What we are looking for
- USD starting to recover: Major forex has reached a crucial crossroads as the recovery seen against the USD has stalled. Major pairs such as EUR/USD and GBP/USD need to find support at important breakout levels otherwise the USD strength could decisively renew.
- Indices weighed by US tech earnings: Wall Street fell yesterday as US tech earnings weighed. After hours the shares of Amazon also fell sharply and are weighing on US futures today. This is a drag on European indices.
- Commodities fall back: Precious metals have struggled for traction and are now starting to pull decisively lower. The rebound in oil has been strong but is also pulling back.
- Data traders: EUR traders will be watching the sentiment gauges, whilst German inflation will also be taken as an indication for next week’s Eurozone inflation. USD traders will watch the core PCE (although coming more than two weeks after the CPI reduces any surprise factor). USD traders will also watch Pending Home Sales and the final Michigan Sentiment.
The momentum of the risk rally has been leaking away over the past couple of days. However, as USD strength threatens once more there is a growing potential that major markets have turned once more. It means a crucial crossroads is here, at least on major forex. Pairs such as EUR/USD, GBP/USD and AUD/USD which had driven higher earlier in the week and broken through crucial resistance now have important tests ahead. Old resistance becomes new support in an uptrend. If these new levels of support give way quickly, it would suggest that these moves have been bull failures. The trend of USD strength will have renewed.
Furthermore we are seeing equity market rallies starting to roll over too. Once more, the support of higher lows built up over the past couple of weeks needs to hold. Otherwise, the old fragility of sentiment that comes with bear markets will re-assert once more.
There is a flood of data on the economic calendar today. Eurozone Sentiment data is expected to continue to deteriorate for Economic, Industrial and Services. German inflation is expected to be steady but still extremely high at 10.9%. The Fed’s preferred inflation gauge the US Core PCE is expected to slip slightly (although remember this is for September, not October). Pending Home Sales are expected to show continued deterioration. Final Michigan Sentiment is expected to be unrevised.
Market sentiment looks to be souring again: The USD is outperforming major forex and equity markets are decisively lower. Commodities are also falling back, along with crypto.
Treasury yields rebound: After sharp moves lower in yields over recent days there has been a rebound this morning. The US 10-year yield is +4bps and the 2-year yield is +3bps. This is not much at this stage but the direction of travel will be important.
Bank of Japan stands pat, as expected: The BoJ has maintained its current monetary policy with a dovish stance. The deposit rate at -0.1% along with the yield curve control to maintain the 10yr JGB yield around 0%. It was interesting to see the core CPI outlook upgraded to 1.6% for 2023 and 2024 but still below the 2% target.
ECB hike was not unanimous: According to Bloomberg, three officials wanted a 50bps hike. Also, the ECB does not plan to announce a quantitative tightening start date in the December meeting.
Amazon falls by -12% after hours: After results showed revenue slightly missing estimates, the shares fell sharply after markets closed in after hour trading. This is significantly weighing on US futures this morning.
Cryptocurrencies pull back: After strong gains on Tuesday and Wednesday, crypto is falling back again. Bitcoin fell almost -2% yesterday and is another -1% today at $20150. Ethereum is almost -2% today around $1500.
- Eurozone Economic Sentiment (at 09:00 GMT) The economic survey is expected to deteriorate further in October to 92.5 (from 93.7 in September)
- Eurozone Industrial Sentiment (at 09:00 GMT) The industrial survey is forecast to deteriorate to -1.8 in October (from -0.8 in September)
- Eurozone Services Sentiment (at 09:00 GMT) The services survey is expected to fall to +3.2 in October (from +4.9 in September)
- German HICP inflation – prelim (at 12:00 GMT) German inflation is expected to remain at 10.9% in October (from 10.9% in September)
- US core PCE (at 12:30 GMT) Inflation is expected to fall slightly to 6.1% in September (from 6.2% in August)
- Michigan Sentiment – final (14:00 GMT) Final sentiment is expected to be unrevised at 59.8 (up from 58.6 final September)
- Pending Home Sales – final (14:00 GMT) Sales are expected to fall by another -2.5% in September taking the year-on-year sales to -27.0% (from -24.2%)
Major markets outlook
Broad outlook: Growing caution yesterday has turned into a renewing negative outlook today.
- EUR/USD has pulled back below parity and is now at a crucial crossroads. There is a support band between 0.9900/1.0000 and if this is quickly broken then the recovery momentum would be lost again. Already an early rebound has failed at parity this morning. Daily momentum is unwinding back to 50 on the RSI, so for now this is still just a pullback. But if the support at 0.9900 gives way the positive outlook is significantly questioned.
- GBP/USD has seen the breakout stalling at 1.1645 and is now pulling back towards the breakout support between 1.1380/1.1495. Holding above 50 on the RSI is an important gauge near to medium term. If the buyers react positively then the recovery outlook is still on. Below 1.1380 seriously questions it.
- AUD/USD has pulled back from 0.6522 which adds to the resistance band at 0.6530/0.6545. A bull failure under the 10-week downtrend will be a concern for the recovery, as will the RSI pulling back under 50. Holding on to the breakout support at 0.6345/0.6390 is now crucial for any continued recovery.
Commodities: Precious metals are falling over again, whilst oil is easing off from its strong run higher in recent sessions.
- Gold has struggled for upside traction in recovery and is now starting to pull decisively back lower. Resistance has been found at $1670 under the old resistance between $1680/$1690 and also the primary downtrend. Support at $1638 is a higher low and if this is broken it would point to a retest of the $1615/$1617 support.
- Silver has begun to turn lower and is leaving resistance at $19.77 as the recovery momentum is leaking away. It means that a test of the support between $18.80/$19.20 will be a key gauge. The price action in the last few days plays into the uncertain medium-term outlook.
- Brent Crude oil has moved into two-week highs as the price has formed an uptrend over the past month. This is setting up for a test of the key medium-term resistance around $99.50. Effectively a move above $100 would be a key breakout. Momentum is with a mild positive bias now, with initial support between $94.70/$95.50.
Indices: The positive momentum of Wall Street is just leaking away slightly. Reaction to weakness will be key.
- S&P 500 futures have rolled over in the past day or so. It means that the reaction to the support band 3735/3780 will be an important gauge as to whether this is a pullback within a recovery, or is renewing selling pressure. The daily RSI falling back to 50 reflects this too. This week’s reaction high of 3897 came in a previous September pivot area of 3883/3935 and around a two-month downtrend.
- German DAX is just stalling around the big 10-month downtrend. However, there is still a positive bias to momentum and the bulls will be looking to post another higher low. Holding the daily RSI above 50 will be important. It means the support in the 200 tick band between 12735/12935 will be seen as key near term. Initial resistance is now 13256.
- FTSE 100 pulled back from a test of the resistance at 7106/7128 yesterday and is slightly lower this morning. With the daily RSI faltering around 50 the improving outlook is being questioned. There is no decisive pull lower yet, but the higher lows of the recovery with support between 6955/6965 are an initial gauge. The higher low at 6865 is the key support.
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.