What we are looking for
- USD bulls are looking to take control: Despite a traditional consolidation ahead of payrolls, the legacy of yesterday’s renewing USD strength remains. A strong payrolls report could set the USD on another bull run.
- Indices are steady but a negative bias remains: Indices fell away yesterday and are hinting at a negative bias within the consolidation this morning. New negative trends are threatening.
- Commodities are consolidating: Oil is still threatening higher in the wake of the OPEC+ production cut. Gold is holding up OK, with silver still looking positive.
- Data trading: All traders will be watching the Nonfarm Payrolls report today. Upside surprises would be USD positive and potentially risk negative. CAD traders will also be watching the Canadian employment data, although this is released at the same time as the US jobs report.
After the risk recovery earlier in the week, we talked about how markets react to the first sign of selling would be key. After a day of consolidation on Wednesday, sentiment shifted yesterday. The selling pressure is ramping up once more. Although moves to the downside are not confirming a new bearish outlook yet, there is a negative bias to sentiment forming. Markets will often consolidate in front of the crucial Nonfarm Payrolls report, but there are still hints of negative sentiment through forex and equity markets. The USD buyers are threatening once more and major indices are testing important near-term supports. A strong payrolls report would sustain the hawkish Fed rhetoric, help to support the USD and be negative for risk.
The US jobs report looms large on the economic calendar today. The US Employment Situation is expected to show that headline jobs growth (Nonfarm Payrolls) declined in September. However, if the consensus of 250,000 was hit then this would still represent decent growth. Furthermore, considering the recent declines in weekly jobless claims and the positive Employment component of the ISM Services data, there is potential for an upside surprise. Unemployment and wage growth are expected to remain fairly steady. This would be a bit of a “Goldilocks” report and nothing that would bump the Fed off course. Also, watch out for Canadian Unemployment, which is expected to show a steady jobless rate.
Market sentiment is consolidating ahead of Nonfarm Payrolls: Forex and indices are mixed, but the legacy of yesterday’s USD positive and risk-negative moves remains.
Treasury yields ticking higher again: After the strong moves higher in both the US 2-year and US 10-year yields in the past two days, yields are again ticking higher this morning. This is consistent with building USD strength and negative risk appetite.
German data disappoints: Both Industrial Production (-0.8% in August) and Retail Sales (-1.3% in August) deteriorated sharply, with both coming in lower than estimates. The economic slide towards recession continues.
Fed speakers continue to push hawkish rhetoric: FOMC members continue to be hawkish. Even ones at the dovish end of the spectrum (such as Lisa Cook) are pushing for the inflation focus. The Fed likely requires “ongoing rate hikes” and “restrictive policy for some time”.
Cryptocurrencies faltering again: Crypto continues to move with risk appetite. Bitcoin is c. -0.5% at $19930, and Ethereum is -0.5% at $1355.
Just one Fed speaker today: John Williams (permanent voter, leans hawkish) speaks at 13:00 GMT.
- US Employment Situation (at 12:30 GMT) Headline Nonfarm Payrolls are expected to increase by 250,000 in September (down from 315,000 in August). Also, look for Unemployment which is expected to remain steady at 3.7% and Average Hourly Earnings which are expected to drop slightly to 5.1% (from 5.2%).
- Canada Unemployment (at 12:30 GMT) The jobless rate is expected to remain at 5.4% in September, with the participation rate increasing marginally to 64.9% (from 64.8).
Major markets outlook
Broad outlook: Market sentiment is mixed this morning ahead of Nonfarm Payrolls. Yesterday’s renewing negative risk appetite hints at what might be to come.
Forex: USD has been choppy in the early part of the European session, but is essentially in consolidation ahead of the Nonfarm Payrolls report.
- EUR/USD has topped out at 1.0000 and posted two consecutive decisive bearish candles. This move comes as the RSI has faltered around 50/55 once more (as several previous near-term rallies have in recent months). The concern is now that breaching 0.9835 has created a new trend of lower highs and a corrective outlook. This would be decisively confirmed if support at 0.9735 was breached. Expect elevated volatility from Nonfarm Payrolls today. Initial resistance is at 0.9835 with the lower high at 0.9925.
- GBP/USD is starting to form a new corrective move after the rally faltered at 1.1490 with a strong negative candlestick yesterday. Another mini bull failure under 1.1385 would add to the growing sense of correction. A move below support at 1.1025 would be a confirmed sell signal for a deeper correction.
- AUD/USD continues to strengthen resistance between 0.6525/0.6545 with another bull failure. Yesterday’s decisively strong bear candle once more adds pressure on the support at 0.6363. We favour using rallies as a chance to sell.
Commodities: Huge rebounds are into key medium-term resistance.
- Gold has just eased back from the resistance at $1727/$1735. This remains a key barrier and an upside break would be an important positive move. However, trading over the past 48 hours has been more consolidation than bull failure. Holding above support at $1700 is important to this, as is holding the daily RSI above 50. A breakout above $1735 would be a strong signal for further recovery and open $1765.
- Silver has fluctuated in recent sessions but is holding up well. The support around $20.00 is important, but the market is now consolidating around the old $20.85 resistance area. Technical signals are still encouraging, with the daily RSI holding in the low 60s and the bullish golden cross on the 21 & 55 day moving averages that have now been seen. There is resistance at $21.23 that needs to be breached to be the next step in the recovery.
- Brent Crude oil continues to push on the resistance between $93.25/$96.60. Having broken the four-month downtrend and with the daily RSI around four-month highs above 50, there is a sense that this recovery could continue now. We have long seen rallies as a chance to sell, but a breakout above $96.60 would mean that we would need to change our medium-term trading strategy. Above $96.60 opens $98.30 initially but $100 would be back on. Initial support is at $91.80/$93.60.
Indices: With the recent rallies stalling, renewed selling pressure is now threatening. European indices have posted bearish engulfing candles.
- S&P 500 futures have seen the rally stalling and resistance developing at 3820. The concern has always been that rallies would simply be sold into. Subsequently, the support between 3735/3750 is increasingly important on a near-term basis. Below 3735 opens 3693 initially as the next test to the downside.
- German DAX posted a bull failure at 12692 and subsequently sold off intraday to close with a bearish engulfing candlestick. This is a powerful negative signal. The pressure is immediately on the support around 12360/12425. A breach of this support would suggest renewing the downside, with a move below 12308 confirming a new corrective move.
- FTSE 100 has also posted a bearish engulfing candle and left resistance at 7105. A retreat to test the old pivot area between 6969/7010 is now on for today. A close below would set the market on a new bear leg. Also, given the bull failure on the RSI below 50, this is still a market to sell into strength.
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.