What we are looking for
- USD outperforms again: USD is a safe haven play outperforming major forex on a day where the Fed could be hawkish again means the USD is favoured.
- EUR under pressure: The EUR and any euro assets are under selling pressure.
- Indices fall over again: European indices have fallen, especially the German DAX which is a higher risk index. US futures have regained some of their earlier losses.
- Commodities rebound: Precious metals are finding early support, with oil strongly higher amid the escalation of the Ukrainian war.
- Data trading: USD traders may take a quick look at the Existing Home Sales data and then get back to focusing on the Fed. For the FOMC, watch the size of the hike (75bps is highly likely) but also the dot plots (of future rate hikes) and how strong the language is for how quickly the Fed will hike in coming meetings.
Russian President Putin has delivered his latest response as the Ukrainian war has been turning against him in recent weeks. Putin has significantly ratcheted up the tensions. Russia will look to annex the regions of Ukraine that have been taken. A series of referenda will take place in the next week. He has also announced that reservists will be called up to the Russian army and that has accompanied a significant escalation of rhetoric too. Russia has “lots of weapons to reply”. He also made thinly veiled threats of a nuclear response too.
The market impact has been for a flight to safety. The EUR and euro assets have been hit relatively the hardest. The EUR is the worst performing major currency this morning, whilst the French CAC and German DAX indices are underperforming. The Japanese yen is the best-performing major currency along with a stronger USD. Gold has picked up, but also we are seeing a decisive move higher in oil. Putin’s rhetoric shows there is little hope of an increase to global supply any time soon.
Elsewhere, it is all about the Fed today on the economic calendar. The US Existing Home Sales are expected to continue the trend of decline in August. However, with markets focused squarely on the Fed later, it would need a substantial surprise to make much of a difference to USD positions. The Fed is expected to hike again by 75 basis points. A 100bps hike seems rather unlikely now, given the deteriorating growth outlook. Traders will also move markets on the outlook of the dot plots (interest rate projections) and how aggressive the language of further hikes is.
Market sentiment deteriorates again: JPY and USD are outperforming. EUR is significantly lower, whilst European indices suffer amidst the escalation in tensions with Russia.
Treasury yields have fallen: Amid the flight to safety, US Treasury yields have dropped this morning. The 10yr yield is around -5bps lower.
Putin escalates tensions: In the past 24 hours, it has been announced that referenda will be held to rubber stamp Russia’s claim on territories in the south and eastern Ukraine. President Putin has also announced that reservists will be called up to the Russian army.
UK public sector net borrowing more than expected: Borrowing in August increased to a deficit of -£11.8bn (ex banks). This was more than the -£8.45bn expected.
Cryptocurrencies fall again: Crypto is a risk-positive asset play. With risk appetite deteriorating, crypto is falling again. Bitcoin is -0.2% today and below $19000. Ethereum is -1% around $1330.
- US Existing Home Sales (at 14:00 GMT) Sales are expected to decline by -2.3% in August to 4.70m (from 4.81m in July)
- Federal Reserve monetary policy (at 18:00 GMT) The consensus is expecting a +75 basis points hike to 3.25% (from 2.50% in July)
Major markets outlook
Broad outlook: Risk appetite has deteriorated again
Forex: JPY and USD are outperformers, with EUR and to a lesser extent GBP underperforming.
- EUR/USD has dropped below initial support at 0.9950 this morning and is back to test the August/September lows between 0.9864/0.9900. This comes with momentum negatively configure on daily and four-hour chats but also with further downside potential. The FOMC meeting is another key risk later today. A close below 0.9864 would be multi-decade lows and be the next step in the bear market. Initial resistance is now 0.9950 before 1.0050.
- GBP/USD remains deeply negatively configured and any near-term rallies are a chance to sell. The market has continued lower today, breaching the 1.1350 support from earlier in the week, to hit multi-decade lows. There is no meaningful support now. The bottom of the downtrend channel is currently 1.1300. Yesterday’s high of 1.1460 is the initial resistance.
- AUD/USD has fallen back to breach the 0.6670/0.6680 support this morning. The downside move has been relatively limited for now, but the FOMC meeting later is key event risk. Momentum is correctively configured with further downside potential on the RSI (daily RSI is in the high 30s). We continue to look to sell into near-term strength. Initial resistance is at 0.6745.
Commodities: Gold is struggling as old support becomes new resistance, whilst silver is still failing at lower levels. Oil is testing the resistance of overhead supply.
- Gold has held up well this morning (on safe haven flows). However, there is an overhead supply now between $1680/$1691 which is a key barrier to recovery. Having recently broken below $1680, below Friday’s low of $1654 the next support comes in between $1550/$1610. The Fed meeting later will see increased volatility.
- Silver has been in a choppy move lower over the past week or so. There have been intraday fluctuations but the market continues to post lower highs. We wait to see if this can develop into a bull flag (an optimistic assessment and one that probably needs to happen soon) but a move above $19.70 is probably needed to drive this move. Initial support is now yesterday’s low at $19.05 above the key near-term low at $18.77.
- Brent Crude oil has once more rebounded back higher into a test of the resistance band between $93.25/$96.60. This remains a sizable near to medium-term barrier, with the falling 21-day moving average (currently around $95.20) also a basis of resistance for smaller technical rallies. With all trends and moving averages falling, we favour selling into strength to a retest of the $88.25 low once more. Initial support is at $90.30.
Indices: Markets continue to sell into near-term strength.
- S&P 500 futures have once more fallen over at the prospect of a rebound. The move back below 3845 has subsequently aborted the bullish engulfing (bullish key one-day reversal) pattern. Technical rallies continue to fail and with the market moving back lower again today the prospect of further downside remains significant. Initial support is at 3843 but there is little reason not to expect further retreat towards 3723 in due course.
- German DAX posted another bull failure yesterday at 12930 and the market remains under selling pressure. With further downside potential on momentum indicators (RSI is still in the high 30s) the prospects of a test of 12375/12425 support from the July lows remain high. We continue to look upon near-term rallies as a chance to sell.
- FTSE 100 remains choppy as intraday rallies continue to fall over. Yesterday’s decline has left resistance at 7334. Although there has been a rebound early this morning, we favour once more using any strength as a chance to sell for a test of the 7127/7164 September lows.
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.