There has been a key move on markets as President Biden has announced that Jerome Powell is set to continue as Fed chair. Markets are pricing in rate hikes sooner and this has hit equity markets and strengthened USD. However, the question for traders is whether this knee-jerk move (especially on USD) will continue. The flash PMIs will be in focus for today’s session, especially for the Eurozone which is increasingly struggling with a COVID resurgence.
- Main drivers: Sentiment looking negative with USD strength; Biden keeps Powell as Fed chair; oil lower on the potential release of reserves; no Fed speakers due; economic calendar: Flash PMIs and Richmond Fed Manufacturing.
- Mixed sentiment: USD remains volatile and retains strength across major currencies; commodities lower; equity indices down
- Biden re-selects Powell: four more years of Powell as Fed chair. Not selecting Brainard (who is dovish) has boosted USD. Bond markets now pricing in earlier rate hikes from the Fed. [USD supportive near term]
- Oil outlook mixed on oil reserves uncertainty: mixed reports of whether the US will release oil reserves into the market in a coordinated move with other countries. Also uncertainty over the OPEC+ response to this [Oil negative if true]
- Central bank speakers: there are no Fed speakers due today.
- Economic Data:
-Eurozone Flash PMIs at 0900GMT, expected to see Manufacturing drop to 57.3 (from 58.3), Services drop to 53.5 (from 54.6) and the Composite to fall to 53.2 (from 54.2)
-UK Flash PMIs at 0930GMT, all are forecast to decline slightly, with Manufacturing down to 57.3 (from 57.8), Services down to 58.5 (from 59.1), and the Composite down to 57.5 (from 57.8)
-US Flash PMIs at 1445GMT, expected to rise marginally, with Manufacturing up to 59.0 (from 58.4) and Services up to 59.0 (from 58.7)
-Richmond Fed Manufacturing at 1500GMT is forecast to fall slightly to +10 in November (from +12 in October)
Broad outlook: USD remains strong but it could become stretched. Commodities remain under negative pressure and indices now also pulling back on risk aversion.
- Forex: USD strength continues but there are a few signs that this may be short-lived.
-EUR/USD remains under pressure of selling into intraday strength. There is a slight tick back higher this morning but we need to see more to think there is a sustainable rebound, as rallies remain a chance to sell. Initial resistance around 1.1290 but resistance around 1.1355/1.1385 is growing in importance.
-GBP/USD has deteriorated again with the USD strength and is eyeing 1.3352 again. Resistance at 1.3410 early today, with 1.3513 now looking like important near-term resistance.
-AUD/USD still trending lower, seeing intraday rallies as a chance to sell. The next support is at 1.7170. Resistance is growing at 0.7275/0.7290.
- Commodities: precious metals have pulled back sharply and need to start building support, oil is consolidating.
-Gold has fallen sharply back below $1811/$1834 support and is testing $1800. This is still a pullback within the recovery and once support begins to build we are looking to buy. Resistance is strengthening at $1870/$1877.
-Silver has moved sharply lower in recent sessions to test the recovery channel. We are looking for support to form around here and then for renewed buy signals, but for now, we wait.
-Brent Crude oil was a tick higher yesterday as support has looked to develop at $77.75. We still see near-term rallies as a chance to sell. A move towards $74/$76 is likely. Resistance at $80.25/$80.80.
- Indices: Wall Street has fallen back and is now looking at the risk of further correction, DAX falling hard, FTSE holding up relatively well.
-S&P 500 futures have pulled back sharply from a breakout to all-time highs. A close below 4670 looks increasingly towards a retest of 4624. Initial resistance is at 4670/4690 as near-term momentum turns corrective.
-DAX a corrective move has taken hold on a break below 15,990 this morning. Next support 15,760/15,810. Old support around 16,000 now becomes initial resistance under the all-time high of 16,301.
-FTSE 100 a pullback under 7250 is still a problem for FTSE, but the market is a relative outperformer today. The key support remains 7180 as a break would open a deeper correction. We retain our medium-term upside target of 7700 whilst the key support at 7180 is intact.