What we are looking for
- USD has eased back: More positive market sentiment is weighing on the USD this morning. USD is considerably underperforming on all major forex pairs.
- GBP rebounding (slightly): After the Bank of England looked to reassure markets yesterday, UK Gilt yields have dropped. This is helping to support GBP which is looking to recover recent sharp losses. Although in the context of recent market volatility, a +1% rebound versus the USD is fairly small.
- Indices build support: With US futures strongly higher (c. +1%) European indices are finding support this morning. It is interesting to see with GBP rebounding, FTSE 100 is lagging in recovery.
- Commodities rebound with risk appetite: Precious metals are +1% to +2% higher, with oil around +1.5% higher.
- Data trading: On the data front, USD will be driven by US Consumer Confidence and New Home Sales. Also, watch out for comments from the FOMC’s James Bullard.
After the rout of recent days, where levels of capitulation were seen in GBP, there is a sense of recovery forming this morning. Last night, with market chatter of emergency rate hikes, the Bank of England announced that it was monitoring the situation closely. It would not hesitate to step in with emergency measures. It is too early to know if this is a turnaround moment. However, for now, UK Gilt yields have dropped and GBP is recovering.
The stability has resonated across major markets. There is a recovery versus the dollar across major forex pairs. Commodities are also ticking higher with Gold +1% and Silver +2% higher. Oil has also rebounded c. +2%. US futures are also responding with gains of over +1%, moves which are helping to support European indices this morning. There are even strong recoveries on cryptocurrencies too. After the rout of risk assets in recent sessions, it could be time for "Turnaround Tuesday”.
It is all about the US on the economic calendar today. The Durable Goods Orders are expected to grow slightly in August. The Conference Board’s US Consumer Confidence is the main data point, expecting to see a slight improvement in September. New Home Sales are expected to continue to deteriorate by around -2%
Market sentiment improves: USD is underperforming major forex. This is helping commodities and indices to recover.
Treasury yields are lower: Yields have moved sharply higher in recent sessions. However, the US 10-year and 2-year yields are both around -5bps this morning.
Bank of England tries to settle UK markets: The Bank of England has said that it is monitoring markets “very closely” and that it would not hesitate to step in with emergency interest rate changes. The new UK Chancellor, Kwasi Kwarteng, who announced the mini-budget on Friday, has said that debt-cutting plans will be issued on 23rd November. The UK 10-year Gilt yield is around -10bps lower this morning.
Cryptocurrencies rebound strongly: After a positive close last night, cryptocurrencies are in strong recovery mode today. Bitcoin is c. +6% higher at $20250, with Ethereum +4.5% higher at $1387.
Central bankers speak: Fed Chair Powell speaks today. In light of recent bond market moves, his comments will certainly be watched. The FOMC’s James Bullard (2022 voter, extremely hawkish) is at 13:55 GMT. There are also speeches from the FOMC’s Evans (2023 voter, seen as the most dovish on the FOMC) at 10:15 GMTand the FOMC’s Kashkari ((2023 voter, now a centrist).
- US Durable Goods Orders (at 12:30 GMT) Core ex-transport goods are expected to have increased by +0.2% in August (after +0.3% in July)
- US Consumer Confidence (at 14:00 GMT) Confidence is expected to improve slightly to 104.0 in September (from 103.2 in August)
- US New Home Sales (at 14:00 GMT) Sales are expected to continue to decline to 500,000 in August (from 511,00 in July)
Major markets outlook
Broad outlook: A risk recovery is on today.
Forex: USD is underperforming major forex, with GBP and NZD leading the recovery.
- EUR/USD accelerated to a low of 0.9550 yesterday but is now trying to build a recovery. The first test is a move back above 0.9700 initial resistance. Holding a higher low at 0.9583 also adds to near-term recovery potential. Dealing with the first real source of overhead supply between 0.9810/0.9910 will be key.
- GBP/USD has seen some wild intraday moves in the past couple of sessions. The spike to the low of 1.0327 is now trying to build some kind of recovery now. Holding on to the initial support at 1.0630 will be a key gauge of the near-term outlook, as well reaction to initial resistance at 1.0930. Above there the overhead supply is around 1.1210/1.1350. We expect elevated volatility to continue.
- AUD/USD has picked up from yesterday’s low at 0.6438 and is now looking to form some kind of recovery. There is plenty of oversold momentum to unwind, so there is room for a technical rally. The initial resistance is around 0.6535 and then 0.6575. Initial support this morning is at 0.6470.
Commodities: Precious metals and oil are looking to recover after recent declines. However, there is now heavy resistance overhead.
- Gold continued to fall throughout yesterday but has rebounded early this morning from $1620. This comes as the RSI recovers from an oversold position under 30. It will be interesting to see how far this rebound can go. Reaction to the new resistance now around $1653/$1654 is the first real test, with the big resistance at $1680/$1691. We continue to favour selling into strength. Under $1620, the next support is between $1550/$1610.
- Silver had been holding up well until two days of sharp selling. However, a rebound from $18.32 has set in. The reaction to resistance now between $18.77/$19.05 will be an important gauge as to how strong the buying pressure can be. The medium-term issue remains the four-month downtrend of lower highs, which is attracting rallies to be sold into.
- Brent Crude oil has broken below $85.00 which has effectively opened the next support around $80.00. A technical rally from $83.55 has set in this morning, but we continue to see old support acting as new resistance, with rallies being a chance to sell. This leaves $88.25/$89.75 as the initial basis of overhead supply.
Indices: Support is starting to form around the June lows.
- S&P 500 futures fell once more yesterday but the June low at 3639 is so far intact. Furthermore, the market is looking to rebound this morning. The daily RSI has bounced from around 30which is a level where several big sell-offs of recent months have found initial support. Holding a move above initial resistance at 3730/3740 would improve the outlook for a near-term technical rally.
- German DAX broke the support of the key March and June lows but is now looking to test the basis of overhead supply. There is resistance now between 12375/12590 and how the market reacts around here in the coming week will be an important gauge for the outlook moving forward. A bull failure on an attempted rebound could open the floodgates again. Initial support is at 12153, with little decisive support until the 11300 area.
- FTSE 100 has rebounded from yesterday’s intraday low at 6948. A “spinning top” one-day candlestick pattern is a warning signal for potential change in the recent downtrend. Subsequently, this morning’s rebound is encouraging. However, there needs to be a recovery back above initial resistance of the old support between 7127/7172.It is still very early days for a sustainable recovery.
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.