What we are looking for
- USD surging: As the European session has taken over, there has been a wave of buying for the USD, impacting major forex pairs. The move is threatening the established trends again.
- Indices are starting the year well: Despite the USD strength, there is good support for equities. US futures are around +0.5% higher with early jumps in the European indices.
- Commodities hold on to the positive bias: Precious metals have been trending higher over the past two months and have broken out once more this morning. Oil continues to build on a new recovery trend. The USD strength is weighing slightly on commodities but the outlooks remain positive for now.
- Data traders: GBP and USD traders may get little out of the final Manufacturing PMIs for the US and UK as they are both expected to be unrevised. EUR traders will be watching for how much German inflation falls.
The holiday period at the end of 2023 did not serve up too much to worry traders as they digested their Turkey dinners and then celebrated the New Year. Established trends broadly held firm and there was little by way of volatility. However, as the European traders have returned to their desks for the first trading day of 2023 there has been an instant reaction. There has been a surge of flow into the USD. Primarily this is being felt across major forex, but for now, there is a limited reaction on commodities or indices.
The early economic data for China makes for a fairly grim reading. With official PMI data falling sharply into further contraction (the services PMI for December fell to 41.6), the unofficial Caixin Manufacturing PMI has also deteriorated. Traders will be weighing up the impact of this expanding COVID wave in China. The result is a move into the safety of the USD. The momentum of the move is making some considerable moves that could become outlook-changing. This may also then begin to weigh on commodities and indices once more.
It is a day of final manufacturing PMIs and German inflation on the economic calendar. The UK final Manufacturing PMI and US final Manufacturing PMI (the IHS Markit version) are both expected to be unrevised from the December flash readings. German HICP inflation could get more attention if the expected decline in inflation is seen.
Market sentiment is very mixed: A USD surge tends to be associated with weakness in risk appetite. However, indices are moving strongly higher in early moves and commodities are also positive.
Treasury yields are falling: There is a move lower on yields which could be reflecting a risk negative bias.
China Caixin Manufacturing PMI falls again: The unofficial PMI has fallen to 49.0 (from 49.4 in November). This was a shade above the forecast of 48.8.
Cryptocurrencies fall back: Crypto has been relatively subdued over recent weeks. A move higher yesterday has been tempered slightly this morning. Bitcoin is -0.4% at $16700 with Ethereum -0.4% at $1214.
- UK Manufacturing PMI - final (at 09:30 GMT) The final PMI for December is expected to be unrevised at 44.7 (final November was 44.7)
- German HICP inflation - flash (at 13:00 GMT) Harmonised inflation is expected to reduce slightly in December to 10.7% (from 11.3% in November)
- US Markit Manufacturing PMI – final (at 09:30 GMT) The final US IHS Markit Manufacturing PMI is expected to be unrevised at 46.2 (confirming the decline from the final November reading at 47.7)
Major markets outlook
Broad outlook: USD is positive but commodities are holding gains despite being off earlier highs. Indices are pushing higher.
Forex: USD is surging early today. JPY had been very strong earlier but has given back some of these earlier gains. AUD and NZD are underperforming.
- EUR/USD has trended higher for the past few weeks with a series of higher lows, however, the early surge into the USD this morning is breaking this move. A close below 1.0570 would be the first real breach of support and be a warning signal for the bigger support band between 1.0440/1.0495. The RSI has dropped sharply and is at a two-month low (although still just above 50). This is a big moment for the recovery. Can it hold? A break back above the initial resistance at 1.0610/1.0650 is needed.
- GBP/USD has been holding up reasonably well in the past week but renewed selling pressure this morning has broken a three-month recovery uptrend. The important test is how the market reacts to the higher low at 1.1900. A decisive break would form a new corrective outlook. Already the RSI has rolled over and is at an eight-week low under 50. A close below 1.1900 also completes a top pattern. The next support would be 1.1645/1.1735. There is mounting resistance 1.1990/1.2125.
- USD/JPY continues to trend decisively lower and is finding resistance around old key supports. The early break of support at 130.40 this morning has quickly unwound with the USD strengthening. However, with all trends, moving averages and momentum negatively configured, rallies still look to be a chance to sell. Initial resistance is at 131.40/131.50 with strong resistance at 133.60/134.50.
Commodities: Reaction to the breakout on precious metals will be key. Oil is building a recovery.
- Gold continues to post higher lows and higher highs around an eight-week uptrend and the rising 21-day moving average (c. $1799). An early sharp run higher has broken clear of resistance at $1824/$1833 but needs a close above to open the move towards $1857/$1879 as the next resistance. Momentum is strong and weakness is a chance to buy. Initial support is $1808/$1824.
- Silver has been trending strongly higher for the past two months and has looked to break out to an 8-month high this morning however, has just been dragged back by the USD move. Despite this, the outlook remains strong with momentum positively configured to show that weakness is a chance to buy. Support at $23.37/$23.51 is growing. The next important resistance is $26.20.
- Brent Crude oil outlook has continued to improve over the holidays and is now building a run of higher lows and higher highs in recovery. The previous resistance band of $81.40/$83.55 is now a basis of support. The RSI momentum is now rising into the 50s and shows an improving outlook where near-term weakness is a chance to buy for a test of the next resistance band between $88.90/$90.40.
Indices: Equity markets have been steady through the Christmas holidays but have started the New Year strongly.
- S&P 500 futures have been subdued over Christmas, but recent sessions have suggested a more constructive outlook and early weakness has been bought into this morning. Momentum is beginning to tick higher to reflect the improvement. A test of the resistance at 3912/3945 is being eyed. A decisive upside break would open the way higher once more. Support is growing between 3788/3921.
- German DAX has seen a period of choppy consolidation resolving with a sharp upside break back above the resistance band 14125/14195 this morning. If this move can hold it would be a strong signal to move higher. The RSI momentum confirms the improvement with a move above 50. Reaction to the 14125/14195 old resistance will be a gauge too. If it becomes a basis of support it is a positive signal.
- FTSE 100 has been choppy in consolidation over Christmas but has moved sharply higher on the first trading day of 2023. This move is now eyeing a test of the crucial resistance that lies between 7635/7695. This resistance was an upside barrier to gains throughout 2022. If it can be cleared it would be a strong signal. Holding on to 7555/7565 (the previous resistance) as a basis of support would be a positive too. Today’s low at 7421 will become increasingly important.
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