What we are looking for
- USD slipping back: USD is easing back on major forex except for underperformance on AUD and NZD.
- Indices looking to rebound: Yesterday’s move higher on European indices have continued this morning. US futures are trading solidly higher as Wall Street returns from the Labor Day holiday.
- Commodities bounce on better risk appetite: With a weaker USD, we are seeing metals prices higher. Oil is lagging in reaction to the OPEC+ production cut.
- Data trading: USD traders will be focused on the ISM Non-Manufacturing. The Services PMI (announced 15 minutes earlier) can indicate how the official ISM data might surprise.
Market sentiment looked more settled yesterday (with the US on a public holiday). There is also more of a constructive outlook for risk appetite that has formed this morning. This comes after Monday’s announcement by the People’s Bank of China that it would cut its reserve requirement ratio. From the 15th of September to RRR will be 6%, rather than the current 8%. This helps to free up funds for financial institutions and is seen as a risk-positive move. It has weighed on the USD, helped commodities higher and boosted equity markets.
The risk-positive sentiment is evident again this morning as the EUR and GBP engage in near-term recoveries. GBP is also in the spotlight on the day that a new Prime Minister takes office. Liz Truss has a huge job on her hands and the UK economy is in a parlous state, but for today, there is a positive view of GBP. The AUD is also in focus after the Reserve Bank of Australia hiked by +50bps as expected.
The ISM Non-Manufacturing is the key announcement on the economic calendar today. The survey has been delayed for a day due to the Labor Day public holiday. Consensus is expecting a small reduction, but still, one that remains in solid expansion (unlike the services PMIs of European countries).
Market sentiment improves: USD and especially JPY are underperformers in forex. Metals are rebounding well and European indices are also solidly higher as US futures rebound by around +1%.
Treasury yields edge back higher: After falling on Friday and US bond markets being shut yesterday, yields are ticking back slightly higher this morning.
RBA hikes by 50bps The Reserve Bank of Australia has increased its interest rate by 50 basis points to 2.35% (from 1.85%). This was as expected. The RBA has also reaffirmed guidance that further hikes can be expected but not on a preset path. AUD is underperforming major forex slightly this morning.
OPEC+ agree to a small production cut: OPEC+ has agreed to a small oil production cut of 100,000 barrels in October. The move is to address the exaggerated price moves in oil. The oil price has fallen slightly on the news.
German Factory Orders decline again: Order books continue to deteriorate in July. A decline of -1.1% (after -0.3% in June) which was worse than the -0.5% reduction expected.
China’s PBoC cuts the RRR by 2%: The People’s Bank of China has cut the reserve requirement ratio from 8% to 6%. This reduces the amount of FX reserves that financial institutions are required to hold. This increases liquidity and supports risk appetite.
A new UK Prime Minister: Liz Truss won the Conservative Party leadership election and will replace Boris Johnson as Prime Minister. Truss secured 81326 votes (versus Rishi Sunak’s 60399), voters are registered Conservative Party members. With a total UK electorate of 47.6m, this means that just 0.0017% of the UK electorate voted for the new prime minister (although the UK does have a Parliamentary democracy).
Cryptocurrencies rebound with the risk rebound: There has been a tick higher on Bitcoin this morning. However, this continues the run of daily fluctuating swings in the price which remains a shade below $20000.
- US ISM Non-Manufacturing PMI (14:00 GMT) The ISM survey is expected to decline slightly but remain with solid expansion at 55.5 in August (56.7 in July).
Major markets outlook
Broad outlook: USD is slipping against major forex. This is helping commodities and indices higher.
Forex: The JPY is very weak again, whilst the USD is also weakening against the EUR and GBP.
- EUR/USD reclaimed the 0.9900 support area into the close for a “Doji” candle. This is a warning of potential turnaround and being followed early today with a strong rebound is encouraging for potential recovery. However, there is plenty of resistance that needs to be overcome starting around 1.0030 and up towards 1.0095. With the four-hour chart RSI again around 50/60 this is an important moment.
- GBP/USD has rebounded in the past 24 hours and is looking slightly more encouraging. A move clear above 1.1590 would form a small base pattern (best shown on the hourly chart) which would imply a rebound towards 1.1725. There is though plenty of overhead supply to restrict a rally. The initial resistance is 1.1620/1.1650. Initial support is around 1.1550/1.1560 with selling pressure ramping up again under 1.1520.
- AUD/USD has failed to ignite following the RBA rate hike. The pair remains stuck in a near-term corrective configuration under the old support at 0.6840/0.6870 which is now a basis of overhead supply and resistance. Intraday bull failures are frequent now. The support at 0.6770 is holding but a closing breach would open the July low of 0.6680.
Commodities: The near-term recovery in precious metals continues, with oil also moving higher near-term.
- Gold has been trying to recover in recent sessions, but it is still a spluttering move. An early sharp move higher this morning has already pulled back. The key near-term test remains the reaction to the resistance between $1720/$1726. This is an overhead supply and this morning’s failure at $1726 needs to be watched. The outlook remains one to sell into strength and bull failures are a warning that the recovery is on shaky ground. We favour a retest of $1680 in due course. Initial support is at $1707 above the $1688 low.
- Silver is far more decisive in its recovery so far. The rebound is pushing through the overhead supply resistance between $18.14/$18.31. This opens a test of the bigger resistance between $18.70/$19.35. We are happy to back this near-term recovery for now but are also mindful that rallies have consistently been used as a chance to sell. Holding above $18.14 support will be important.
- Brent Crude oil has held the support at $93.25 and has now rebounded well over the past few sessions. However, the configuration of daily RSI suggests that unwinding moves towards 50 remain a chance to sell. On the four-hour chart, above initial resistance at $97.20 has improved the outlook for a near-term bounce. However, the more considerable resistance between $98.25/$100.60 lies ahead.
Indices: A rebound looks slightly sluggish on US futures. Although European indices have formed support the recovery traction is also a struggle.
- S&P 500 futures are holding on to the support at 3903 following the “bull hammer” and whilst the market is trading higher today, the move is struggling for decisive upside traction for now. For a recovery to decisively take hold it needs a move above 4018 resistance to generate momentum. Initial resistance is around 3960.
- German DAX ticked higher from 12590 yesterday but once more, recovery traction is a struggle. The early spike higher has been traced and now the focus will be on holding the initial support at 12717. The concern is that rallies remain a chance to sell and bull failures will weigh on confidence in a recovery. Initial resistance is Resistance at 13050 is now key to holding a recovery.
- FTSE 100 has rebounded well and is holding on to these recovery gains. However, the market is now up into the resistance band between 7310/7370. This is overhead supply and bull failures will be a risk. There is higher low support at 7180 above the 7127 low.
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