What we are looking for
- USD continues to slip: Major forex pairs had a day of consolidation yesterday but there are hints once more of the slight bias towards USD selling.
- Indices look cautious: With no Wall Street handover, European markets have been a little subdued at the start of this week. This caution continues today, with US futures tailing off slightly and weighing on European indices.
- Commodities tailing off: Precious metals eased back slightly yesterday and this is continuing this morning. Oil is also in consolidation mode.
- Data traders: EUR traders will be watching for the German ZEW, with USD traders looking out for the New York Fed Manufacturing. CAD traders will need to watch Canadian inflation.
The economic data out of China showed encouraging signs overnight. Q4 GDP has come in better than expected, with both industrial production and retail sales also showing signs of recovery. This plays into the narrative that China the re-opening from the zero-COVID lockdowns and restrictions is progressing. This should help to support risk appetite.
Despite this though, there is little significant direction in major markets today. Traders are yet to get going following the Martin Luther King Jr Day public holiday in the US. Equities are flat to slightly lower, whilst commodities are tailing back slightly. However, the USD negative bias that has taken hold across major forex pairs in recent weeks remains in play.
There is an array of data on the economic calendar today. The German ZEW Economic Sentiment is expected to improve in January although remains decisively in negative territory. An improvement in current conditions is expected to drive the improvement. The New York Fed Manufacturing index is expected to also improve slightly in January. Canadian inflation is forecast to fall slightly.
Market sentiment looks cautious: Equity markets are mixed to slightly lower, with metals prices also tailing off. Major forex has a marginally weaker USD.
US Treasury yields have held up: Friday’s rebound on US yields has held as bond markets re-open on Tuesday (they were closed for MLK day in the US). There is a slight tick higher on the US 10-year yield, with the 2-year yield broadly flat.
Chinese Q4 GDP is better than expected: Chinese GDP was +2.9% in Q4 2022. This was above the +1.8% YoY forecast. Other data also came with positive surprises. Industrial Production was at +1.3% (+0.2% YoY exp), with Retail Sales at -1.8% (-8.6% exp).
UK Unemployment was in line: The headline jobless rate remained at 3.7% (as expected) in November. However, UK Average Weekly Earnings (core, ex-bonus) increased to 6.4% and was slightly higher than forecast (+6.3% exp).
ECB’s Lane talks about interest rates needing to e “restrictive”: The ECB’s Chief Economist Philip Lane has said that rates are around“"ballpark” neutral but need to be restrictive to temper growth.
Cryptocurrencies begin to settle: Crypto has had a huge run higher in the past week. There are a few signs of this move just beginning to consolidate. Bitcoin is +0.2% to $21175, with Ethereum -0.9% at $1565.
Fed’s Williams speaking: John Williams is a permanent voter and leans just a shade hawkish on the FOMC. He would be seen as a good gauge for any potential moves back towards a more neutral positioning on the FOMC. He speaks at 20:00 GMT.
- German ZEW Economic Sentiment (at 10:00 GMT) The ZEW is expected to improve to -15 in January (from -23.3 in December).
- Canadian inflation (at 13:30 GMT) Headline inflation is expected to drop to 6.3% in December (from 6.8% in November).
- US New York Fed Manufacturing (at 13:30 GMT) The Empire State Manufacturing is expected to improve slightly to -8.7 in January (from -11.2 in December).
Major markets outlook
Forex: Major pairs have been consolidating in recent sessions (not helped by yesterday’s US public holiday). However, there is a marginal USD negative bias forming today.
- EUR/USD is now consolidating above the breakout of the old 1.0785 May 2022 high. As moves have just been struggling around the 1.0865/1.0875 resistance area this looks to be a pause for breath. We continue to favour buying into weakness and there is a good band of breakout support between 1.0712/1.0785 for any initial unwinding moves. Above 1.0875 would continue the recovery to test 1.0935 (the next resistance) and potentially 1.11/1.12. Technically, the outlook remains very strong with RSI momentum in the 60s.
- GBP/USD has been edging over in recent sessions but has stalled with a slight unwind yesterday. The market has ticked higher this morning, but the daily RSI momentum has only a mild positive bias in the 50s. This does not point to an imminent test of the high at 1.2445. There is good support between 1.2075/1.2125 to contain an initial pullback. Reaction to the support at 1.2075 will determine whether there is still a mild positive bias within the developing medium-term ranging formation. Initial resistance is at 1.2290. Support at 1.1840 remains key.
- USD/JPY has rebounded from 127.20 with a technical rally as the daily RSI unwinds from 30. However, we look to use this rally into the overhead supply resistance now between 129.50/130.60 as a chance to sell. We favour a retest of 127.20 with the next important support not until the May 2022 low of 126.35. It would need a move above 132.90 to suggest a sustainable improvement.
Commodities: Metals and oil are just pulling back from last week’s gains.
- Gold has just eased back from $1929 to form a negative candle yesterday and further downside early today. With the daily RSI having hit the mid-70s (the highest since March 2022), there is a sense that near-term profit-taking could be forming. There is an old pivot band of $1880/$1890 but a pullback could be towards the near-term support at $1867/$1881. We would though still look to use near-term weakness as a chance to buy.
- Silver has eased back from a test of the key $24.54 resistance. This came with a spinning top candle yesterday (a warning of reversal) followed by an early downside this morning. Having been unable to break through the resistance at $24.11/$24.54, the market continued to develop into a consolidation range between $23.11/$24.55. There is a positive bias to momentum which favours testing the resistance, but an upside break remains elusive. Given the RSI configuration, we favour buying into weakness to play the range, but for now, are cautious of positioning for a breakout. Below $23.92 the support is at $23.50.
- Brent Crude oil has been recovering well recently, but the move just stalled slightly yesterday at $85.45. This is just shy of the $86.75 January high that needs to be broken for a more sustainable recovery outlook to take hold. The market has ticked slightly higher this morning, but the reaction to $86.75 will be key. For now, the run of lower highs continues and this rebound needs to be treated with caution with the risk of another bull failure. Initial support is at $83.10/$83.75.
Indices: The strong rallies are threatening to tail off amid consolidation.
- S&P 500 futures have been testing the primary downtrend from 2022 (which comes in around 4009 today) but have been hit with consolidation. This might just be the US public holiday playing out, but the concern is that the rally is towards levels where the November/December rallies struggled, whilst the daily RSI is also around a level where the rallies faltered (in the low 60s). The big resistance from the November/December highs comes in at 4050/4140. This could become an important moment. The pivot area between 3912/3945 is supportive.
- German DAX has had a strong run higher, moving into the 15000s, but is just starting to consolidate. With the RSI tailing off above 70 this needs to be watched. The consolidation could be a hangover from the US public holiday, but this could also become an excuse for profit-taking. There is good support at the breakouts between 14604/14810. We would still look to buy into supported weakness. The next key resistance is in the 15550/15740 area.
- FTSE 100 is seeing the bull run higher just on pause in the past couple of sessions. Perhaps once Wall Street takes hold of trading later there might be some renewed direction, but for now, the move is on pause just shy of a test of the all-time high of 7903. This stalling is coming with the RSI into overbought territory. The last time the RSI was around 75 was late November when a three-week correction then set in. There is good support from the breakout of all the old highs between 7635/7695 with initial support at 7747.
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