What we are looking for
- USD turning corrective: There may be something in this move that is more than a near-term pullback against major forex. The strong USD trend strategy is at risk.
- Indices in recovery mode: A decisive recovery since Friday is just on pause this morning as US futures drop back on corporate earnings disappointments. However, the trend of recovery is still building.
- Commodities ticking higher with the risk recovery: Precious metals are moving higher, with silver leading gold. However, oil is lower.
- Data traders: USD traders will be watching for the USD trade data but more importantly the state of the housing market with New Home Sales. CAD traders will be watching out for 75bps (with some debate likely over whether it may be 50bps).
The past few days have seen a shift in sentiment forming. A huge intraday turnaround on Friday has been followed by some impressive buying through subsequent US sessions. Risk appetite has turned positive. There has not been anything decisive that has driven the change. A few murmurings from Fed members about being concerned over the impact of tightening rates on the economy have come as US economic data has shown signs of deterioration. This is leading to suggestions of a “Fed pivot”. With the Fed in its blackout period in front of the FOMC, this recent move could see us into next week.
There has been a mild pullback on US futures overnight as earnings from Alphabet and Microsoft have disappointed. However, US Treasury yields are slipping and the USD continues to slide lower. This is helping precious metals higher. There has also been a notable jump in crypto too.
The Bank of Canada is key on the economic calendar today. There is some lower-tier US data first though, with the US Goods Trade Balance which is expected to see the deficit improve marginally in September. US New Home Sales are expected to show a continued deterioration of almost -14% in September. Consensus has been unsure on the size of the rate hike from the Bank of Canada. It seems that consensus is falling towards 75bps in a hike to 4.00%.
Market sentiment continues to improve: a corrective USD and metals moving higher. US equities are lower on tech earnings disappointment, but European indices are holding up well.
Treasury yields slip lower: The 10-year yield fell decisively yesterday and is another -5bps lower today. The 2-year yield is holding up better but is slightly lower this morning.
Australian inflation jumps in Q3: Inflation increased to 7.3% (from 6.1% in Q2) which was above the 7.0% consensus. This is helping AUD to outperform this morning.
UK PM Sunak could delay key fiscal statement: Financial markets have been waiting for the fiscal update with the assessment of the Office of Budget Responsibility to check the government’s fiscal plans. The Times newspaper is claiming that there could be a delay now.
Cryptocurrencies rallying strongly: Crypto rallied hard yesterday and is continuing higher today. Bitcoin was +4% yesterday and another +0.5% this morning, decisively back above $20000. Ethereum has rallied another 2% today and is back above $1500.
- US Trade Balance (Goods) (at 12:30 GMT) The goods deficit is expected to improve marginally to -$86.0bn in September (from -$87.3bn in August)
- Bank of Canada interest rates (at 14:00 GMT) An interest rate hike of +75bps is expected to 4.00% (from 3.25%)
- US New Home Sales (at 14:00 GMT) Sales are expected to continue to deteriorate in September, down to 585,000 (from 685,000 in August)
Major markets outlook
Broad outlook: Risk-positive market sentiment continues, especially through forex now.
Forex: A decisive USD corrective move is taking hold. GBP and AUD driving the rebound, with EUR also making a key move.
- EUR/USD has taken off. A sharp bull candle yesterday has broken a nine-month downtrend and the 55-day moving average. This morning now a move above 1.0000 is a key breakout that is being confirmed by the RSI also breaking into the 60s. This is a key shift in outlook. Reaction to a pullback will be important now. There is important support now between 0.9900/1.0000. A break above 1.0050 opens the way towards 1.0200.
- GBP/USD a break through the resistance between 1.1380/1.1495 signals a decisive shift in strategy. This means higher lows and higher highs are forming. It opens the way towards the next key resistance around 1.1750. The move needs to be seen on a closing basis, whilst reaction to a pullback will be important. The 1.1380/1.1490 old resistance is now new support.
- AUD/USD has broken decisively clear of the resistance band of overhead supply between 0.6345/0.6390. It is also using this as a basis of support this morning. The recovery has strong momentum and a base pattern implies a recovery towards 0.6470/0.6510. This means that the next key resistance at 0.6540 could come under threat. There is good initial support now 0.6370/0.6410.
Commodities: A recovery in precious metals is taking hold, but oil is struggling for traction.
- Gold has picked up this morning after struggling for the past couple of sessions. A close above $1670 would be encouraging, but the resistance between $1680/$1690 needs to be overcome. This is also around where the primary downtrend comes in too. For now, this is still just a recovery within the downtrend but given how other major markets are breaking their downtrends, it needs to be watched. Support at $1638 is a higher low above the $1615/$1617 support.
- Silver has been uncertain in recent sessions but moved strongly higher into the close yesterday and again pushed above $19.67 resistance this morning it improving the outlook. The four-hour chart shows a base pattern forming and a move back towards a test of $20.00 resistance is now on. There is near-term support between $18.80/$19.20.
- Brent Crude oil remains choppy as the price continues to gravitate around $93 which was an old pivot area from August/September. This comes with the daily RSI still settled 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 $95.15/$95.75 will be gauges.
Indices: Buying through the US session in recent days has pushed on a decisive recovery.
- S&P 500 futures have broken decisively above resistance at 3820 to complete a double-bottom base pattern. This implies a recovery of around +250 ticks. A break of a two-month downtrend would add to the growing recovery momentum. Initial resistance is now at 3883/3935 but above there would open the upside for recovery. There is good support now between 3775/3820 to buy into the supported weakness.
- German DAX continues to recover decisively and is now set to test the big 10-month downtrend. Momentum is strong with the RSI above 60. The next key resistance is the early September lower reaction high at 13560. Initial support is at 13000 this morning, with stronger support in the 200 tick band between 12735/12935.
- FTSE 100 continues to lag the recovery of Wall Street and elsewhere in Europe. However, the market is still looking to tick higher and intraday weakness is being bought into. The market has still been unable to test the resistance at 7068/7106, and with the daily RSI still struggling around 50, this is an important technical moment. Support is initially at 6954 with 6865/6918 needing to hold to sustain any hope of recovery.
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.