slightly but remain above zero in expansion.
Market sentiment turns positive: USD is weakening, with AUD and NZD outperforming. Commodities (especially metals) are rallying along with good gains on indices.
Treasury yields a shade lower within their uptrends: There is a decisive trend higher on yields which are taking yields back towards their June highs. There is a mild tick lower this morning, but the trends remain intact.
China announces new fiscal stimulus measures: The government has announced some new fiscal support worth 1 trillion yuan (c. $145bn). This is helping to support risk appetite and commodities prices.
German Ifo Business Climate better than expected: The August German Ifo Business Climate fell a shade to 88.5 (from 88.6 in July) which was better than the expected deterioration to 86.8.
Cryptocurrencies edging higher: Moves in recent days have been slightly more positive. Positive candles in three of the past four sessions on Bitcoin have the price edging back higher once more. The price is slightly higher again today, hovering around $21700 now.
- ECB Monetary Policy Meeting Accounts (11:30 GMT)
- US GDP – Q2 Prelim (12:30 GMT) A slight upward revision to -0.8% is expected at the second reading (after -0.9% Advance Q2 GDP). Q1 final GDP -1.6%.
- US Weekly Jobless Claims (12:30 GMT) Claims are expected to increase to 253000 (from 250000 in the previous week)
- Kansas Fed Manufacturing (14:00 GMT) A slight decline to +3 is forecast in August (from +7 in July)
Major markets outlook
Broad outlook: Market sentiment has turned positive. USD is underperforming, with commodities and indices higher.
Forex: USD is weaker across major forex. AUD is a big outperformer, along with NZD.
- EUR/USD has found a low at 0.9900 in recent days and is threatening a near-term recovery. A sharp downtrend of the past two weeks is coming under pressure as resistance around 1.0020/1.0030 is being tested. A move above this resistance would open the way to a near-term technical rally back towards 1.0120. We favour selling into strength and expect further pressure back on 0.9900 in due course. However, for now, we wait to see if a near-term rebound takes hold. Initial support at 0.9945/0.9960.
- GBP/USD has been showing signs of picking up from 1.1717 to form a near-term recovery. With the four-hour RSI back to around 50, this is an important moment. Reaction around the resistance at 1.1875 will be an initial gauge, with a decisive move above opening a potential recovery towards 1.2000. However, we continue to favour selling into strength. Initial support is at 1.1785/1.1800. With Cable breaching the July low there is little real support until the COVID breakout spike low of 1.1410.
- AUD/USD has turned a corner and is in recovery mode now. A decisive move above 0.6970 could propel the market higher to test 0.7040 resistance. Momentum (especially on the four-hour chart) is looking stronger and if a higher low can be posted above 0.6930 then the outlook for recovery will continue to improve.
Commodities: Precious metals have rebounded into recovery mode. Oil is still straining to overcome key resistance now.
- Gold has rallied from $1727 and is now trying to form a recovery again. The move has rallied the market into the resistance between $1754/$1772 and the reaction around here will be key to the near to medium-term outlook. A bull failure would be seen as a selling opportunity for further correction. The RSI on the four-hour chart has improved above 60 and a move back above 65 would be a positive signal. There is now higher low initial support at $1743.
- Silver has been more tentative than gold in the past few sessions, but is pulling decisively higher for a rebound today. Support at $18.95 is a higher low for the near-term recovery. The reaction around resistance at $19.54/$19.93 will be important now for the recovery.
- Brent Crude oil has picked up well from $93.25 support to recover back above $100. This is a crucial moment, with the RSI edging above 50, this could be a moment where recovery can hold and build further. The market is higher again today and is seriously testing the key resistance of the mid-August lower high at $102.95. A decisive close above would be an important break of the sequence of lower highs and would significantly improve the near-term outlook. For this reason, we are neutral for now, whilst this move plays out. Initial support is at $99.50/$102.20.
Indices: US futures are trying to recover, the DAX leading European markets in a rebound.
- S&P 500 futures have ticked higher from a low of 4110 and are now testing the old resistance band at 4170/4200 again. The four-hour chart shows how holding a break above 4158/4162 would be important for recovery prospects. A close above 4200 would be a positive signal now.
- German DAX has rebounded off 13075 to leave the key higher low at 13035 intact. Momentum has unwound back towards the 45/50 area on the daily and four-hour RSIs. This suggests that with the resistance between 13330/13450 this is an important moment. A close above 13450 would be a key positive signal that the bulls can fight back.
- FTSE 100 has been falling in recent sessions, but a rebound off 7411 has seen the market swing back higher once more. Can the recovery last? A move back above 7543 would be a .positive signal, as would a move back above 60 on the four-hour RSI. Initial support is 7490/7500.
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