What we are looking for
- USD starting to fall again: USD failed to make any headway in a recovery yesterday and the USD selling on major forex pairs is resuming today.
- Indices are supported again: There is a risk-positive feel to markets as NASDAQ leads US futures higher, helping to support European indices.
- Commodities supported but oil slips: Metals prices are climbing again as the USD selling pressure resumes, but oil is falling away again.
- Data traders: EUR traders will be watching for prelim Eurozone GDP and German ZEW both at 10:00GMT. USD traders will be watching for the US PPI and New York Fed Manufacturing.
After the downside US inflation surprise of last week the USD has been decisively sold. A large focus this week was always going to be how FOMC members responded to inflation tracking lower. Christopher Waller over the weekend noted that markets had gotten ahead of themselves in pricing for an earlier end to Fed hikes. However, this view is understandable from arguably the FOMC’s most hawkish member. So it probably should come as little surprise that Lael Brainard, arguably the most dovish FOMC member noted that it would be “soon” appropriate to move to a slower pace of hikes. So, it’s one all then. Seeing where the centrists on the FOMC sit, may give us more indication.
Markets were consolidating through yesterday but are resuming the USD selling once more today as US Treasury yields start to drop back once more. This is helping to support risk appetite, with US futures showing solid gains (the risk-positive NASDAQ is leading the way) and mild gains in Europe.
The is Eurozone growth and US factory-gate inflation on the economic calendar today. The second reading of Q3 Eurozone GDP is expected to be unrevised but watch also for the German ZEW Economic Sentiment which is expected to improve slightly. US PPI is expected to drop slightly on the headline and remain steady on the core basis. After the US CPI dropped last week, along with the recent larger-than-forecast decline in the Chinese PPI, there could be a downside surprise here. New York Fed Manufacturing is expected to improve slightly but remains negative for a fourth consecutive month.
Market sentiment edging positively again: As US yields fall and the USD drops back, we are seeing a more risk-positive bias, especially on Wall Street.
Treasury yields edge back lower: Yields moved slightly higher yesterday and are back slightly lower this morning.
UK Unemployment rises slightly: The jobless rate has ticked higher to 3.6% in September (from 3.5%). Average weekly earnings (ex-bonus) increased slightly to 5.7% from 5.5%.
Chinese sector data disappoints: Industrial Production fell from 6.3% to 5.0% in October (5.2% exp) with Retail Sales deteriorating from +2.5% to -0.5% (+1.0% exp).
Japanese Industrial Production broadly in line: Production fell by -1.7% MoM in September (-1.6% exp) but due to favourable comparatives, year-on-year production increased to 9.6% (from 5.8%).
Cryptocurrencies find support: After a choppy session yesterday, crypto is having a better day today. Bitcoin is +3% at $16900, with Ethereum +3.8% at $1273.
Two Fed speakers today: There are a couple of Fed speakers to watch out for. Lisa Cook (permanent voter, centrist) is speaking at 14:00 GMT, with Michael Barr (permanent voter, centrist) speaking at 15:00 GMT
- Eurozone Q3 GDP - prelim (at 10:00 GMT). The second reading of Eurozone GDP is expected to be unrevised at +0.2% QoQ (final Q2 GDP was +0.4% QoQ).
- German ZEW Economic Sentiment (at 10:00 GMT). The ZEW is expected to improve slightly to -50.0 in November (from -59.2 in October).
- US PPI (at 13:30 GMT) The headline PPI is expected to drop slightly to 8.3% in October (from 8.5% in September) with the core PPI steady at 7.2%.
- New York Fed Manufacturing (at 13:30 GMT) A marginal improvement is forecast to -7.0 in November (up from -9.1 in October).
Major markets outlook
Broad outlook: Risk appetite is looking more positive again this morning.
Forex: USD selling has resumed with underperformance across major forex pairs. The NZD and EUR are leading the way, with AUD and GBP not far behind.
- EUR/USD has broken out through another key next resistance (of 1.035/1.0370 from the August highs) to trade at the highest level since early July. With the RSI momentum pushing towards 70, the strength 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. The next important resistance is 1.0615.
- GBP/USD has rebounded after a slightly negative session yesterday and is now eyeing a test of the 1.1855 reaction high and the top of a six-week uptrend channel. Reaction to any unwinding move will be key, with good support between 1.1500/1.1645 key. The next upside resistance is at 1.1900.
- AUD/USD has consolidated the breakout above 0.6670/0.6680 and is now pushing decisively higher again. The next important resistance is now around 0.6915. Momentum remains strong on the RSI with upside potential. 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 fighting back the near-term corrective forces. Oil is hanging on to important support.
- Gold remains on the bull run higher. Despite an early pullback yesterday there is still an appetite to buy and the market is looking to push higher again today. The next resistance in this incredible run higher is the $1808 August high. Despite this though, there is a caveat with the move on the RSI above 70 suggesting the move is becoming stretched. Initial support for a pullback is now at $1753. The big base pattern continues to imply a target of $1855 in the coming weeks.
- Silver has been choppy since the breakout through the old resistance band of $20.85/$21.23, however, the support of the old resistance is holding. The next move will be interesting, as momentum is strong but is hitting 70 (where previous bull runs have faltered), and the resistance at $22.51 is considerable. Reaction to a pullback will be key. Forming support between $20.85/$21.25 would be positive. Under $20.85 the support is $20.37.
- Brent Crude oil has been struggling with the $96/$100 old pivot band and the price fell sharply again yesterday. There is now the prospect of a small head and shoulders top pattern forming on a close below $93.00. There has been a slip back in momentum and it is also on the brink of turning into a more corrective-looking configuration. A completed top would imply -$8 of downside and at least a test of the $89.20 low. Resistance at $98.20 is threatening to be a lower high.
Indices: Markets are consolidating but with a slight positive bias.
- S&P 500 futures are consolidating above the breakout from resistance at 3883/3935. Yesterday’s mild losses are being followed by mild gains today. Given the positive bias to momentum, we favour continued recovery. However, reaction to the breakout support now between 3883/3935 will be key. The next big test for the bulls is the primary 10-month downtrend (c. 4125).
- German DAX has had a huge run higher in recent weeks and may be just starting to look a little tired. With the RSI holding above 70, there is scope for a near-term unwind, with the slightest negative candle yesterday perhaps a warning sign. The market pulled back from 14437 yesterday and again this morning. 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 bulls reacted well yesterday to claw back initial losses, and they are holding up again today. However, the market is back from the rebound high of 7441 and this needs to be broken to open the next important high of 7516. The four-week recovery uptrend comes in around 7285. Initial price support is at 7315 whilst the breakout support is at 7228/7250.
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