What we are looking for
- USD starts to rebound: The USD is clawing back losses across major forex. Although the JPY is holding firm.
- Indices start to ease back: Despite recent drifting gains and a positive Wall Street close, US futures are lower overnight and this is dragging back earlier gains on European indices
- Commodities show metals lower, oil supported: Metals prices reflect the souring of risk appetite, with silver underperforming gold in a pull lower. Oil is however building support.
- Data traders: EUR traders will need to watch for ECB President Lagarde this morning. US Core PCE may drive USD positions early in the US session. It is also worth watching for Pending Home Sales and any revision to the final Michigan Sentiment.
The first reading of Q4 US growth beat forecasts. Combined with durable goods and weekly jobless claims also better than expected, this has helped to support the USD. US Fed Funds futures are nailed on in expectation of a 25 basis points hike at the Fed meeting next week. But stronger US economic data may change the message that comes with the hike, potentially maintaining the hawkish message of further hikes to come. The selling pressure that has come on the USD has been more of a drift than decisive in recent sessions, but it is starting to unwind as traders ponder what might come from the Fed next week.
The moves are only slight for now, and likely reflect a caution rather than any more significant change of tack. Indices which had been positive on Wall Street in recent sessions are showing signs of a pull lower. This is beginning to weigh slightly on European indices this morning. Metals prices are also being dragged lower.
The Fed’s preferred inflation gauge is important for the economic calendar today. The US Core PCE is expected to fall decisively to 4.4% in December. The CPI data tends to get the bigger market reaction, but any surprise to the PCE will impact USD positions. Elsewhere, the final Michigan Sentiment is not expected to see any revision, whilst Pending Home Sales are forecast to show continued deterioration. Traders will also be watching for the speech of ECB President Largarde this morning. She was maintaining a hawkish tone in the Davos speeches and is likely to continue this today to push back on any dovish speculation.
Market sentiment has soured slightly: USD and JPY are outperforming major forex, indices and metals prices are lower.
US Treasury yields are ticking higher: There has been a very gradual slowing of the January trend lower and now there are signs of a rebound. Yields were higher yesterday after US GDP and the 10-year yield is higher again today.
Cryptocurrencies tick lower again: The rally from earlier in the week was hit yesterday into the close and is showing further downside this morning. Bitcoin is -0.4% at $23000, with Ethereum -1.4% at $1580.
Federal Reserve still in its “blackout period”: There will be no Fed speakers until after the meeting on Wednesday 1st February.
ECB’s Lagarde speaking today: ECB President Christine Lagarde is speaking at 10:30 GMT. She has been looking to re-assert the ECB’s tightening path in recent speeches. EUR positions will be reactive.
Major Economic Data:
- US Core PCE (at 13:30 GMT) The core PCE is forecast to fall to 4.4% in December (from 4.7% in November).
- Michigan Sentiment - final (at 15:00 GMT) Final sentiment is expected to be unrevised at 64.6 in January (up from 59.7 final December).
- US Pending Home Sales (at 15:00 GMT) Pending sales are expected to fall by around -1% MoM in December (after falling by -4.0% MoM in November). This would leave sales -25% YoY.
Major markets outlook
Forex: USD is starting to reclaim losses, with JPY also performing better.
- EUR/USD has been looking to move higher but has been unable to overcome the resistance around 1.0930 in recent days. Having hit the buffers, the pair is starting to pull back. This comes with the RSI having once more hit 70 and faltered. Each of the past five times since November the RSI has hit 69/70, it has induced a period of consolidation, with minor profit taking. We continue to look to buy into weakness in the uptrend channel. Initial support is 1.0835/1.0887 with 1.0765 a key higher low. Above resistance at 1.0935 is the psychological 1.1000 level.
GBP/USD has been testing the resistance at 1.2445 throughout this week but has been unable to break higher. The daily RSI momentum is rolling over slightly but on a medium-term basis it retains a positive bias and we continue to see near-term weakness as a chance to buy. There is good support between 1.2170/1.2260. The bulls will still be looking for a close above 1.2445 to open 1.2600/1.2660.
- USD/JPY has been consolidating around the three-month downtrend and the falling 21-day moving average (c. 130.51) throughout this week. This consolidation has come under 131.10 resistance but has lacked the decisive selling pressure for renewed downside. The continued consolidation is now breaching the downtrend, which is a warning for the bears. The daily RSI remains negatively configured and has failed consistently around 40/45 in recent months. For now, we favour selling into strength for a test of the low at 127.22 but support is building around 129.00. Key resistance is between 131.10/131.55.
Commodities: Gold starting to ease back. However, Silver is still stuck rangebound. However, oil is moving higher.
- Gold has been positive in the uptrend, but yesterday’s bearish candle is a warning. Every solid and decisive bearish candle since mid-November has been followed by a bullish reaction. So today could be an important gauge. On the four-hour chart, the 55-period moving average has been supported throughout 2023 but is being tested and is starting to falter. There is good support between $1904/$1920, also with the support of the 12-week uptrend. We continue to favour buying into near-term weakness.
- Silver is again faltering in the consolidation rectangle between $23.11/$24.55. Yesterday’s doji reflects the uncertainty, but the price has fallen away again today. With the RSI again dropping towards 50 a prospect of a test of the range lows around $23.11 is growing. As the RSI holds 50 we retain a neutral outlook, and a closing break of the range is needed for direction. Initial resistance is now at $23.60.
- Brent Crude oil has rebounded from this week’s low at $85.40 and is once more looking to move higher. A test of the recent resistance at $89.00 is being eyed. Importantly, the daily RSI remains solidly above 50 which leaves a bullish bias, whilst finding support above $83.65 strengthens this as a key higher low. A move above resistance at $90.00 would be a decisive positive move now.
Indices: Wall Street is consolidating recent gains, whilst European indices continue to struggle for decisive upside traction.
- S&P 500 futures have been strong in the rebound from the 3963 low from earlier in the week to push above resistance at 4056. The breakout is though resulting in consolidation today and with the RSI only a shade above 60 (a position where upside traction has consistently failed in recent months) there is still a risk of another pullback. The resistance between 4070/4140 that capped the upside through November/December still needs to be overcome. Otherwise, this would continue the range of the medium-term trading band. Initial support is at 4027 above the 3963 reaction low.
- German DAX has lost upside traction in recent sessions. Although the market is building the consolidation between 14910/15275 the candlesticks lack conviction. The RSI momentum has been tailing off from above 70. When this happened in November/December it resulted in a correction. Despite this, we continue to see weakness as a chance to buy and holding on to the support of the breakouts between 14604/14810 is important. A close above 15275 would drive the next bull run higher towards 15500/15600.
- FTSE 100 still looks susceptible to a negative drift. Having found resistance at 7884, a lower high has formed at 7818 with near-term lower lows. This looks to be a drift back towards the old highs between 7635/7695. This comes as the RSI is unwinding and the move looks to be another retracement within the two-and-a-half-month uptrend. We still look to use supported weakness as a chance to buy.
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