What we are looking for
- USD bulls back in control: After the USD soared again yesterday there is a sense of consolidating the move this morning. Major forex has so far been unable to materially claw back losses.
- Indices remain under pressure: European indices are playing catch up on Wall Street sell-off that lasted into the close last night. US futures are trying to form support, but there is little appetite to buy yet.
- Commodities lower again: Precious metals have tried to settle but are edging lower again. Oil is once more also lower.
- Data trading: EUR traders will watch Eurozone Industrial Production. USD positions will be reactive to the US PPI later.
Expectations have shifted again. US inflation came in hotter than expected in August and there has been a huge market reaction. Suddenly it may not just be a hike of 75 basis points by the Fed next week. Could it be as much as 100bps? US Treasury yields have spiked higher, with the US dollar regaining strength. Equity markets fell hard yesterday. Investors are still seeing rallies as a chance to sell. Commodities are along the same path, as is crypto.
UK inflation for August came in slightly lower than expected this morning. Headline CPI dipped slightly below 10%. This will reduce some of the pressure on the Bank of England in next week’s monetary policy decision. However, with the core CPI rising again and wages also on the way up, the inflationary pressures remain hot in the UK. This may have helped GBP marginally this morning, but the dominant USD is still the main driver for major markets.
The economic calendar may not have tier-one data today, but there is still data that will move markets. The Eurozone Industrial Production will be watched initially. Production is a key factor for Eurozone economic performance and with a big decline expected in July, year-on-year growth is expected to fall to only just above zero. After yesterday’s hot CPI data, the US PPI (factory gate inflation) will be watched. Input prices are expected to fall back and any downside surprise could take some of the heat out of yesterday’s USD positive reaction.
Market sentiment is looking to settle: After yesterday’s selling rout, the dust is trying to settle. However, traders will be wary now of backing rallies on risk assets.
Treasury yields continue to edge higher after yesterday’s sharp rise: Yields jumped yesterday and are higher again today. The 2-year yield spiked from around 3.50% to 3.75% suggesting another 25 basis points are being be added to Fed rate hike expectations.
UK inflation eases slightly: The headline UK CPI dropped to 9.9% (from 10.1% in July) which was lower than the 10.2% forecast. Core CPI did increase as expected to 6.3% (from 6.2%).
Cryptocurrencies try to steady themselves: Crypto fell hard yesterday with Bitcoin falling almost -10% into the close last night. Coins are relatively steady this morning with Bitcoin a shade lower (just above $20,000) and Ethereum -0.3% (at $1600)
- Eurozone Industrial Production (at 09:00 GMT) – Production is expected to decline by b-1.0% in July taking Year on Year growth to just +0.4% (from +2.4% in June)
- US PPI (at 12:30 GMT) Headline PPI is expected to fall to 8.8% in August (from 9.8% in July), with core PPI moderating down to 7.1% (from 7.6%)
Major markets outlook
Broad outlook: Markets are trying to stabilise after the huge selling pressure on risk assets yesterday.
Forex: The over-riding USD strength is still in play, although EUR and GBP have bounced slightly this morning.
- EUR/USD fell hard yesterday on the US CPI data. The resulting bearish candle has not only reaffirmed the nine-month downtrend but also puts pressure back on the support band 0.9900/0.9950. So often over recent weeks, the buyers have returned to the market around this support. This is the key test now. Initial resistance on a near-term rebound comes in at 1.0030. The importance of resistance at 1.0197 is growing.
- GBP/USD posted a huge bull failure yesterday to strengthen the resistance between 1.1715/1.1760. Rallies remain a chance to sell. Pressure is now back on the lows between 1.1405/1.1460. There is minor resistance initially around 1.1580/1.1600.
- AUD/USD fell sharply from 0.6915 to leave another lower high of the past month and put pressure back on the key support band between 0.6680/0.6700. Momentum remains correctively configured and rallies are a chance to sell. There is an old pivot at 0.6775 and resistance at 0.6820.
Commodities: Precious metals and oil have been hit by the USD regaining strength, even if the impact is less severe than other asset classes.
- Gold has failed once more to break through the resistance around $1720/$1729. Yesterday’s strong bearish candle now puts pressure back on the key support of the lows between $1680/$1691. With corrective configuration on daily and four-hour chart momentum indicators, near-term rallies remain a chance to sell. Initial resistance is around $1710.
- Silver fell over yesterday at $20.00 but it was interesting to see the decline has not dented the recent recovery too much. Reaction to this pullback will now be key, especially as the early rebound higher today is back into the old pivot band of $19.42/$19.54. A failure around here would add to the corrective pressure. Initial support is around old pivots between $18.90/$19.10.
- Brent Crude oil has seen the near-term rally falling over around the overhead supply of the old lows between $93.25/$95.90. A reaction high at $96.40 now becomes an important level to watch near term. With the RSI stuck under 50, we will remain cautious of backing recoveries for fear of further bull failures. A move above $98.30 would open a test of the three-month downtrend (currently c. $101). Initial support is at $91.90 and if this is breached the market looks more corrective back towards the $88.25 low again.
Indices: The recovery has been smashed to pieces. The key now is how traders react to the rebound.
- S&P 500 futures sold sharply down with an enormous bear candle yesterday. This was an even more extreme version of what happened three weeks ago with the previous lower high. It means that traders will be even more cautious about backing rallies. The market has ticked slightly higher this morning in a mild unwind. Initial resistance is at 3997 and there is an old pivot band around 4020. Holding the support band between 3888/3920 will be key now.
- German DAX posted a bearish key one-day reversal yesterday and heaps negative pressure on the index again. However, the market has held on to the support around 13025/13035 initially and this will now be seen as a key level. Reaction to this initial tick higher this morning will be important as another bull failure under 13560 will be seen as a chance to sell.
- FTSE 100 posted a massive bearish engulfing candle (bearish key one-day reversal) yesterday and the buyers have struggled for any recovery momentum so far today. This does not bode well. A close back under the 7325 support for a second bearish candle in a row would open further corrective momentum. Initial support would be 7275.
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.