What we are looking for
- USD strength unwinds: Lower yields and a more stable outlook for UK assets are helping the turnaround in sentiment. USD has been corrective as a result, although has broadly consolidated this morning.
- GBP rebound continues: Sentiment for GBP has turned a corner as a series of supportive measures from authorities have stabilised the outlook.
- Indices ticking higher, but can it last?: Equity markets have been fluctuating over recent sessions. A rebound early today has kicked in. However, can it finally hold the move and build a sustaining recovery? It is the last day of September, possible position squaring too.
- Commodities rebound taking hold: better risk appetite this morning is helping commodities higher. Important resistance is being eyed.
- Data trading: EUR traders will be considering the upside risks to Eurozone inflation forecasts after German inflation topped estimates. The US Core PCE may not do too much for USD, nor what is expected to be an unrevised Michigan Sentiment. Attention may be more on the four Fed speakers. After recent market turmoil, how hawkish will they all be?
A series of measures have helped to stabilize GBP in recent days. Actions from the Bank of England to shore up Gilt markets have certainly helped. However, also the announcement that the UK’s independent Office for Budget Responsibility will publish their fiscal assessment in the next couple of weeks. This is much earlier than traders had expected (previously 23rd November had been suggested). This shows a concerted effort to reassure markets that the authorities are serious about fiscal responsibility. GBP has rallied on the back of this and broader markets have also taken some reassurance too, with EUR also having rallied strongly yesterday.
This morning we see GBP still outperforming, although major forex is a little more subdued elsewhere. The main risk-positive moves are coming through gains in commodities and equity markets. US futures are around +0.75% higher and are helping a positive open in Europe.
There is plenty of tier-one European and US data on the economic calendar today. Eurozone HICP inflation is expected to increase to 9.7% on a headline basis. However, after German inflation spiked much higher than expected yesterday, traders will be thinking maybe about a number above 10%. US Core PCE is the Fed’s preferred inflation measure but coming more than two weeks after the CPI data, its impact tends to be rather limited. Core PCE is expected to increase slightly in August. Michigan Sentiment is a final reading and is expected to be unrevised. Aside from the data, there are also four more Fed speakers to move markets.
Market sentiment improves: This is especially showing through indices and commodities today. GBP rebounding further is also part of this.
Treasury yields slip back: Yields are looking slightly more stable in a minor slip lower this morning. Both 2s and 10s are around -3bps.
UK Government is being urged to release OBR forecasts: The OBR helps to provide an independent outlook for the UK economy amid the UK Government’s fiscal statements. An initial report could be ready in a couple of weeks with the full version published by the end of October. The prospect of this will help to calm markets.
Cryptocurrencies build support: The risk rebound this morning has added support for cryptos. Bitcoin is +0.6% at $19600 with Ethereum at +0.4% and $1343.
Four more Fed speakers: There are three Fed members set to speak together at 13:00 GMT. Loretta Mester (2022 voter, hawkish), John Williams (permanent voter, centrist) and Lael Brainard (permanent voter, now considered the most dovish member of the FOMC) are all due. Then Michelle Bowman (permanent voter, hawkish) speaks at 15:00 GMT.
- Eurozone HICP inflation (at 09:00 GMT) Headline inflation is expected to jump to 9.7% in September (from 9.1% in August), with core inflation expected to increase to 4.7% (from 4.3%)
- US Core Personal Consumption Expenditure (at 13:30 GMT) Core PCE inflation is expected to increase slightly to 4.7% in August (from 4.6% in July)
- US Michigan Sentiment - final (at 15:00 GMT) No revision is expected with sentiment at 59.5 in September (59.5 flash, 58.2 final August)
Major markets outlook
Broad outlook: A risk rebound is helping commodities and indices. However, major forex is slightly more cautious.
Forex: GBP and latterly EUR are outperformers today. Other majors are in consolidation versus the USD.
- EUR/USD has been trading with elevated volatility throughout the week but the recovery is on. Two strong bull candles have moved the pair back above resistance at 0.9750 and the market is now eyeing a test of the overhead supply between 0.9865/0.9950. Intraday charts are backing the near-term rally, but the reaction to this overhead supply will be key. Holding on to support now at 0.9750 will sustain recovery momentum. Below 0.9635 turns negative again.
- GBP/USD has accelerated higher in a near-term recovery that is eyeing a test of the first real resistance band between 1.1210/1.1350. The four-hour chart shows that momentum is positive with the move and support around 1.0930 is an important gauge for sustaining the recovery.
- AUD/USD has stuttered in its recovery. Wednesday’s high of 0.6530 has proved to be a barrier in the past couple of days. This needs to be overcome to open the recovery as it would complete a small base pattern (that would imply c. 0.6700). The next overhead resistance is then between 0.6575/0.6670. Support at 0.6435 is an important gauge for a rally.
Commodities: A recovery in precious metals and oil is developing.
- Gold has closed higher in each of the past three sessions leaving the support of a key low at $1615. The rebound is coming up to an important pivot area. The key overhead supply between $1680/$1691 is now approaching, just as the daily RSI once more unwinds back towards 45/50. A break higher through both would open a bigger rebound towards $1720/$1735. Initial support is at $1659 with $1641 now a higher low.
- Silver has been choppy in its recovery, but this morning is pulling above the resistance band of $18.77/$19.06. Holding above this level and above 50 on the RSI holds the recovery momentum which then could turn attention to a test of the five-month downtrend (currently at $19.67). Support at $18.49 is growing in importance near term.
- Brent Crude oil has rallied to consolidate around the resistance of the previous September lows between $88.25/$89.75 as the basis of overhead supply. This morning’s tick higher is now looking to break the resistance of a four-week downtrend too. A move above $90 would open for a bigger near-term rally and a test of the key resistance overhead between $93.25/$96.60. For now, this near-term rally is straining to break higher. However, we favour waiting for the rally to play out before looking to sell into strength for a retest of the $83.55 low in due course.
Indices: Equities are picking up this morning as support seems to be holding. There is much that is needed before a sustainable recovery can take hold. It will also be interesting to see if the new month comes with a change of sentiment.
- S&P 500 futures have held on to what is now a support band between 3613/3639. This morning’s tick higher is still only marginal in the context of the volatility of recent sessions, but the support holding is a positive. A rally above 3750 is needed to suggest a sustainable rebound can kick in. The daily RSI is still looking to unwind from oversold (from under 30) and there is scope for a rebound to develop.
- German DAX fell sharply yesterday but the support at 11849 has held. Ticking higher this morning will add strength to this support too. The daily RSI remains negative but is looking to unwind from 30. A three-week downtrend would be broken if the market can rally above the 12309 resistance.
- FTSE 100 has been very volatile in recent sessions. Intraday rallies have consistently been seen as a chance to sell, so the reaction to this morning’s rebound will be key. Furthermore, the resistance between 6969/7010 will be an important gauge too. This is the old overhead supply of the June/July lows. If this can be overcome and the resistance between 7034/7079 too, then there is scope for a decisive near-term recovery. The importance of the support of yesterday’s low at 6827 is growing.
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.