What we are looking for
- USD falling again: After yesterday’s choppy session, the corrective pressure on USD on major forex pairs is resuming once more.
- Indices continue to edge higher: The rebound may not be as strong as last week, but there is still an appetite to buy. US futures are creeping higher again, although European markets are more mixed.
- Commodities are mixed to slightly positive: The rebound in precious metals has shown a few signs of stalling, but into the European session, there is an upside bias. The oil price is rebounding from near-term support.
- Data traders: USD traders will be watching initially US Retail Sales and then Industrial Production. CAD traders will need to keep an eye on Canadian CPI inflation too.
US inflation indicators continue to ease back, as the PPI (factory gate) inflation joined last week’s CPI in falling more than expected. It is still very early days, but if these trends continue, it will give the Federal Reserve scope for a less aggressive monetary policy. Markets continue to react to this by selling the USD and trading with a positive bias to risk appetite. This continues this morning.
Geopolitics spiked onto the radar again last night, with the announcement of a missile that killed two people in Poland near the border with Ukraine. The source of the missile is yet to be confirmed, and how this impacts NATO is yet to be seen. Interestingly, so far, markets have paid very little attention to this, with little or no reaction to the traditional safe haven plays such as gold or the USD. There is a mild underperformance of the German DAX today, but nothing overly significant. Unless there is a dramatic escalation in NATO positioning on Russia, this is unlikely to impact markets too significantly.
US sector activity is key for the economic calendar today. After China’s equivalent sector disappointed earlier in the week, the US data is expected to hold up relatively well. US Retail Sales are expected to show core (ex-autos) growth of +0.2% in the month of October. A little later in the session, US Industrial Production is also expected to show a similar marginal improvement in October, whilst also reflecting a slight increase in capacity utilization. Elsewhere, Canadian CPI inflation will be in focus. After the US inflation surprised to the downside last week, core CPI is expected to fall decisively in Canada.
Market sentiment continues with a positive bias: The USD is selling off once more today, with equity markets supported. Commodities are mixed to slightly positive.
Treasury yields are consolidating: The move lower on the downside surprise in the US PPI data yesterday has turned into consolidation today. This is helping to sustain the more positive risk appetite in major markets.
UK inflation jumps to a 41-year high: CPI has hit 11.1% on the headline basis in October (up from 10.1% in September). This is the highest since 1981 and was above the 10.7% consensus forecast. Food & drink, energy and transport costs are the key contributors. The core CPI came broadly in line with expectations levelling off at 6.5%.
Missile kills two people in Poland: A missile has landed just over the border between Ukraine/Poland killing two Polish people. It is still too early to exactly determine who fired it. However, US officials are suggesting it could have been a Ukrainian defensive missile attempting to take down an incoming Russian missile. G7 leaders are meeting and it is unsure how far this will escalate tensions. Politicians appear to be trying to diffuse the situation, for now. There has been little significant market impact, yet.
Cryptocurrencies ease back after yesterday’s rebound: Crypto remains choppy. Yesterday’s solid rebound has just eased back again this morning. Bitcoin is -0.7% at $16760 with Ethereum -0.6% at $1237.
Three more Fed speakers today: There are a few Fed members scheduled to speak today. John Williams (permanent voter, leans a shade hawkish) is speaking at 14:50 GMT. Michael Barr (permanent voter, centrist) is speaking again at 15:00 GMT. Finally, Christopher Waller (permanent voter, very hawkish) speaks at 19:35 GMT.
Also, watch out for ECB President Lagarde today: Christine Lagarde is speaking at 15:00 GMT. EUR positions will be reactive to what she has to say.
- US Retail Sales (at 13:30 GMT) Core sales (ex-autos) are expected to grow by +0.2% in October (after growth of +0.3% in September).
- Canada CPI (at 13:30 GMT) Headline inflation is expected to remain at +6.9% in October, with core CPI expected to fall to 5.6% (from 6.0%)
- US Industrial Production (at 13:30 GMT) Production is expected to increase by +0.2% in October (after +0.4% growth in September). This would though mean YoY growth would fall slightly to +5.1% (from 5.3% previously).
Major markets outlook
Broad outlook: Risk appetite continues with a slightly positive bias.
Forex: USD continues to trade with a negative bias, although the move is only slight today. EUR is the main driver of today’s outperformance. Elsewhere moves are more muted. JPY is the main underperformer.
- EUR/USD looked to be struggling to sustain a breakout through the key resistance of 1.035/1.0370 from the August highs. However, the market is moving higher once more today and a closing breakout would be another key step forward in the recovery. It would open moves towards 1.06 the June resistance. The RSI momentum is pushing towards 70 and the strength of the trend is clear. But also there will be a growing potential for an overbought correction. For now, though the move is higher. We still believe that reaction to near-term weakness will be key, with initial support at 1.0270 and then 1.0197.
- GBP/USD is looking to move higher around the top of a six-week uptrend channel. However, the move is far more tentative than the EUR rally, with the RSI hovering around 60. A move clear above 1.1900 opens 1.1970/1.2000 as the next resistance area. Reaction to any unwinding move will also be key, with good support between 1.1500/1.1645 key.
- AUD/USD has moved decisively clear of 0.6670/0.6680 resistance and is now pushing higher again today. The next important resistance is around 0.6915. There is a slightly less decisive feel to the gains which might need to be watched as the RSI creeps to the high 60s. Initial support for a pullback is now around 0.6670 with more considerable support at the old resistance band 0.6520/0.6550.
Commodities: Precious metals are still in recovery mode, but signs of near-term exhaustion are appearing. Oil has bounced again from important near-term support.
- Gold remains on the bull run higher as the run of positive candles continues. However, there is a sense of caution beginning to creep in. The RSI is beginning to plateau around 70 as the market consolidates early today. Reaction to initial support at $1753 will gauge whether a near-term correction sets in. The next resistance is the $1808 August high. The big base pattern continues to imply a target of $1855 in the coming weeks.
- Silver has remained choppy since the breakout through the old resistance band of $20.85/$21.23. Yesterday’s negative candle has left a high at $22.24 but there still seems to be an appetite to support silver above $21.23 as the support of the old resistance holds firm. The next move will be interesting, as momentum is strong but between 60/70 but this is coming with the price faltering under the considerable resistance at $22.51. Reaction to a pullback will be key. Under $20.85 the support is $20.37.
- Brent Crude oil has struggled for the past 10 weeks to sustain upside moves into what is the resistance between $98.20/$101.20. However, the price has also been holding recently above $93.00 to prevent a small top pattern from forming. Rebounding yesterday and holding up today, the market is looking increasingly rangebound. With the RSI hovering around 50 and little conviction on moving averages the outlook is neutral.
Indices: There is still a slight positive bias despite markets being recently more uncertain in recovery.
- S&P 500 futures are picking up slightly once more this morning after a choppy few sessions. Holding above the old resistance (which is a new basis of support) at 3883/3935 is important. Given the positive bias to momentum, we favour continued recovery. However, the move is lacking a decisive conviction for now. Above yesterday’s high of 4050, the next big test for the bulls is the primary 10-month downtrend (c. 4116).
- German DAX is starting to show some near-term warning signs of a pullback in the recovery. A long-legged doji from yesterday is the second warning candle in a row. The market has picked up slightly early today but lacks conviction. With the RSI hovering above 70, there is scope for a near-term unwind. The market pulled back from 14447 yesterday and is initial resistance now. Despite this, the recovery trend remains strong and the breakout support around 13970 is the initial support. The June high of 14708 is the next big upside test.
- FTSE 100 has been choppy in recent days as consolidation has unwound the market back towards the four-week recovery uptrend that comes in around 7305. There is a positive bias still, with the RSI holding above 60 and initial support at 7315 holding. However, the consolidation needs to break above 7441 to open the next move higher towards the next important high of 7516. Below 7315 the breakout support is at 7228/7250.
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