What we are looking for
- USD starting to find support: After the sharp USD unwind over the past week, we are looking for signs that the corrective move has played out. There is a mild sense of support forming this morning.
- Indices see their sharp recoveries questioned: This is now a key test. After the strong rebound, how markets react to a move lower will be key to the outlook. Will weakness be bought into?
- Commodities pull back from rebound highs: Similarly, for commodities, the rebounds have hit the buffers slightly this morning. Reaction to this will be key.
- Data trading: GBP is unlikely to be impacted too greatly unless the revision of UK Services PMI is drastic. The big focus for USD traders will be the ISM Services, although the ADP Employment will generate some interest if there is a significant surprise.
The sharp unwind across major markets is being questioned this morning. Over the past week, we have seen a sharp correction to the USD strength on major forex pairs. With US Treasury yields pulling sharply lower and a recovery in risk appetite, this has also enabled a rebound in commodities and equity markets. However, this morning we are seeing US yields higher, lending support to the USD, pulling commodities lower and European indices are off their highs and US futures are lower.
The crucial issue now is how markets react to this. Looking at the technical outlook on several markets, the big unwind is into significant medium-term resistance levels. If this is merely another near-term rebound that will be sold into, the next few days will be crucial. Building higher low support will be key. If this can develop, then a new trend of sustainable recovery can form.
It is mostly a day of US jobs and the ISM on the economic calendar today. First up this morning, the European countries tie up a few loose ends with the final readings of their PMIs. The UK Services PMI is forecast to be unrevised from the flash. Into the US session, the ADP Employment change is expected to increase slightly to 200,000 jobs. The ADP and Nonfarm Payrolls were fairly wide apart last month, but are expected to be closer in September. The ISM Services PMI is the main data announcement (especially after Monday’s surprising drop in the manufacturing survey). Services are expected to fall slightly but at 56.0 this would still be in solid expansion.
Market sentiment turns cautious again: USD is strengthening, commodities are falling back and indices are slipping lower again.
Treasury yields have ticked higher: The sharp declines in yields of recent sessions have been contained. The 10-year yield is +5bps this morning.
Reserve Bank of New Zealand tightens as expected: A 50bps rate hike from 3.00% to 3.50% was as expected by the RBNZ. “Core consumer inflation is too high and labour resources are scarce”. The announcement has supported the NZD, which is the outperforming major currency this morning.
Fed dove Daly is committed to bringing inflation lower: One of the most dovish FOMC members, Mary Daly, has said that the Fed remains committed to bringing inflation down, with further hikes needed. They should also hold policies there until the job on inflation has been done - this is hawkish. She is though also mindful of the impact of rising US rates and USD strength on global finance – this is slightly dovish.
OPEC+ set to announce big production cuts: According to the Financial Times, OPEC+ is set to announce big cuts on Wednesday. Potentially this could be as big as 1 to 2 million barrels per day.
Cryptocurrencies slip back: In line with this morning’s more cautious attitude to risk, crypto has dropped back. Bitcoin is c. -0.5% at $20,250 and Ethereum is c. -0.5% at $1355.
Just the one Fed speaker today: Raphael Bostic (2024 voter, leans very slightly hawkish) speaks at 20:00 GMT.
- UK Services PMI (at 08:30 GMT) Final services are not expected to see any revision from the 48.4 in the flash September PMI (down from 49.6 final August)
- US ADP Employment (at 12:15 GMT) The ADP is expected to improve to 200,000 jobs in September (up from 132,000 in August)
- US ISM Services (at 14:00 GMT) The ISM survey is expected to fall slightly to 56.0 in September (from 56.9 in August)
Major markets outlook
Broad outlook: Market sentiment is more cautious today. This is favouring a USD rebound, commodities lower and indices also down.
Forex: NZD is the outperformer after the RBNZ rate hike. USD is broadly outperforming.
- EUR/USD has recovered strongly through the overhead supply between 0.9865/0.9950. However, this morning we are seeing a slight drop back again. Reaction to this decline will be key. If a higher low can be formed between 0.9865/0.9950 then it would be a strong signal for testing the bigger resistance of the 55-day moving average (at 1.0030) and the 8-month downtrend. The daily RSI is back around 55 where previous rallies have faltered, so this is a crucial moment. We still favour using near-term rallies as a chance to sell but we wait to see how this move plays out.
- GBP/USD has rebounded strongly for a sixth consecutive positive session. A close above 1.1460 has also been a signal that further gains could now be seen. However, this morning, we see a drop back. Will this be seen as a chance to buy, or renew selling pressure? Reaction to the 1.1350/1.1450 old pivot area could now be key. This is a support that ideally needs to now hold, especially as the RSI is around the 50/55 area where other recoveries have faltered. Initial resistance is 1.1495 with more considerable resistance between 1.1715/1.1760.
- AUD/USD has been unable to clear the resistance between 0.6525/0.6545. The struggle also is a concern as momentum on the four-hour chart suggests this is an unwind that is a chance to sell. Initial support at 0.6450 has formed since the RBA decision and if this is breached it would be a renewed bear signal. A decisive move above 0.6545 would imply a recovery towards 0.6770.
Commodities: Huge rebounds are into key medium-term resistance.
- Gold has spiked through the overhead supply of $1680/$1691 and continues to test the resistance of $1720/$1735. The big 8-month downtrend (currently $1717) was breached yesterday but dropping back from $1735 this morning suggests caution for the rally now. Reaction to this pullback will be key, as the daily RSI is also faltering around where the August rally was sold. Reaction around $1735 will be an important gauge for the medium-term outlook. The old pivot at $1680/$1691 is now a basis of support.
- Silver broke sharply through the key August resistance of $20.84 but is pulling back this morning. The buyers will be certainly looking to find support above the $20.00 previous breakout which is now a basis of support. There is a bullish golden cross on the 21 & 55 day moving averages about to be posted. This is an encouraging signal for the medium-term outlook. The initial resistance is $21.23.
- Brent Crude oil has recovered well to the test of the key resistance overhead between $93.25/$96.60. The four-month downtrend also comes in at $94.60. For months, we have favoured using near-term rallies as a chance to sell. Reaction today to the technical resistance and the OPEC+ announcement will give a clearer gauge of the outlook in the weeks to come. Initial support at $88.90/$90.80.
Indices: The sharp rebounds of early this week are being questioned this morning.
- S&P 500 futures have continued higher since the bullish engulfing candlestick set-up (bullish key one-day reversal). However, the market has stalled slightly this morning. The reaction of the bulls to this early pullback will be key. There is support now at 3750 and if there can be a higher low at or above here it would be a strong signal for an ongoing recovery towards the big overhead supply resistance band at 3883/3935. Initial resistance is at 3808.
- German DAX pulled sharply above the resistance band of 12375/12590 which is a strong positive move. The buyers will now be looking to use any near-term weakness into the 12400/12590 area which is now supportive. If so, then recovery towards the next resistance around 12850/12930 could be seen.
- FTSE 100 has recovered strongly but is just finding resistance around 7080/7090 this morning. How the market reacts to an initial pullback lower will be an important gauge. If support can begin to form around 6970/7010 and then move higher again, it would be a signal that further recovery could build.
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