What we are looking for
- USD has continued to struggle: There has been a slight fightback early this morning after renewing weakness against major forex in the wake of the Nonfarm Payrolls report. However, any recovery gains still look to be short-lived.
- Indices mixed to slightly lower: There is a slight dip in US futures early today, weighing on the higher beta DAX, but FTSE 100 is flat.
- Commodities mixed outlook: There is no decisive direction. Silver is slightly lower, gold is flat, and oil is slightly higher.
- Data traders: GBP traders will be watching for any surprises in the final Composite PMI. EUR traders will watch for Eurozone Retail Sales numbers. For the US data, ISM Services PMI will be the key driver for USD positions.
Markets are looking mixed to start the new trading week. The initial USD strength move following the better-than-expected Nonfarm Payrolls on Friday was turned on its head into the close and the trend of USD correction has re-asserted. There is a shade of USD selling once more this morning, but the main move on major forex has been the rebound on USD/JPY. The pair is oversold and a tick higher in US Treasury yields has induced a near-term technical rally. However, the move is likely to be short-lived as the USD corrective move remains dominant. Elsewhere, equity markets are mixed to slightly lower, whilst there is a mixed outlook for commodities.
The services PMIs will be watched on a busy day for the economic calendar. Final UK Composite PMI is expected to be unrevised. Eurozone Retail Sales are expected to deteriorate significantly in October. Then on to the US data, the ISM Services (or Non-Manufacturing) PMI is expected to dip slightly but remain in decent expansion territory above 50. Furthermore, US Factory Orders are expected to improve again with decent MoM growth.
Market sentiment looks mixed: There is no dominant force guiding major markets this morning, with mixed signals across asset classes.
Treasury yields tick slightly higher: There has been a mild rebound on yields after last week’s decisive move lower.
OPEC+ formally endorse a policy rollover: The meeting has maintained current production levels, with members reportedly committed to maintaining rates until the end of 2023. There is support for the oil price this morning.
China Caixin Composite PMI falls as expected: The Composite PMI dropped to 47.0 in November (from 48.3 in October). This was broadly as expected.
Cryptocurrencies find support: Cryptos are ticking higher this morning, with a positive start to the week. Bitcoin is +2% at $17360 which is the highest since 11th November. Ethereum is +0.9% at $1302.
- UK final Composite PMI (at 09:30 GMT). The consensus is not expecting any revision to the flash reading for the Composite PMI at 48.3 (a shade higher than the final October PMI at 48.2)
- Eurozone Retail Sales (at 10:00 GMT). Retail Sales are forecast to decline by -1.7% on the month in October with YoY sales deteriorating to -2.6% (from -0.6% in September)
- US ISM Services (at 15:00 GMT). ISM Services are expected to fall slightly to 53.9 in November (from 54.4 in October)
- US Factory Orders (at 15:00 GMT). Orders are expected to pick up by +0.8% in October (after growth of +0.3% in September).
Major markets outlook
Broad outlook: Markets are fairly mixed to start the week.
Forex: A bias of USD strength. However, it is interesting to see the big outperformers (JPY and NZD) are struggling this morning. Some profit-taking perhaps near-term.
- EUR/USD has confirmed the breakout above 1.0480/1.0496 resistance despite the choppy reaction to Nonfarm Payrolls. This opens the next leg higher towards 1.0615. Momentum remains strong but with the RSI around 70, this may begin to restrict upside potential. We would prefer to use the weakness in EUR/USD as a chance to buy. Initial support is at 1.0430/1.0495, with 1.0290 now a key higher low.
- GBP/USD has initial support around 1.2150 but still needs to decisively clear the August highs at 1.2295. With RSI momentum in the high 60s and the strongest since January, the outlook remains positive and near-term weakness is a chance to buy. A decisive move above 1.2295 and the reaction high at 1.2405 opens 1.2600/1.2665 as the next key resistance band.
- AUD/USD is still a bit of a struggle for upside traction. There is a positive bias with the RSI oscillating between 50/65. This favours using near-term weakness is a chance to buy for a test of the next resistance at 0.6915. There is initial support around 0.6730/0.6780 with 0.6585/0.6640 the more important support.
Commodities: Precious metals remain positively configured and are a buy into weakness. Oil is stumbling around important resistance.
- Gold is holding on to the breakout above $1786 resistance but is stuttering around the next important test of the August high at $1808. With the RSI around 70, there is a risk of a near-term unwind. However, we would still see near-term weakness as a chance to buy. There is initial support around the $1767/$1786 breakout. Above $1808 is the $1844 implied target of the base pattern.
- Silver has held on to the breakout above the $22.51 key May high. Using the support band between $22.25/$22.50 outlook remains strong. However, an early pullback this morning has come with the RSI momentum around 70. The potential for some near-term profit-taking is elevated. This could weigh on the price initially, but we would look to use any unwinding move as a chance to buy. There is initial resistance at $23.50 and then towards $23.95/$24.12.
- Brent Crude oil has been stalling around the resistance band of $88.30/$90.40 and the four-week downtrend, posting a bull failure at $89.95 last week. As the market has rebounded from $85.70 this morning, this low will be seen as an initial gauge. If it is broken once more, then the price may begin to track lower along the downtrend. The RSI has unwound into the 40s and this faltering rally looks to be another chance to sell.
Indices: The recovery continues to show signs of stalling.
- S&P 500 futures have closed lower in the past two sessions and are slightly lower again today. As the market has pulled back from 4106, the recovery seems to be stalling just under the 4145 September high. Despite this, there is a support band now between 4006/4050 which will be seen as a gauge. There is still a positive configuration on momentum with the RSI decisively above 50, near-term weakness remains a chance to buy.
- German DAX continues to consolidate just shy of a test of the crucial resistance band between 14700/14800. The recovery uptrend is beginning to creak with this consolidation. However, there is also a warning signal growing, with the RSI showing a bearish divergence with the price. This could be an early sign of a correction. Initial support is at 14322 with 14125 being key.
- FTSE 100 has pulled back from 7635 just shy of a test of the key May highs at 7650. The daily RSI momentum indicator has unwound under 70, but as the market holds up well this morning, these are only initial signs of profit-taking. There needs to be something more decisive for conviction that a top is in place. Reaction to the support band 7515/7520 will tell us more.
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