The Bank of England and the European Central Bank both pulled hawkish surprises yesterday. However, only EUR has been driven decisively higher. This could now pull EUR into a new phase of strength as market participants suddenly look to price for a potential ECB rate hike in 2022. In equities, there continue to be wild swings and elevated volatility on Wall Street, driven especially by the reaction to tech sector earnings. Losses into the close last night on the Meta Platforms (i.e. Facebook) disappointment, has been turned around overnight in the wake of earnings from Amazon and Snap.
The big focus for today’s session will quickly turn to the Nonfarm Payrolls report. After the ADP employment change unexpectedly showed a decline of -250,000 jobs on Wednesday, there is a realistic prospect for a negative surprise to the consensus of +150,000 in today’s official payrolls. However, after ADP proved to be a bum steer for payrolls last month, traders come into today’s data with considerable uncertainty.
Risk appetite is mixed: Aside from a continued strength on EUR, the USD is performing well on major forex. Indices are rebounding from the bounce overnight on US futures, but it is interesting to see DAX lower again. Commodities are higher with oil continuing to break higher.
Treasury yields have jumped higher again: This has tended to support USD but not so much for indices. Could this mean the early rally on equities begins to fade? [Risk mixed]
UK PM Johnson under mounting pressure: A host of his top aides have all resigned. Increasing numbers of his MPs are submitting votes of no confidence in his leadership [GBP not affected, yet]
US President Biden on Russia: The White House has said that the risk is still that a Russian invasion of Ukraine could be imminent. [Risk negative]
- US Nonfarm Payrolls (at 1330GMT). Headline payrolls are expected to slip back to +150,000 (from 199,000 last month). Also, watch Unemployment (expected to remain at 3.9%) and Average Hourly Earnings (expected to jump to 5.2% from 4.7% last month).
- Canada unemployment (at 1330GMT). With employment expected to fall by 117,000 jobs, the unemployment rate is expected to increase to 6.2% (from 5.9% in December)
MAJOR MARKETS OUTLOOK
Broad outlook: A turn to a mild risk negative bias today. USD has found support, commodities are lower and indices are reacting to losses on NASDAQ overnight.
Forex: USD is starting to perform better across major forex, except for the continued strength in EUR.
- EUR/USD has jumped towards a test of 1.1482, the January rebound high. This marks a key resistance. How the EUR now reacts to any overbought unwinding of the move will be key. Bulls will look to build support above 1.1360/1.1380. A breakout above 1.1480 opens 1.1525 as the next resistance.
- GBP/USD has failed to push higher despite the hawkish leans of the Bank of England. The market is falling back today from the initial reaction high of 1.3627. Support at 1.3535 will be key near term.
- AUD/USD recovery has stalled around the resistance band 0.7125/0.7180 and is looking increasingly likely to correct back. It could now be set for a pullback into 0.7035/0.7080.
Commodities: Gold and silver are edging higher again. Oil is holding the breakout to multi-year highs.
- Gold quickly recovered from an intraday spike to $1788 and is now pushing on resistance around $1810 again. A move above $1810 opens a $1828/$1832 old resistance band. We still see $1800 as a basis of support.
- Silver has rebounded from $22.00 but the resistance of the 2-week downtrend is approaching (c. $22.70) and intraday rallies have continued to be seen as a chance to sell. This will remain the case under the lower high of $23.04.
- Brent Crude oil has ended a week-long consolidation with an upside break to multi-year highs. Holding above the breakout support around $90.30/$91.20 will maintain the view that a move towards $100 could now be seen. There is no significant resistance overhead.
Indices: Uncertainty on Wall Street with elevated volatility. FTSE 100 is holding up OK but the DAX has fallen back sharply early today.
- S&P 500 futures have recovered overnight from 4461, but are beginning to slip back again. Technicals suggest that a decisive move back below 4492 (that holds) would be a corrective signal again. This would re-open 4445. Resistance is mounting at 4585.
- DAX has decisively broken the recovery uptrend and is lurching lower again this morning to suggest a test of the next higher low at 15,120 will be seen. Today’s reaction high at 15,512 could also now become a key lower high.
- FTSE 100 looked set for another test of 7621 before unwinding this morning. The recovery is intact for now but looks to be on shaky ground (especially if other markets continue to fall) but we are watching support at 7521 to be a gauge.