What we are looking for

  • USD trying to recover: USD fell hard on major forex pairs on Friday, but is looking to recover lost ground today.
  • GBP supported: Hints of stability in the UK political risk premium as Boris Johnson decides not to run in the election to be the next Conservative Party leader. Rishi Sunak is the clear front runner and is a relatively safe pair of hands. If he is unopposed this could lead to a period of relative calm for GBP.
  • Indices could be set to pullback: After Wall Street closed sharply higher on Friday, US futures have lost momentum this morning. This is weighing on what would have been a strong start for European markets.
  • Commodities pulling back: Sharp gains on Friday are unwinding this morning. 
  • Data traders: GBP will be primarily focused on political developments, but the flash PMIs will also be worth watching. USD traders will be keeping an eye out for the US flash PMI later.


Signs of currency intervention from Japan on Friday weighed on US bond yields. This pulled the USD lower and allowed a risk rally to run through Wall Street. The conditions had been set up for this to continue this morning, with US Treasury yields lower again. However, there is an air of caution setting in once more. US futures have dragged back and the USD is finding support again, weighing also on commodities.

The one main exception to all this is support for GBP. Sterling has been buoyed by news that Boris Johnson, the divisive former Prime Minister, will not be standing in the Conservative leadership election (just four months after he left as Prime Minister). This leaves Rishi Sunak as a clear front-runner. Sunak is seen as a relatively safe pair of hands for the economy. This is helping to ease UK risk premium, with the UK 30-year Gilt yield dropping already from 4.05% to around 3.90% this morning. 

The economic calendar is concentrating on flash PMIs today. With Japan and Eurozone data out earlier, the consensus is looking for the UK flash PMI to fall slightly on the composite and remain below 50. This is expected to be driven by mild deteriorations in both services and manufacturing. Analysts are looking for the US Flash PMIs to not only improve but also to take the composite back above 50 into the mildest of expansion (at 50.1). 

Today’s news

Market sentiment looking cautious again: Despite the risk rally of Friday, markets are looking more cautious again this morning. USD is gaining, with commodities and indices slipping lower again.

Treasury yields are lower: US yields are lower again but are starting to bounce off earlier lows.

Chinese Q3 growth beats forecasts, September data mixed: GDP picked up by 3.9% QoQ in Q3 (following -2.6% in Q2) which was better than the 3.4% forecast. Activity data for September was mixed. Industrial Production beat expectations as it improved to +6.3% YoY (from 4.2% in August) but Retail Sales fell to 2.5% (from 5.4%) missing expectations. On the trade data, exports were slightly better than expected, but imports were slightly worse.    

Japanese flash PMIs improve slightly in October: The flash composite PMI picked up to 51.7 (from 51.0) and the services PMI picked up to 53.0. The Manufacturing PMI hovered at 50.7.

Eurozone flash PMIs fall more than forecast: The Composite PMI dropped to 47.1 in October (from 48.1 in September). This missed the 47.5 forecast.

UK Flash PMI also misses: The Composite has dropped to 47.2 from 49.2 in September. The consensus was looking for 48.1. 

The UK may have a new prime minister today: Rishi Sunak is now the clear front-runner in the Conservative leadership race. Unless Penny Mordant receives over 100 Tory MP nominations by today, Sunak will be the leader and therefore the new Prime Minister. 

Just the one Fed speaker today: John Williams  (permanent voter, a shade hawkish) speaks at 13:10 GMT.

Cryptocurrencies holding the rebound momentum, for now: Crypto rebounded well on Friday and continued higher over the weekend. There are signs of the move stalling this morning, but Bitcoin is at $19300 and still +0.6% higher from Friday’s close. Ethereum is +2.6% at $1337. 

Economic Data:

  • US Flash PMIs (at 08:30 GMT) A slight improvement is expected in the composite to 50.1 (from 49.5 in September)

Major markets outlook

Broad outlook: A cautious and negative bias to market sentiment. 

Forex: USD is gaining once more, although EUR is holding up relatively well. GBP is the primary underperformer. 

  • EUR/USD posted another bullish engulfing candle on Friday. However, the move is back into the resistance around 0.9850/0.9900 and has pulled lower this morning. The daily RSI is still around 50 where rallies tend to fade. The falling 55-day moving average which is a key basis of medium-term resistance is at 0.9927. We favour using rallies as chance to sell. A move back under 0.9824 would see the rebound fading and the key support is initially 0.9704. 
  • GBP/USD jumped on Friday and initially this morning. However, the move may already be fading. There is the resistance between 1.1380/1.1490 which has consistently restricted recoveries and seems to be marking the top of what is developing into a month-long range. We continue to favour using strength as a chance to sell. 
  • AUD/USD has decisively broken the downtrend channel with Friday’s bullish engulfing candle. However, already we are seeing the rally unwinding this morning. There is the resistance of overhead supply between 0.6345/0.6390 and pulling back from 0.6410 is adding to this barrier to gains. We still favour selling into strength.

Commodities: Intraday rallies on precious metals are a chance to sell. Oil is again falling over.

  • Gold posted a big bullish engulfing candle on Friday to induce a near-term rally. However, already this move is fading as the market has pulled back this morning. We remain mindful of the resistance around $1680/$1700 and continue to look to sell rallies within the downtrend. Initial support at $1645 with $1615/$1617 support strengthening.
  • Silver rallied sharply through the resistance between $18.90/$19.06 to engage a recovery. However, already this morning, this move is being questioned by a pullback towards the $18.90/$19.06 band. A failure below $18.90 would be a disappointment for the recovery. The early high of $19.67 is now the initial resistance.
  • Brent Crude oil seems to continue to gravitate around $93 which was an old pivot area from August/September. This comes with the daily RSI settling quietly around 50 and moving averages converging. The outlook is subsequently neutral. We now watch converging support and resistance levels. Support at $89.20 and resistance at $95.75 will be gauges.

Indices: Wall Street has turned lower again, this is weighing on European indices too.

  • S&P 500 futures have rallied sharply (with a bullish engulfing on Friday) to open a potential double-bottom base pattern. The move needs a close above 3820 to complete. However, this morning’s early pullback from 3812 with the daily RSI around 50 gives pause for thought. Back under 3725/3730 initial support re-opens 3641. 

  • German DAX rebounded strongly from 12532 on Friday and keeps the near-term recovery on track. This remains a very choppy move higher but at least higher lows are forming. An initial failure at resistance at 12935 needs to be watched now though, as will the reaction to the old pivot 12600/12700.
  • FTSE 100 posted a bullish engulfing candle on Friday but has instantly pulled back this morning. This is adding to resistance at 7068/7106. This is playing out as a bear rally with the RSI still struggling under 50. If support at 6865 fails, it would be a bearish move now.

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.