What we are looking for
- USD unwinding slightly: A rebound in market sentiment sees USD slipping lower across major forex.
- GBP is the outperformer: GBP is positive after a weekend of political interviews where the new UK Chancellor of the Exchequer has said they will look to reverse much of the infamous mini-budget shambles.
- Indices rebound slightly: Equity markets are looking more positive. US futures are leading the way, almost +1.0% higher
- Commodities move higher: With USD weakness this morning, precious metals, with oil also helped by better risk appetite.
- Data traders: USD traders will be watching the New York Fed Manufacturing survey.
After a new UK Chancellor of the Exchequer (finance minister) was announced on Friday, it did not take Jeremy Hunt long to trash the previous economic policies of Prime Minister Truss. There will be further details announced later today, but it seems that “Trussonomics” is about to be declared dead in the water. Major markets are responding well to this news this morning, especially GBP. The question is, how long will the rebound last? With open questioning of Liz Truss’s position as Prime Minister, the political turmoil is unlikely to die down any time soon.
Positive risk appetite has taken hold across major markets. The USD is underperforming major forex, whilst commodities and equity markets are rebounding. This is being helped as Treasury yields have eased off slightly this morning. We still expect this improvement in sentiment is likely to be short-lived. The focus is on inflation for major economies in the coming days. This could help to cement expectation that the US remains the best economy of a bad bunch. As such USD will remain in favour in due course.
It is a fairly light economic calendar to start the week. The New York Fed Manufacturing (also known as the Empire State Manufacturing) survey is the only significant data of note. Forecasts are mixed, but the consensus is looking for a deterioration. Subsequently, the reading is also expected to remain slightly negative and suggests continued contraction.
Market sentiment is recovering, for now: USD is weakening, with higher risk assets (commodities and indices) bouncing.
Treasury yields ease off: A mild drop back for US yields is playing into the improvement in sentiment.
UK political turmoil continues: After a new Chancellor of the Exchequer (finance minister) was installed on Friday, the calls to replace Prime Minister Truss after less than two months in the position are growing. Some of her own MPs are openly calling for her resignation. This is only likely to sustain the elevated volatility of GBP in the coming days.
UK fiscal update this afternoon: New UK Chancellor of the Exchequer Jeremy Hunt will look to calm the UK fiscal turmoil with an update on plans this afternoon. The announcement is at 14:30 GMT. This is likely to cause further moves on GBP.
Japanese industrial production better than expected: Industrial production for August was better than expected at3.4% MoM (2.7% expected).
Cryptocurrencies tick higher: Mild early gains. Bitcoin is +0.5% at $19300, with Ethereum just under +1% higher at $1312.
- US New York Fed Manufacturing (at 12:30 GMT) The survey is expected to deteriorate slightly to -4.0 in October (from -1.5 in September)
Major markets outlook
Broad outlook: A risk recovery early in the new week. Rallies have tended to be short-lived.
Forex: GBP is the main outperformer. USD is underperforming across major pairs.
- EUR/USD continues to fluctuate near term. There has been a mix of signals over the past week, but this is all coming under what is now a band of resistance between 0.9800/0.9900. This is also under the 55-day moving average and the primary downtrend. We continue to see near-term strength as a chance to sell. Initial support is at 0.9630.
- GBP/USD remains choppy. Large-bodied candles reflect strong moves, but there are also frequent reversals. This shows the lack of certainty. This is coming under a 9-week downtrend and resistance is building between 1.1380/1.1490. Technically we continue to favour selling into strength. Initial support is at 1.1150 above the 1.0925 key support.
- AUD/USD reversed sharply back from the bull hammer candlestick to reflect the inability of the Aussie to follow through on positive signals. This has also strengthened resistance at 0.6345/0.6390 within the downtrend channel. We continue to see near-term rallies as a chance to sell. The initial support is low at 0.6170.
Commodities: A near-term rebound within a run of lower highs.
- Gold has continued to post a run of lower highs and the resistance band at $1680/$1690 remains a key barrier. An initial tick higher this morning from the support around $1640 is likely to give another opportunity to sell, with resistance initially around $1660. A continuation of the lower highs would point to a test of the $1615 low in due course.
- Silver has rebounded this morning in a move that could break a nearly two-week run of strong bear candles. Big swings in the silver price are a feature of the trading in recent months, so how the market reacts to this rebound will be important. A failure under $18.86/$19.30 resistance will suggest the recent run lower is likely to continue.
- Brent Crude oil has continued to trade around an old pivot in the $93 area in recent days. The near-term significance of resistance at $95.75/$95.90 is growing. A consistent move below $93 would sour the outlook and put pressure on support around $88/$90.
Indices: Volatility remains elevated and markets are swinging around, but the overhead pressure of resistance remains significant.
- S&P 500 futures failed to push on in recovery on Friday and this is a concern that even the shortest of near-term rallies are struggling. Resistance has now been left in place at 3733. Momentum retains a negative bias and as the market is picking up again this morning, there will be questions about how sustainable this move is. We favour pressure towards the old 3571 support and the spike low at 3501.
- German DAX followed the huge bullish key one-day reversal with a candle that was effectively a shooting star on Friday. This pretty much negates the implications of both. However, more importantly, the resistance at 12692 has been bolstered by Friday’s bull failure at 12670. The market is higher this morning but the resistance overhead remains the key barrier. Initial support at 12345 protects 11982 and then the October low.
- FTSE 100 was another market that posted a bull failure on Friday and the positive implications of Thursday’s reversal have been all but negated. As the market has picked up this morning, the resistance at 6979 is the barrier, under the more considerable 7105 resistance. RSI momentum is ticking higher but remains negative configured and suggests selling into strength.
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