What we are looking for
- USD unwinds slightly, but for how long? After considerable strengthening versus major forex in the wake of the FOMC, there is a slight unwind for the USD this morning. This looks to be counter to the re-establishing trend of USD strength. The Nonfarm Payrolls report is the next risk event.
- Indices find support: After Wall Street has sold off sharply in recent sessions, there is an early rebound on US futures. This is helping European markets higher.
- Commodities rebound strongly: As US Treasury yields eased off yesterday a rebound took hold on precious metals. This has continued into today’s session.
- Data traders: The US Nonfarm Payrolls report will be key for USD and risk appetite for markets. Negative surprises would be negative for the USD but could also be supportive for risk appetite as it would reduce pressure on the now data-dependent Fed to aggressively tighten rates in December.
The dust is settling on the FOMC meeting and Fed Chair Powell’s hawkish insistence on further rate hikes, possibly towards 5%. This has driven renewed upside on both Treasury yields and the USD. The long-established trends of 2022 seem to be back on track. However, coming into today’s session there has been a slight tempering of these moves and with major markets still highly sensitive, there has been a reaction.
USD is giving back some gains, whilst commodities are higher and equity markets are finding support after a difficult couple of days. However, Nonfarm Payrolls are the next risk event that looms large today. It would need a significant miss to forecasts to seriously knock the USD strength trend off course once more.
The big focus will be on Nonfarm Payrolls on the economic calendar today. The US Employment Situation report is expected to show a decline in jobs growth to 200,000 along with a slight tick higher in unemployment. There is also a forecast drop in wage growth, so these indicators may be pointing to a slight loosening of what remains a very tight labour market. Negative surprises would weigh on the USD. Canadian Unemployment is also expected to tick a shade higher, which should weigh on CAD slightly. However, it will be interesting to see the net impact on CAD as this comes at the same time as the US jobs report.
Market sentiment is recovering slightly: USD is weaker, with commodities and equities bouncing. With Nonfarm Payrolls later, it remains to be seen whether these moves can sustain.
Treasury yields a shade higher: The strong moves higher yesterday were moderated into the close. This helped a pickup, especially in commodities. However, yields are a shade higher but ahead of payrolls, there is an air of consolidation this morning.
RBA statement cuts growth, increased inflation forecast: The Reserve Bank of Australia's statement on monetary policy notes that the committee is not on a pre-set path and will hike or pause as necessary. Growth expectation has been cut whilst the inflation forecast has been increased. The AUD is an outperformer on major forex today.
Japanese final Composite PMI a shade higher: The final reading of Japanese PMIs comes in a touch more positive than the flash. The Composite PMI for October was 51.8 (up from the 51.7 exp)
Eurozone final Composite PMI revised a shade higher: The final Composite for October was revised up to 47.3 (from 47.1 flash).
Cryptocurrencies rally: Crypto was more stable yesterday and is benefitting from the early risk rebound today. Bitcoin is +1.8% at $20600, with Ethereum +2.8% at $1584.
- US Nonfarm Payrolls (at 12:30 GMT) Headline jobs growth of 200,000 is expected in October (down from 263,000 jobs in September). Also, watch out for Average Hourly Earnings which are expected to drop to 4.7% (from 5.0%) and Unemployment which is expected to tick slightly higher to 3.6% (from 3.5%).
- Canadian Unemployment (at 12:30 GMT) The jobless rate is expected to increase slightly to 5.3% in October (from 5.2% in September).
Major markets outlook
Broad outlook: A risk rebound comes ahead of the Nonfarm Payrolls report. However, this is a high-risk event and moves could settle down for the data.
Forex: The USD is unwinding some of its recent gains. The AUD, NZD and CAD are the main outperformers today as commodities rebound.
- EUR/USD has posted some sizeable bear candles in the past week, with the move accelerating lower on the Fed. A broken recovery uptrend leaves the market now with a more corrective bias once more. The pair has rebounded this morning, but the US jobs report will be key to today’s session. The initial resistance is 0.9810/0.9850. We favour selling into strength for a test of the next support at 0.9705.
- GBP/USD has fallen sharply below the support band of 1.1380/1.1500 which is a decisive outlook-changing move. With the rally failure at the resistance of the seven-month downtrend, there is a new bear leg developing. This morning’s early tick higher now faces overhead supply between 1.1260/1.1380, with momentum increasingly corrective. An initial pick-up from around 1.1150 leaves initial support but a test of 1.1060 looks increasingly likely now.
- AUD/USD falling through the support band at 0.6345/0.6390 has turned the outlook decisively corrective again. However, as the market rallied this morning, this is now a basis of resistance as a pivot band. Given the recent bull failures at resistance and under the multi-month downtrend, we favour selling into strength once more. Initial support at 0.6271 from yesterday’s low protects a retest of the key October low at 0.6170.
Commodities: Precious metals have rebounded. For gold, the trend is lower, but silver is holding up much better. Oil is tending higher and is looking to test resistance.
- Gold has rebounded strongly from a test of the key support band $1615/$1617. However, with trends and moving averages all falling, along with negative momentum configuration on the daily chart, rallies still look to be a chance to sell. The resistance has strengthened at $1660/$1670 which is underneath the bigger resistance band of $1680/$1690. We favour continued pressure on $1615, below which is two-and-a-half-year lows and opens the way towards the mid-$1550/$1560.
- Silver remains very choppy on a near to medium-term basis. Big daily swings higher and lower continue to be seen above the support band of $18.78/$19.05. A test of the support was survived yesterday and the market has subsequently swung sharply higher again. The bulls will now be eyeing a test of $20.07 resistance. The outlook remains highly uncertain though.
- Brent Crude oil continues to run higher in a five-week uptrend. The price may have closed lower yesterday but early strong gains today have breached the resistance around $97.60/$97.80. This is a four-week high and opens a test of the key resistance and the early October high at $99.50. Near-term corrections continue to be bought into, with a mild positive bias on the daily RSI above 50. Initial support is at $95.90 with support at $93.40 is now a higher low.
Indices: Wall Street has turned corrective on the Fed. European markets have fared better, with the FTSE 100 breaking strongly higher.
- S&P 500 futures have fallen sharply since the FOMC decision to break not only the three-week uptrend but also below the key higher low at 3757. This has now ended the recovery and there is a risk that 3757/3820 now becomes a basis of resistance. . Another lower high in this band would begin to form a new negative trend. Initial support is at 3705 which is protecting a drop to test 3641.
- German DAX has been weighed down since the Fed meeting to break the sharp recovery trend. However, a decent rebound (holding on to 13000) is helping to restore some confidence. This is coming with the daily RSI holding above 50. The support band between 13000/13030 will now be a gauge as a breakdown would complete an intraday top pattern. Resistance at 13360/13440.
- FTSE 100 has managed to avoid some of the selling pressure that Wall Street has suffered in recent days and has moved to new six-week highs. The three-week uptrend has been bolstered by the moves, whilst a base pattern is targeting 7430. The next resistance is 7333. Support from the neckline of the base is growing around 7090/7105.
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