What we are looking for
- USD bulls starting to regain control again: Major forex pairs took a USD positive bias once more yesterday. The commodity currencies are weakening this morning despite a consolidation in EUR and GBP.
- Indices dropping back again: Wall Street fell yesterday into the close and US futures are lower again this morning. This is leaving a cautious feel to European indices.
- Commodities are mixed but tending to fall away: Precious metals fell yesterday and are lower again this morning. There is a rally in oil that is bucking the trend though.
- Data traders: USD traders will be watching for largely lower-tier US data today, with the Philly Fed Manufacturing survey, jobless claims and existing home sales. The focus may be more on the Fed speakers later in the session.
After a risk rally took hold earlier in the week, there is a nervous feeling to markets that are taking hold once more. US Treasury yields are rising once more. There is little sign of a pivot away from the hawkish stance of the Federal Reserve and this is driving yields to multi-year highs. This is once more adding support to the USD and leaving a nervous feel to major market sentiment. The rebound in equity markets has rolled over and is now looking towards the downside once more. Similar moves are showing in precious metals as silver and gold turn lower.
It predominantly has lower-tier US data on the economic calendar today. The Philly Fed Manufacturing is expected to improve slightly, but remain solidly negative. Weekly Jobless Claims are expected to increase marginally, whilst Existing Home Sales are expected to add to the building picture of a deteriorating housing market in the US. Aside from that, we are looking out for as many as four FOMC speakers later in the US session.
Market sentiment turning sour again: Although there is no decisive selling pressure yet, caution is growing in major markets. USD strength is threatening again and there is a mild risk negative bias on major forex. Precious metals are fluctuating this morning along but European indices are edging lower and US futures are off.
Treasury yields breakout: A sharp move higher on yields has seen multi-year highs. The US 10-year was +12bps yesterday (plus another 4bps early today) taking it well above 4%.
Australian unemployment in line with consensus: Unemployment remained at 3.5% in September, as forecast. The participation rate also remained unchanged at 66.6%, as expected.
People’s Bank of China holds rates steady: The 1-year Loan Prime Rate remains at 3.65% with the 5-year Loan Prime Rate at 4.3%. This was expected.
UK political turmoil continues: The Home Secretary (Suella Braverman) has quit on a breach of security for handling classified documents on a personal phone. Further turmoil came later with allegations of bullying of MPs to support the government and uncertainty over the position of the whips. The 30-year Gilt yield (a gauge of the political instability now) fell from 4.30% to under 4.00% the day. Even though yields are slightly higher this morning, it seems that markets are more interested in the more fiscally prudent reversal of the budget. GBP is trading fairly much in line with other major currencies (amidst renewing USD strength).
Fed’s Beige Book shows resilience: The US economy is holding up well, or at least is not showing any significant deterioration in activity. With pricing pressures still strong, there will be little reason for the Fed to pivot yet.
Four Fed speakers today: Patrick Harker (2023 voter, hawkish) is first up at 16:00 GMT. Philip Jefferson (permanent voter, centrist) is speaking at 17:30 0GMT, with Lisa Cook (permanent voter, leans slightly dovish) at 17:45 GMTand Michelle Bowman (permanent voter, hawkish) at 18:05 GMT.
Cryptocurrencies have turned back lower again: After edging higher with risk appetite earlier in the week, the move has turned to edge lower. Bitcoin is marginally weaker by -0.3% at $19130, with Ethereum -0.2% at $1292.
- Philly Fed Manufacturing (at 12:30 GMT) An improvement to -5.0 is expected in October (from -9.9 in September).
- US Weekly Jobless Claims (at 12:30 GMT) Claims are expected to increase marginally to 230,000 (from 228,000 in the previous week).
- Existing Home Sales (at 14:00 GMT) Sales are expected to decline by c. -1.0% in September to 4.70m (from 4.80m in August)
- Fed Beige Book (at 18:00 GMT)
Major markets outlook
Broad outlook: A negative bias continues to develop.
Forex: The USD is mixed, but there is a mild underperformance of AUD and NZD, hinting at a risk-negative bias. EUR and GBP are finding support initially this morning.
- EUR/USD has dropped back below the band of overhead supply between 0.9800/0.9900. This is hinting at a renewed negative bias. The market has ticked marginally higher this morning, but nothing that would suggest decisive renewed buying. On a near-term basis, the resistance is 0.9800/0.9875 now. Renewed USD strength and downside would be confirmed below the support at 0.9705.
- GBP/USD has rolled over again, having posted two negative candles in a row. This meant that the rebound has faltered at 1.1440 (in the middle of the resistance between 1.1380/1.1490). It is also coming under the 55-day moving average which is important near to medium-term gauge. With the RSI struggling around 50/60 where rallies tend to fade in recent months, we continue to favour selling into strength. Initial resistance is now 1.1255/1.1355. A move under 1.1150 would be a decisive corrective signal again.
- AUD/USD has fallen over under the strengthening resistance at 0.6345/0.6390 within the downtrend channel. With the RSI struggling to even get about 40/45, we continue to see near-term rallies as a chance to sell. There is a near-term band of resistance now at 0.6265/0.6325. We favour a test of the low at 0.6170.
Commodities: Near-term rallies on precious metals are a chance to sell. Oil has rebounded well in a move that could be neutralising the outlook again.
- Gold has continued to post lower highs and lower lows in the past couple of weeks. Yesterday’s latest decisive move lower has brought the $1615 key low within touching distance. The two-week downtrend falls around $1640/$1645 today. There is initial price resistance between $1640/$1668. Below $1615 is a two-and-a-half-year low, with the next support around $1560.
- Silver has fallen over at $18.94 (in the $18.86/$19.30 resistance) and selling into strength remains the strategy. There is initial resistance now between $18.54/$18.94 and we look for failing intraday rallies to allow a retest of the $18.08 low. Above $19.30 is needed for a sustainable recovery to develop.
- Brent Crude oil looked to be starting to trend lower once more, but an eight-day run of negative moves has been reversed with a sharp rebound from $89.20. A move back above the pivot around $93 is helping to improve the near to medium-term outlook to the extent that is it being neutralised again. A move above the $95.75 resistance would turn the market move positive.
Indices: A rally on Wall Street now struggling and is at risk of turning decisively lower again. This is weighing on European indices.
- S&P 500 futures rallied well earlier in the week but the move has hit the buffers in the last couple of days. Hitting resistance at 3777 the futures have turned lower. A decisive negative candle yesterday and further downside today. This comes as the daily RSI has unwound to 50 and dropped back, whilst the market has also shied away from testing the 3820 resistance. Here is a near-term pivot at 3666 as a gauge. A downside break would point to a move back towards 3590 and below.
- German DAX is seeing the outlook souring after moving back under the breakout support around 12700. The pullback is threatening to turn into a bigger move lower. An unwind back below 12592 would open a move back towards 12340/12400. Resistance at 12935 is strengthening.
- FTSE 100 posted a bull failure at 7021, under the key near-term resistance at 7106. The market is fairly settled this morning, but with the daily RSI faltering well under 50 which leaves a sense of selling into strength being favoured. The next important support is at 6820.
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