What we are looking for
- USD looking to get back on track: The USD fell in the wake of the disappointing US flash PMIs, but with more hawkish Fed speak, the USD strength is looking to get back on track against major forex.
- Indices continue to fall: There was another negative close on Wall Street and lower US futures today. European markets are trading with a risk negative bias once more too.
- Commodities at a key moment: Yesterday’s rallies on gold and silver look to be already faltering. The near-term oil rebound is testing a crucial level of resistance.
- Data trading: Durable Goods can be rather a volatile data set, which can reduce the market impact. However, positive monthly growth would be considered good news for the USD. Pending Home Sales are expected to continue to decline.
There is not much to be positive about in major markets. Even as the USD gave back some of its recent gains yesterday, the move was driven by concerning economic data out of the US. The US has been seen as being the outperformer in the face of the global slowdown. However, this view took a hit yesterday as the US flash PMIs fell sharply and badly missed expectations. However, any USD unwind seems to be a short-lived move, with yet more insistence that the Fed will remain hawkish despite the slowing economic trends.
Neel Kashkari was once the Fed’s most ardent dove. He is no longer, as his concerns over inflation mould his view that inflation has to be brought under control. He needs to see “compelling evidence” of inflation heading back towards 2% before relaxing on interest rates. As such, he is advocating for further tightening of monetary policy. This sets up Fed Chair Powell for his speech on Friday.
It is another US-centric day on the economic calendar. Durable Goods are forecast to show slight monthly growth for the core (ex-transport) orders. For the Pending Home Sales, further deterioration is forecast, whilst expectations will be low following the sharp deterioration in yesterday’s New Home Sales.
Market sentiment remains negatively biased: USD strength is forming once more. Rallies on precious metals are stalling with silver falling harder than gold. USD futures are lower again.
Treasury yields continue to trend higher: The 10-year yield is looking to be consistently above 3% now. There is also an upside bias to the US 2-year yield (c. 3.32% this morning).
Fed’s Kashkari looking for compelling evidence on inflation: Kashkari (voter in 2023) used to be the most dovish member of the FOMC. Not any more. He says there is currently no trade-off between employment and inflation mandates. It is “very clear” that the Fed needs to tighten monetary policy further.
OPEC members backing Saudi comments on production cuts: According to the Wall Street Journal, some OPEC members are backing the comments from the Saudi oil minister over oil output cuts to keep prices high.
Cryptocurrencies continue to consolidate: Prices have been broadly consolidating since the weekend. Bitcoin price action has been quiet this week, with the price around -1% lower today, again hovering around $21200.
- US Durable Goods Orders (12:30 GMT) Core orders (ex-transport) are expected to grow by +0.2% in July (after growth of +0.3% in June)
- US Pending Home Sales (14:00 GMT) Sales are expected to decline by -4% in July from the previous month, leaving 12-month sales down -22% (-20% in June)
Major markets outlook
Broad outlook: A risk negative continues and USD positive bias resumes.
Forex: JPY is the main outperformer, along with USD regaining strength again. The NZD is a marginal underperformer.
- EUR/USD rebounded from 0.9900 yesterday in the wake of the US flash PMI disappointment. But, we would look to use any near-term rallies as a chance to sell. There will be initial resistance around parity now, with yesterday’s reaction high at 1.0020 a gauge. We favour a retest of 0.9900.
- GBP/USD found support to rebound from 1.1717 yesterday and form a positive candle. However, the move still looks to be a near-term unwind from oversold and may be short-lived. We look to use near-term strength as another chance to sell. There is resistance now around 1.1890 and with the four-hour chart RSI unwinding back towards 40/50 this looks to be a chance to sell. With Cable breaching the July low there is little real support until the COVID breakout spike low of 1.1410.
- AUD/USD rebounded strongly yesterday to sustain the support around 0.6955/0.6970 but the move could be short-lived. The daily RSI is stuck below 50 now to leave a corrective bias. Resistance is building on the four-hour chart between 0.6945/0.6970. We favour further pressure on 0.6860 in due course with a breakdown opening moving towards 0.6800 and below.
Commodities: Precious metals have rebounded but the move could be already faltering. Oil has recovered well, but needs to overcome key resistance now.
- Gold has rallied from $1727 to break the sequence of negative candles. The reaction around resistance between $1754/$1772 will be key to the near to medium-term outlook. A bull failure here would be seen as a selling opportunity for further correction. The RSI on the four-hour chart has unwound to 50 so this is an important near-term pivot. Initial resistance is at yesterday’s high of $1754. Below $1727 the initial support is around $1711/$1713.
- Silver has built from support forming at $18.71 in recent sessions and is holding up well. The four-hour RSI has unwound into 40/50, so will this turn into more of recovery now? The resistance at $19.54/$19.93 will be important now. For now, we still see this as a bear rally and favour this to be another chance to sell.
- Brent Crude oil has picked up well from $93.25 support to recover back above $100. This is a crucial moment, with the RSI again unwinding back to 50, which is a level where previous rallies within the two-month downtrend have fallen over. The market is higher again today and is eyeing a test of the key resistance at $102.95. A close above would be an important breach of a lower high and would significantly improve the near-term outlook. For this reason, we are neutral for now, whilst this move plays out. Initial support is at $98.00/$99.50.
Indices: US futures continue lower, with intraday rallies in Europe also being sold into.
- S&P 500 futures have fallen back to test the key band of support between 4080/4110. Having broken the support between 4145/4200 this also now becomes a basis of resistance. The RSI is now back around 50 and if there is a decisive move below 50 it would point towards the mounting corrective pressure where rallies are seen as a chance to sell. If the support at 4080 is broken the next support is 3950/4015.
- German DAX has continued to fall and is now eyeing a test of the key higher low at 13035. Momentum is corrective but there is a stretched position on the four-hour chart which may induce an intraday technical rally. However, with resistance between 13330/13450 as a basis of resistance now, we would see near-term rallies as a chance to sell. Below 13000 the next support is around 12800.
- FTSE 100 has held up relatively well in recent sessions but is now starting to be weighed down. A breach of support at 7457 this morning adds to mounting corrective momentum on daily and four-hour charts. A close below 7457 opens a retreat to the next support at 7370. The initial resistance is growing now between 7457/7499.
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