What we are looking for
- USD is underperforming again, for now: USD continued to weaken versus major forex overnight, but coming into the European session there are signs of a bounce. The USD is well off its lows of the day.
- Indices are positive, for now: Sentiment has just eased slightly this morning. US futures are well off overnight highs, with European indices only showing muted gains.
- Commodities have slipped slightly: After recovering well from yesterday’s intraday lows, precious metals have eased back slightly this morning. Oil remains strong after the OPEC production cut.
- Data trading: EUR traders will be watching for the Eurozone Retail Sales this morning and the ECB meeting minutes a little later. USD traders will be watching for the weekly jobless claims and the speeches of another three Fed speakers.
There is a sense of fluctuation that has taken hold in the past 24 hours. An initial unwind to the risk rally found willing buyers into the US close last night. However, this morning this sense of optimism is again being questioned. US Treasury yields (and other major government bond yields) are rising again. These moves have tended to favour a stronger USD and a return to a more risk-negative sentiment.
This feeling of uncertainty over the risk rally may also now extend into tomorrow, with the key US Nonfarm Payrolls data. It is a slightly quieter calendar today which could play into the mixed outlook. However, several Fed speakers are likely to maintain the line of hawkish policy and subsequently support the USD.
There is a bit of a Eurozone theme on the economic calendar today. Eurozone Retail Sales are first up, expected to show a -0.4% monthly decline and a worsening year-on-year deterioration. The minutes from the latest Governing Council meeting with the ECB Monetary Policy Meeting Accounts are a little later. Traders will be watching for how vocal the hawks are becoming and any clues over the size of the next rate hike. Moving into the US session the US Weekly Jobless Claims will be watched. Notably, weekly claims have been falling consistently since early August, whilst also coming in lower than expected in each of the past nine weeks.
Market sentiment is slightly positive: However, sentiment was stronger overnight and has been reined in slightly into the European session.
Treasury yields ticking back higher: After bottoming on Tuesday and rising sharply yesterday, the US 10-year yield has moved higher again this morning. The 2-year yield is also ticking higher.
German Factory Orders fall sharply in August: The outlook for German industry continues to contract, with a sharp decline of -2.4% in August. This was way down from the -0.7% decline forecast.
Fed’s Bostic remains hawkish: The inflation fight is still in its early days. He wants a “moderately restrictive" policy and once rates get to 4.00%/4.50% he wants them on hold. Also the Fed not being too quick to cut rates if the economy weakens.
Oil rallying after yesterday’s OPEC+ production cut: The agreement between OPEC and allies (such as Russia) is to cut production by 2 million barrels per day. In reality, the cut will be smaller than 2 million barrels as currency production is below target levels. According to Saudi Arabia's energy minister, the real supply cut would be around 1 million barrels.
Cryptocurrencies rebound again: The bounce since Monday was questioned yesterday but is pulling higher once more this morning. However, like most risk assets, crypto such as Bitcoin (+1% at $20200) and Ethereum (+1.5% at $1365) are off their overnight highs.
Three Fed speakers today: The flood of Fed speakers continues. Charles Evans (2023 voter, dovish) speaks at 17:00 GMT. Lisa Cook (permanent voter, leans dovish) speaks at 17:00 GMT. Finally, Christopher Waller (permanent voter, very hawkish) speaks at 21:00 GMT.
- Eurozone Retail Sales (at 09:00 GMT) Sales are expected to decline by -0.4% in August, which would mean a -1.7% year-on-year decline (a deterioration from -0.9% in July)
- ECB Monetary Policy Meeting Accounts (at 11:30 GMT)
- US Weekly Jobless Claims (at 12:30 GMT) Claims are expected to have increased slightly to 203,000 in the week to 1st October (up from 193,000 in the previous week)
Major markets outlook
Broad outlook: Market sentiment is increasingly fluctuating, but is still positive.
Forex: USD performance has fluctuated in the past 24 hours. Into the European session, USD is still underperforming. NZD is an outperformer since the RBNZ meeting.
- EUR/USD topped out at 1.0000 yesterday. A sharp fall back through the old 0.9865/0.9950 band has rebounded again overnight. It means that the 0.9835 low from yesterday will be seen as a gauge now. There is a mounting sense of fluctuation in the market (which could also grow in front of Nonfarm Payrolls tomorrow). . We remain wary of the rally, given the resistance of the 55-day moving average (at 1.0022) and the 8-month downtrend. The daily RSI is back around 55 where previous rallies have faltered, so this remains a crucial moment. We still favour using near-term rallies as a chance to sell but we wait to see how this move plays out. Breaching 0.9835 support would be a sell signal now.
- GBP/USD has seen the rally falter at 1.1490 with a strong negative candlestick yesterday. Picking up from 1.1225 this now becomes a key support near-term and a gauge for any potential renewed selling. There will be a concern that with the RSI around the 50/55 area where other recoveries have faltered, a break below 1.1225 would open the move lower again. Above the initial resistance at 1.1490 opens more considerable resistance between 1.1715/1.1760.
- AUD/USD continues to struggle with the resistance between 0.6525/0.6545. Small-bodied and long shadowed candlesticks of the past couple of sessions play into the lack of conviction and uncertainty. Initial support is now at 0.6415. A decisive move above 0.6545 would imply a recovery towards 0.6770.
Commodities: Huge rebounds are into key medium-term resistance.
- Gold continues to test the resistance of $1727/$1735. This remains a key barrier and an upside break would be an important positive move. The market has fluctuated in the past 24 hours, with intraday weakness being bought into. Buying at $1700 leaves this as a key level near-term and holding the RSI above 50 is also important for the continuation of the rally.
- Silver continues to trade with elevated volatility. A big spike lower found support yesterday around the old previous breakout support at $19.91/$20.00. Having broken the five-month downtrend, and rebounding from old breakout support is encouraging. Also, there is a bullish golden cross on the 21 & 55 day moving averages that have now been seen. The resistance is $21.23 and now needs to be breached to be the next step.
- Brent Crude oil has continued higher, boosted by the OPEC news and is now testing the key resistance band between $93.25/$96.60. Furthermore, the four-month downtrend (c. 94.40) has been broken as the recovery continues. We have long seen rallies as a chance to sell, but a breakout above $96.60 would mean that we would need to change our medium-term trading strategy. Initial support is at $91.85/$93.35.
Indices: The sharp rebounds of early this week continue to be questioned.
- S&P 500 futures have fluctuated in the past 24 hours. Volatility remains high, but uncertainty is increasingly taking hold. This is reflected in the failing rally and small-bodied candle yesterday. Resistance at 3820 is mounting as the market has slipped lower into the European session. There was a key rebound from 3735 yesterday which makes the support between 3735/3750 increasingly important on a near-term basis. Above 3820 opens the next big overhead supply resistance band at 3883/3935.
- German DAX picked up from an intraday low at 12442 yesterday. We previously discussed how the buyers needed to support weakness and the use of the 12400/12590 support area is encouraging. However, as the market dips back again this morning, this support needs to continue to hold. If so, then recovery towards the next resistance around 12850/12930 could be seen. Initial resistance is at 12692.
- FTSE 100 has found buyers into weakness with the low at 6978 within the old 6970/7010 pivot band. The subsequent move higher is encouraging, however once more this is being questioned as the market has pulled back again this morning. A decisive close above 7090 would be a positive signal now. The importance of support at 6970/7010 is growing.
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.