What we are looking for

  • USD recovery taking hold: As the decisions of several major central banks move into the rearview mirror, the USD is emerging as a strong currency on major forex once more. The question is whether this will continue.
  • Indices under growing corrective pressure: Indices fell over yesterday and are looking vulnerable to further decline today. US futures were flat overnight but into the European session are now c. -0.5% lower. This is weighing on European indices too.
  • Commodities also look vulnerable to correction: Silver led gold lower yesterday and the same is looking true today. Oil is also moving lower once more.
  • Data traders: GBP traders will watch the UK flash PMIs, with EUR traders looking for any surprise revisions to the final reading of Eurozone inflation. USD traders will need to watch the US flash PMIs.


The hawkish stance of the ECB that followed the Fed decision means that two of the world’s primary central banks remain hawkish as economic activity trends continue to point to a path towards recession. This is hitting the risk appetite in major markets. On forex, it means that the USD is performing well (although the EUR is also holding up relatively well). Equity markets are turning corrective after the strong risk rally of the past two months. We also see precious metals falling over too.  

It is a day of flash PMIs to finish the week on the economic calendar. European data has come through the early part of the morning. The UK flash Composite PMI is expected to continue to deteriorate in contraction. Into the North American session, the US flash Composite PMI is expected to improve slightly but also remain in contraction. Aside from the PMIs, there is final Eurozone inflation, which is expected to be unrevised at 10% on the headline and 5% on core HICP. 

Today’s news

Market sentiment has turned risk negative: A risk-off bias to major markets. 

Treasury yields holding ground: Although a floor seems to have been put under Treasury yields, there is no decisive move higher, for now.

UK Retail Sales slightly disappointed in November: Adjusted UK Retail Sales (ex-fuel) dropped in November by -0.3%. Although the YoY data has improved marginally to -5.9% (from -6.4% in October) this was a slight miss to the -5.8% consensus.

Eurozone flash PMI ahead of expectations: The December flash Composite PMI has improved to 48.8 (from 47.8 in November). This was ahead of the 48.0 consensus forecast.

Cryptocurrencies are supported this morning: After crypto fell decisively yesterday (Bitcoin fell by -2.5%) there is an element of calm this morning. Bitcoin is steady for now, +0.4% at $17450 and Ethereum +0.8% at $1274. However, if risk assets continue to decline, crypto will be vulnerable to further losses.

Economic Data:

  • UK flash PMIs (at 09:30 GMT) The composite flash PMI is expected to be slightly lower at 48.0 in December (from 48.2 in November)
  • Eurozone HICP inflation - final (at 10:00 GMT) The consensus is looking final inflation for November to be unrevised at +10.0% (down from a final 10.6% in October) and 5.0% on core HICP.
  • US flash PMIs (at 14:45 GMT) The US Composite flash PMI is expected to improve slightly to 47.0 in December (from 46.4 in November).

Major markets outlook

Broad outlook: Risk appetite continues to sour. USD is rebounding, with commodities and equities under corrective pressure.

Forex: Markets are relatively quiet but there has been little kickback against yesterday’s moves yet.

  • EUR/USD outlook remains positive. Yesterday’s unwinding move hit the support of the five-week uptrend (today at 1.0600) and the previous breakout is now supportive at 1.0595. Momentum remains strong with the daily RSI in the high 60s. Given the strength of momentum and the uptrend, until otherwise, we still look to use near-term weakness as a chance to buy. There is good initial support between 1.0500/1.0595. Resistance at 1.0735 ahead of the key May highs of 1.0785.
  • GBP/USD has fallen sharply with the largest bearish candle since early November. It has broken the six-week uptrend too. The reaction to the first higher low of the recovery (at 1.2100) will be key now. A breakdown below there would turn the market decisively corrective. The market is consolidating this morning suggesting this could be a crucial inflexion point. Initial resistance is 1.2225 under 1.2300. The reaction high at 1.2446 is now a key high. 
  • AUD/USD fell sharply yesterday with a huge bear candle. For now the reaction low at 0.6668 is intact but if this is breached on a closing basis it would break the run of higher lows and be a new trend formation. The 21-day moving average (c. 0.6733) has already rolled over, whilst the daily RSI is dipping below 50 and is starting to look corrective. Below 0.6668 opens 0.6640 initially and then the key support at 0.6585. The initial resistance is 0.6735/0.6770.

Commodities: Precious metals are increasingly vulnerable to a correction. The technical rally on oil has fallen over.

  • Gold reversed from $1824 earlier in the week but yesterday fell decisively to suggest a shift in outlook. The bull trend of the last five weeks has been broken and a move below $1777 is a support breach. We see $1765 as the first key higher low of the recovery and if that is broken it would effectively complete a top that would imply c. -$60 of downside and at least would suggest a retest of the key support around $1728/$1735. The market is struggling to muster a rally today under initial resistance at $1786.
  • Silver pulled sharply lower from $24.12 to leave a key high and is once more sharply lower today. The move is quickly unwinding the price back into the support of the old breakout band c. $22.00/$22.50. If this band of support can hold then the correction can be contained. With the RSI unwinding back towards 50 (where previous corrections have found support in recent weeks) this could still be a near-term move, but the support needs to hold. Initial resistance is $23.10/$23.42.
  • Brent Crude oil has seen the technical rally faltering around the resistance of the old support band of $81.40/$83.55. With the confluence of the falling 21-day moving average and the five-week downtrend also a basis of resistance, the market is once more turning decisively lower this morning. Closing under $80.40 could see the market re-opening the lows again at $75.50.

Indices: Equity markets are breaking down.

  • S&P 500 futures have turned sharply lower. A big bear candle yesterday initially held on to the support around 3912 but this is being decisively broken this morning with further losses. The momentum has turned decisively negative with the RSI falling below the mid-40s and its lowest since mid-October. There is a completed top on a close below 3912 that implies a move towards 3720. The next important higher low of the recovery is at 3751 from early November. There is now a band of overhead supply between 3912/3945.

  • German DAX completes a top pattern with the decisive close below 14125. This move implies a correction back towards 3700/3800. The market has fallen over again this morning as the move is accelerating again. Momentum has turned decisively corrective with the RSI falling sharply towards 40. The broad support band 13600/13970 is being tested, but a break below 13600 would be bearish now.
  • FTSE 100 has completed a top pattern with a decisive break below 7437 in a move that implies c. -200 ticks of downside target towards 7240. The next support is a reaction low at 7355 with 7304 being an important higher low of the rally. The RSI has turned decisively corrective below 50 and increasingly, near-term rallies are a chance to sell. Initial resistance is 7437/7471 with 7565 a key lower high.

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.

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