What we are looking for
- USD strength breaking key levels on major forex: Significant supports are being broken on EUR/USD and GBP/USD whilst USD/JPY has broken higher. These are key moves for the next stage of near-term USD gains.
- Indices pulling back: Wall Street has been tentative but European markets are pulling lower, breaking supports. An increasingly corrective configuration is forming.
- Commodities turning corrective: Precious metals have continued to pull lower over recent sessions. Precious metals have broken key higher low supports.
- Data trading: Data traders will have a relatively quiet day today. CAD traders need to keep an eye out for Canadian Retail Sales though.
There has been a decisive shift in market outlook that has been building over recent days. The USD has been gaining strength once more. However, it has now decisively broken higher and is looking to drive forward now. This USD strengthening is weighing on major forex pairs such as EUR/USD and GBP/USD which have broken key levels of support. Higher US Treasury yields are certainly playing a role, helping to drive USD/JPY higher, despite Japanese inflation rising to seven-year highs overnight.
The perception of the market is that the US is best placed to weather the economic storms of high inflation and the threat of recession. Hawkish Fed members continue to argue the case for the FOMC to stand strong in the fight against inflation. This is helping to bolster the outlook for a stronger USD.
It is relatively quiet on the economic calendar for the rest of the day. There is just Canadian Retail Sales to watch for. Sales growth is expected to be more subdued at +0.3% in June but this was after a big jump of +2.2% in May. Despite this, 12-month sales would remain strong at around +9%.
Market sentiment favours a stronger USD: USD gains are a key driver through major forex and corrective pressure on commodities. There is also a slightly corrective bias that is drifting into equities too.
Treasury yields move higher: This is especially the case with the US 10yr yield which at 2.93% is at its highest since 21st July.
Japanese inflation rises to a seven-year high: Core inflation has increased to 2.4% in July (from 2.2% in June). This was in line with expectations but is the highest since 2015.
UK Retail Sales rise in July: Sales rebounded slightly in July after a poor June. Monthly adjusted (ex-fuel) sales increased by +0.4%, better than an expected decline of -0.2%. Year-on-year adjusted sales are still declining by -3.0% (-3.1% expected).
Fed hawks continue to come: Bullard (2022 voter, extremely hawkish) favours a 75bps hike in September. George (2022 voter, leans hawkish) believes that the market is getting it wrong in thinking that the Fed would slow down. Kashkari (2023 voter, now centrist) believes there is more work to be done on inflation and economic fundamentals are strong.
Cryptocurrencies falling sharply today: Cryptocurrencies have been drifting lower throughout the week, but this move has accelerated this morning. Bitcoin has fallen over -6% today and is trading at around three-week lows, back under $22000.
One more Fed speaker to watch for: The FOMC’s Thomas Barkin (not a voter until 2024, hawkish) speaks at 13:00 GMT
- Canadian Retail Sales (at 12:30 GMT) – Consensus is looking for sales to grow by just +0.3% in June, which would reduce year-on-year sales to +9.0% (from +14.1% in May)
Major markets outlook
Broad outlook: A USD positive and mild risk-negative bias has been in place throughout the week.
Forex: USD is outperforming major forex again, with the NZD once more the underperformer.
- EUR/USD has been putting pressure on the support band between 1.0095/1.0120 throughout the week and has now finally broken below on a closing basis. The market is hovering under this old support now, which will be seen as a basis of near-term resistance. The closing break with deterioration in momentum suggests that near-term strength is a chance to sell. The closing break under 1.0095 opens parity again, with the July low at 0.9950. The lower high around 1.0200 is important resistance now.
- GBP/USD has accelerated below the support at 1.2000. This turns the market corrective and has instantly put pressure on the next support at 1.1890. With the four-hour chart momentum initially stretched we look to use near-term rallies as a chance to sell. There is now near-term resistance between 1.1960/1.2000 to use as a “sell zone”. Below 1.1890 opens 1.1760. Resistance at 1.2140 is now a key lower hi
- AUD/USD outlook has turned near-term corrective and a test of the support at 0.6860/0.6870 is mounting. Intraday rallies are seen as a chance to sell with a consistent run of negative daily candlesticks. The initial resistance is 0.6970/0.0.6990.
Commodities: Precious metals are increasingly corrective, whilst the latest rally in oil looks to be another chance to sell.
- Gold continues to post negative daily candles and the higher low support at $1754 is seriously creaking. With the daily RSI under 50 and the four-hour chart RSI in an increasingly corrective configuration, intraday rallies are seen as a chance to sell. Resistance is growing between $1771/$1783. Below $1754 the initial support is $1739 with $1713 as the next important support.
- Silver has driven decisively lower to break the key higher low support at $19.54. The daily RSI dropping back to 40 suggests that corrective momentum is mounting, something that the four-hour chart also reflects. We look to use intraday rallies as a chance to sell. Initial resistance is now between $19.54/$19.90. The next support is around $18.90/$19.10.
- Brent Crude oil rebounded from $93.25 with a strong positive candle yesterday. However, this looks to be yet another unwinding move that is a chance to sell. The daily RSI continues to show rallies faltering around 40/50 on the RSI. There is an old pivot around the $99/$100 area which could become another basis of resistance. There would need to be a rally above $102.90 resistance at least to improve the near-term outlook. The initial resistance is yesterday’s high at $99.20.
Indices: US futures are drifting back into support. European indices are mixed.
- S&P 500 futures have drifted back in the past few sessions, towards the five-week uptrend (today c. 4250). We continue to watch how considerable the pullback becomes. For now, this is a near-term unwinding. A breach of the uptrend would be disappointing, but whilst the support around 4170/4200 remains intact, the medium-term recovery will remain in play. The four-hour chart RSI is still holding above 40/50 (where previous mini corrections have held). If this moves below 40 then it would suggest a deeper correction. There is initial support at 4248. Initial resistance is now 4327.
- German DAX is fluctuating in recent sessions and is threatening a corrective move following the breach of the recovery uptrend. A decisive move below 13600 would suggest mounting corrective momentum and imply an unwind towards support around 13330. Initial resistance is now between 13780 and needs to be quickly recovered to get the bulls back in control.
- FTSE 100 is hanging on to its one-month uptrend. However, with the market increasingly fluctuating there is a corrective threat that is developing. A breach of 7492 initial support would be a warning, but the bigger support at 7457 is key. Initial resistance is at 7560/7572.
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.