What we are looking for
- USD choppy on mixed signals: There is a mixed move for the USD on major forex today. It is positive on risk assets (such as AUD and NZD), but there is a continuing bias towards the strength of the JPY and EUR.
- Indices are falling back: Indices fell back into the close last night (concerns over US economic slowdown and maybe some profit-taking too) and continue to tick lower today. US futures are marginally lower, but European indices are playing catch up on a soft Wall Street close.
- Commodities are mixed: Precious metals are finding support but the oil price has fallen back.
- Data traders: There will be some EUR volatility around the ECB meeting minutes. There is a batch of US data that USD traders will watch at 13:30 GMT. The Philly Fed Manufacturing and Weekly Jobless Claims will likely be the market movers on any surprises.
Risk appetite is being flung around right now. There are two competing views. There are growing signs of economic slowdown in the US. Retail Sales and Industrial Production were both in decline yesterday, whilst the PPI decline also reflects reducing pricing pressures. This all eases pressure on the Federal Reserve to tighten interest rates. Less aggressive tightening is USD negative but also tends to be positive for risk appetite.
However, Fed speakers are trying their hardest to talk up interest rates. There are also concerns about what the economic slowdown in the US does for demand. Risk assets such as equities started to pull back yesterday after a strong run higher in recent weeks. This move continues today. The Australian and New Zealand dollars are also under corrective pressure (although weak Australian employment and the news of New Zealand’s Prime Minister Ardern standing down have not helped). For now, this is a blip in risk appetite, but it needs to be watched.
There is a clutch of second-tier US data on the economic calendar at 13:30 GMT. However, the ECB minutes for the December meeting will be assessed for any hawkish bias towards the potential for more 50bps rate hikes. US Building Permits are expected to have increased slightly in December. However, this would only recover some of the significant reduction seen in November and is still below all other months in the past twelve. US Housing Starts are expected to continue the trend of decline. Weekly Jobless Claims remained a shade above 200,000 last week (the lowest since September) but are forecast to increase slightly. The Philly Fed Manufacturing Index is expected to improve slightly. The data will be in focus after the huge and unexpected decline in the New York Fed Manufacturing on Tuesday.
Market sentiment sours: Risk assets are struggling today. Equity markets are dropping back, AUD and NZD are underperforming, whilst oil has turned lower.
US Treasury yields continue to fall: US yields fell sharply yesterday after the weak US data., and this move is continuing today. The 10-year yield is under 3.40% and is at its lowest since September, with the 2-year yield dropping towards the key 4.00% level.
Hawkish lean from Fed speakers: Loretta Mester (2024 voter) and James Bullard (2025 voter) are both very hawkish on the FOMC. However, they continue to remain hawkish and show little sign of budging in their view. Both said yesterday that they see the Fed Funds rate moving above 5%.
Australian employment surprisingly contracts in December: The employment level unexpectedly fell by c. 15,000 in December (+22,500 exp). The participation rate has also dropped. The headline jobless rate remains at 3.5%. AUD is under selling pressure.
New Zealand Prime Minister Ardern to step down: Jacinda Ardern has been prime minister for six years and will step down in February.
Cryptocurrencies look to steady themselves again: Crypto fell back decisively yesterday but is looking more stable this morning. Bitcoin fell -2.5% but is more stable this morning, trading +0.1% higher at $20800. Ethereum is flat today at $1529.
ECB’s Lagarde and Fed speakers scheduled: Lagarde will be an important watch for EUR positions today. There is also an array of Fed speakers from across the spectrum.
- Christine Lagarde (ECB President) speaks at Davos at 10:30 GMT.
- Susan Collins (2025 voter, leans hawkish) speaks at 14:00 GMT
- Lael Brainard (permanent voter, dovish) speaks at 18:15 GMT
- John Williams (permanent voter, leans hawkish) speaks at 23:35 GMT
- ECB Meeting Accounts (at 12:30 GMT) The minutes of the December meeting
- US Building Permits (at 13:30 GMT) Permits are expected to have increased slightly to 1.370m in December (from 1.351m in November).
- US Housing Starts (at 13:30 GMT) Starts are expected to have fallen to 1.359m in December (from 1.427m in November)
- US Weekly Jobless Claims (at 13:30 GMT) Claims are expected to increase to 214,000 in the last week (205,000 previously)
- Philly Fed Manufacturing Index (at 13:30 GMT) The index is forecast to have improved slightly to -11 in January (from -13.8 in December)
Major markets outlook
Forex: There are mixed signals on forex pairs. AUD and NZD are the main underperformers. JPY is strengthening once more with EUR also positive.
EUR/USD has choppy in a consolidation around the support of the old 1.0785 May 2022 high. Yesterday’s bull failure at 1.0887 has failed to follow through and the pair is ticking higher again today. We continue to favour buying into weakness and the breakout support between 1.0712/1.0785 is a good basis for the next leg higher. We still look for a confirmed breakout above the 1.0865/1.0887 resistance area which would continue the recovery to test 1.0935 (the next resistance) and potentially 1.11/1.12. Technically, the outlook remains very strong with RSI momentum in the 60s.
GBP/USD has continued higher in recent sessions. Although the market has just backed away from the resistance at 1.2445, there is still a positive bias to the outlook. Momentum is positively configured with the daily RSI into the 60s There is support growing between 1.2150/1.2290 with any supported weakness into this area seen as a chance for renewed upside. Support at 1.2080 is a higher low above key support at 1.1840. Above 1.2445 opens 1.2600/1.2660.
USD/JPY spiked up to 131.57 on the BoJ yesterday but very quickly entirely retraced the move. A close back under 129.50 (an old breakdown) reflects a bull failure and the continued move to sell into strength. The 21-day moving average (today at 131.25) remains a strong basis of resistance. The low at 127.22 is key support but is still likely to be retested.
Commodities: Metals and oil are rallying again.
Gold has eased back from $1929 in recent sessions as a near-term unwinding move has continued. A pullback into the old long-term pivot support band $1880/$1890 would be a chance to unwind overstretched momentum and renew upside potential. After the bull failure at $1925 yesterday another failure in today’s rebound would add to near-term corrective pressure within the 10-week uptrend. We still look to use near-term weakness as a chance to buy.
Silver has unwound from the key $24.54 resistance once more to strengthen a one-month consolidation rectangle between $23.11/$24.55. There will be an increasing focus on the support at $23.11 now as the RSI has dropped under 50 for the first time in over 10 weeks. A breach of the support would turn the rectangle into a top pattern and a reversal. For now, we still favour buying into weakness to play the range.
Brent Crude oil has pulled back from a potential breakout to a six-week high. Yesterday’s strong negative candle came after an initial upside break of the resistance and this is a big warning for the bulls. This is very similar to the failed bull move of early November that turned into a decisive correction. On the 4-hour chart, we see support between $83.10/$83.75 is key. A confirmed breakdown would shift the market into a corrective outlook again.
Indices: The strong rallies are losing some momentum amid consolidation.
S&P 500 futures have turned sharply lower to test the support of the medium-term pivot area between 3912/3945. This is supportive for now, and with the RSI having retreated to 50, this looks to be a near-term crossroads. A close below 3912 would re-open the lows at 3788/3822 within what is increasingly a medium term consolidation range. Resistance is growing at 4035.
- German DAX has been losing upside momentum in recent sessions and posting intraday bull failures. This has come with the RSI above 70. Long upper shadows on the daily candles suggest a lack of sustained buying and potential growing profit-taking. An early move lower today plays into this, but also moves the RSI below 70 for a sell signal. There is good support at the breakouts between 14604/14810. We would still look to buy into supported weakness. The key resistance is building now around 15275.
FTSE 100 has seen consolidation turn into a corrective move. Yesterday's strong negative candle is pulling the market lower and leaves key resistance at 7844, just shy of a test of the all-time high of 7903. The RSI has pulled back under 70 which is a basic sell/profit-taking signal. RSI The last time the RSI retreated from 75 was late November when a three-week correction then set in. There is good support from the breakout of all the old highs between 7635/7695 with initial support at 7747/7780.
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.
All trading carries risk.