What we are looking for
- USD rebound continues: Recent days have seen a USD rebound taking hold on major forex. This is continuing today, although is a cautious move so far.
- Indices faltering: Wall Street fell hard again yesterday after Meta shares weighed on NASDAQ. US futures are steady this morning, but there is a mild risk-negative bias on European indices.
- Commodities looking to settle: The breakdown on oil was the big move yesterday but early moves are fluctuating in support. Precious metals look more settled.
- Data traders: EUR traders will be hoping for any sort of revision to Eurozone Q3 GDP. CAD traders will be looking at the Bank of Canada rates decision for volatility.
Risk appetite is turning ever more sour as the week drags on and several negative factors have been weighing. There has been a USD recovery as US data has proven to be more resilient (remember, for risk assets, worsening US data would lead to a less hawkish Federal Reserve). This has seen Treasury yields edge higher on the prospect that the Fed may not be ready to dial down the hawkish lean.
However, the big moves lower are coming in equity markets. The risk recovery of recent weeks is retracing. Advertising restrictions on Meta (AKA Facebook) in Europe had a knock-on impact on Wall Street yesterday. The ever-worsening China trade numbers, announced as the Australian GDP was also lower than expected will add to the risk aversion. News of China easing COVID restrictions may help to form support, but it is early days. Wall Street is now trading around some important support levels and this looks to be an important moment. The negative sentiment has also helped to drive a breakdown in oil to its lowest level since January.
Eurozone growth and the BoC are key on the economic calendar. The final reading of Q3 Eurozone GDP is not expected to show any revision. The main event will be the Bank of Canada interest rate decision. A 50bps hike is expected by the consensus. Traders will also be looking out for any forward guidance on how far rates might rise into 2023.
Market sentiment turning more negative: This is especially seen through the recent retreat in equity markets and oil. However, the USD rebound is also a function of this.
Treasury yields edge higher: Yields have been edging higher in recent sessions and this continues today.
Australian Q3 GDP misses estimates: QoQ GDP was +0.6%, down from 0.9% in Q2. This was also below the +0.7% forecast.
China trade surplus drops: Both imports and exports fell more than expected in November. The surplus fell to +$69.8bn (from +$85.2bn in October). Imports fell by -10.6% and exports fell by -8.7%.
US Democrats projected to take the Senate: The Democrats are projected to have won the run-off for the Senate seat in Georgia. This takes them to 51 seats in the Senate compared to the Republicans who have 49. Although the legislation will still be difficult to get through, it will make it easier for President Biden to appoint judges and members of his administration.
China to ease COVID measures: According to Chinese media, China is set to allow home quarantine as well as ease testing requirements.
Cryptocurrencies falter again: There have been fluctuations recently but crypto is beginning to falter again. Bitcoin is -1% at $16790 and is around one-week lows. Ethereum is -2.2% at $1227.
- Eurozone GDP – Q3 final (at 10:00 GMT). The third and final reading of GDP for Q3 is expected to be unrevised at +0.2% QoQ (final Q2 +0.8%).
- Bank of Canada monetary policy (at 15:00 GMT). The BoC is expected to raise rates by +50bps to 4.25% (from 3.75%)
Major markets outlook
Broad outlook: Markets continue to trade with a negative bias to sentiment.
Forex: Majors continue to lean towards a near-term USD recovery. Only NZD is holding up today.
- EUR/USD following recent negative candles the pair has pulled back into the initial support at 1.0430/1.0495. Momentum remains strongly continued with the RSI around 60 but this looks to be an important moment as recent rallies have come around this area. We would prefer to use the weakness in EUR/USD as a chance to buy, but look for support to hold first. A higher low above 1.0290 would be important.
- GBP/USD has pulled back below support around 1.2150 and is now testing the one-month uptrend. The daily RSI has unwound but if it drops below the high-50s it would begin to signal a loss of recovery momentum. For now, the outlook remains positive and near-term supported weakness looks to be a chance to buy, however, we look for confirmed support first. A breakdown below 1.1900 would turn the market corrective again. Resistance is strengthening now at 1.2343.
- AUD/USD continues to struggle and fell back into the close despite the RBA rate hike. The daily RSI is showing a few signs of rolling over, so needs to be watched (a move below 50 would be a big warning now). The run of higher lows means that 0.6642 is an important support now. As long as 0.6642 holds, the outlook can still be positive. Resistance is now initially at 0.6745 with 0.6850 key.
Commodities: Precious metals are cautiously forming support after Monday’s near-term corrective signals. Oil has broken down.
- Gold formed a big bearish engulfing candlestick which is still a consideration for the near-term outlook, but the support has started to build from $1765. This has allowed the daily RSI to hold up well in the high 50s. However, if there is another negative candle with a close below initial support at $1764 would be a sign of a growing correction. Furthermore, if the RSI also falls below 50 this would be a decisive reversal signal corrective signal. Resistance is strengthening between $1798/$1810.
- Silver is looking to build support after the bearish engulfing candle earlier in the week. The move has pulled the market back into breakout territory, but if there is a close below $22.00 support it would suggest a deeper unwind towards $21.67 initially. Yesterday’s rebound high of $22.60 is the initial resistance now under $23.51.
- Brent Crude oil has fallen sharply at the four-week downtrend and has now broken below the key support band of $81.40/$83.55. The next support is around $77.00 and then $69.50. The move is holding the breakdown this morning, but, notably, the daily RSI is back to 30, around where previous technical rallies have taken hold. However, we see near-term rallies as a chance to sell. Initial resistance is now between $81.40/$83.55.
Indices: US futures have unwound to important levels, whilst the recovery trends breaking on European indices.
- S&P 500 futures have closed lower for four sessions in a row now, with another decisive decline yesterday. This is now testing the crucial pivot band support at 3912/3935. If there is a close below 3912 it would be a key corrective signal as the recovery tops out. The support is tentatively holding this morning. Initial resistance is 3988/4015.
- German DAX has faltered at the crucial resistance band between 14700/14800 and has now broken the recovery uptrend. With the negative divergence on the RSI leading the market lower, there is a growing risk of a correction. The initial support at 14322 has been broken but if there is a move below 14125 it would cap a three-week topping pattern. The RSI moving below 50 would be confirmation of growing corrective momentum. Yesterday’s rebound high of 14475 is the initial resistance of note.
- FTSE 100 has pulled back from 7635 in recent days as the market has faltered just shy of a test of the key May highs at 7650. This faltering run higher is reflected in the RSI although there is no explicit corrective signal yet. The warning signs are growing though, with a clutch of negative candles forming on the daily chart. The reaction to the support band 7515/7520 will be a key signal. Below 7515 opens the next support around 7440.
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