What we are looking for
- USD continues to soar: The trend of a strengthening USD remains firmly on track as markets continue to price for a more aggressive Fed monetary policy. USD/JPY has pushed to new 24-year highs this morning.
- Indices continue to sell into intraday rallies: Any hints of intraday recovery are getting repeatedly smashed. Wall Street again closed decisively lower and US futures are lower again this morning.
- Commodities are also following lower: With risk appetite under mounting downside pressure, commodities are suffering. Oil is lower again today, whilst silver has broken to two-year lows.
- Data trading: GBP and EUR traders may struggle to get too much out of the final UK Manufacturing PMI and Eurozone Unemployment, both forecasts to be unchanged. Weekly Jobless Claims ticking slightly higher is hardly a shock either. So the big focus for traders will be on the US ISM Manufacturing PMI. We expect elevated USD volatility later as a result.
Markets are pricing for ever more aggressive monetary policy from major central banks. However, this is producing a range of reactions on forex. At one end of the scale, the USD is strengthening significantly as markets position for the Fed tightening rates towards maybe 4.0% by the year-end. At the other end, GBP is getting smashed. Markets see the Bank of England will be forced to hike further to counter inflation perhaps in the mid-teens. Then there is the EUR, which is holding up well. Speculation is growing that the ECB may be set to hike by 75 basis points at the meeting next week. Inflation is not as high as in the UK, whilst the Eurozone also does not have the fiscal deficit problems of the UK.
This aggressive monetary policy outlook is also contributing to a significant risk sell-off too. Equity markets are being decisively sold off, whilst commodities are also falling hard again. Bitcoin has fallen back under $20,000 this morning. There is a storm blowing.
It is a day of manufacturing PMIs on the economic calendar today. The final reading of the UK Manufacturing PMI is expected to be unrevised. Eurozone Unemployment is expected to remain steady at 6.6%. US Weekly Jobless Claims are expected to increase only slightly after last week’s unexpected decline. The US ISM Manufacturing PMI is expected to decline slighlty but remain at a decent expansion level of 52.0.
Market sentiment is increasingly sour: USD continues to strengthen, indices are lower and commodities are being sold.
Treasury yields continue to push higher: The US 10yr yield has increased to 3.20% today, whilst the 2yr has moved above the Juen high and has hit 3.50% this morning.
China Caixin Manufacturing PMI unexpectedly into contraction: The unofficial measure of Chinese manufacturing dropped to 49.5 in August (from 50.4). This was lower than the 50.2 forecast and is also below 50 which means it is into contraction territory.
Eurozone final Manufacturing PMI revised lower: The final August Manufacturing PMI has been revised lower to 49.6 from the flash reading of 49.7. Final July was 49.8.
Zero-COVID remains in place for China: The city of Chengdu is seeing mass testing over the next four days, whilst residents have been told to stay home.
Cryptocurrencies edge lower: Bitcoin has been broadly consolidating since the weekend, but has started to fall once more today and is back under $20,000 this morning.
Another Fed speaker: Raphael Bostic (voter in 2024, leans hawkish) speaks at 07:30 GMT. He spoke yesterday so it is unlikely that he will come out with anything ground-breaking we do not already know.
- UK Manufacturing PMI - final (09:30 GMT) Analysts are not expecting any revision to the flash reading of 46.0 in August (which was sharply down from 52.1 in July)
- Eurozone Unemployment (12:15 GMT) The jobless rate is expected to remain at 6.6% in July.
- US Weekly Jobless Claims (12:30 GMT) Claims are expected to increase slightly to 248000 (from 243000 last week)
- ISM Manufacturing (14:00 GMT) Consensus is expecting the PMI to fall slightly to 52.0 in August (from 52.8 in July)
Major markets outlook
Broad outlook: USD is strong, meaning commodities are suffering. Indices are lower again.
Forex: There is a solid USD positive bias this morning, although the Swiss franc (CHF) is performing well.
- EUR/USD reacted well to pick up from 0.9970 yesterday (in the wake of the Eurozone inflation data) and is trying to build a recovery. Three positive candles in a row are building this move. Although the market has dipped back this morning, there is still a sense of higher lows (0.9970 needs to remain intact). The four-hour chart shows a gradual improvement in the outlook. There is still scope for a recovery towards 1.0095 and the resistance around 1.0200.
- GBP/USD fell once more yesterday and has hit another two-year low this morning (at 1.1567). Intraday rallies are sold into. Initial resistance is forming at 1.1715/1.1760. Below 1.1567 there is little real support until the COVID breakout spike low of 1.1410.
- AUD/USD has decisively broken the support at 0.6840/0.6870 and looks increasingly corrective now. A trend of lower highs has formed and intraday rallies are being sold into. An early rebound from 0.6791 will likely give another opportunity, with the 0.6840/0.6870 area now a basis of resistance.
Commodities: Precious metals continue to fall away, with the outlook for oil again turning negative.
- Gold has fallen decisively in recent days. With the breach of support at $1711 this opens a test of the July low at $1680. We now look to use near-term rallies as a chance to sell. Initial resistance is at $1709/$1711 with resistance growing between $1720/$1726.
- Silver has fallen decisively to breach the $18.14 key July low. This leaves silver trading at two-year lows. The next basis of support is between $16.95/$17.35. With momentum indicators correctively configured, near-term rallies are a chance to sell. There is now overhead supply resistance between $18.14/$18.31.
- Brent Crude oil has seen the outlook deteriorate once more with two large bearish candles. With momentum indicators negatively configured and with further downside potential, a retest of the support at $93.25 is likely. We would look to sell near-term rallies, with initial resistance now between $98.25/$100.60.
Indices: Intraday rallies are continually being sold into, with Wall Street close to important support. European indices are eyeing the July lows again.
- S&P 500 futures continue to decline, with intraday rallies being sold into. With furtehr weakness in early moves today, the market is back into an important medium-term pivot band at 3910/3950. This will be a key test now as a break under 3910 would be a decisive bearish move that would re-open the June/July lows again. The four-hour chart shows initial resistance at 4006/4018, with more considerable resistance now at 4072/4080.
- German DAX continues to trade lower in a sharp two-week downtrend. Any near-term rallies are getting sold into. With another move lower this morning breaching the support at 12700, the next support is at the July lows of 12375/12425. Initial resistance is at 12795/12875 with the rebound high of 13153 now a key lower high.
- FTSE 100 took the stairs higher for the July/August rally, but it is taking the elevator back down. Three huge bearish candles could become four as the market trades decisively lower again this morning. A test of initial support at 7205 is seriously creaking and a close below would mean there is little real support until the June/July lows at 6969/7010Intraday rallies are a chance to sell. Initial resistance is 7260 and then 7320.
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