What we are looking for
- USD trying to rebound: USD is more positive on major forex pairs this morning, with a near-term technical rally. Reaction to Fed speakers responding to the US CPI inflation data will be key in the coming days.
- Indices mixed to positive: US futures are trading slightly lower this morning, but European indices continue to hold up well.
- Commodities with a slight pullback: After huge recent gains, commodities are slightly lower this morning with the stronger USD weighing.
- Data traders: EUR traders will be watching for September Eurozone Industrial Production.
After some enormous moves lower on US bond yields (and associated USD losses) the key for the coming days could be how Fed speakers react to the lower US CPI. Signs of pushback over the weekend, with the FOMC’s Waller saying that markets are “way out in front” with the recent inflation decline. Waller is arguably the most hawkish member of the FOMC, but if he is followed by more Fed speakers suggesting a similar stance, there could be room for a decisive technical rally for the USD this week.
This morning we are seeing yields higher and an initial USD rebound, with some losses being clawed back. Commodities are also dropping back slightly with gold and silver lower after strong gains last week. Equities are holding up well in Europe and continue to perform well, despite initial slips back on US futures.
The only data of note on the economic calendar is Eurozone Industrial Production. Production is forecast to show mild growth in September, which would help to improve year-on-year growth too.
Market sentiment looking more cautious: The very risk-positive reaction to the US CPI inflation data is looking more cautious on Monday with a rebound on USD weighing on commodities and a mixed look to equities.
Treasury yields bounce: After massive falls on Thursday and Friday, yields are higher initially today. The 2-year yield is c. +5bps with the 10-year yield c. +4bps.
FOMC’s Waller pushes back: Christopher Waller is a permanent voter on the board and is one of the most hawkish members on the FOMC. He said that the US CPI was “just one data point” and that they need to see a run of CPI reports before taking the foot off the brake.
OPEC+ to discuss “adjustments”: According to one course, OPEC+ is set to discuss adjustments to members’ production baselines as they are struggling to meet quotas.
Iraq is committed to OPEC policies: However, it says that it needs to raise production for more revenue and is keen to see the price stable “not above $100 per barrel”
Cryptocurrencies turmoil over FTX continues: Cryptos are falling again as issues over withdrawals, hacking and stuck capital in FTX continues. Bitcoin remains volatile but is currently around flat on the day at $16750 with Ethereum -0.6% at $1258.
- Eurozone Industrial Production (at 10:00 GMT). Production is expected to grow slightly in September by +0.3% improving YoY production to 3.0% (up from 2.5% in August)
Major markets outlook
Broad outlook: Risk appetite is more cautious this morning.
Forex: A near-term USD technical rally is threatening, leading to the USD clawing back some losses across major pairs.
- EUR/USD has rallied enormously in recent sessions and is testing the next resistance around 1.035/1.0370 from the August highs. With the RSI momentum hitting the high-60s there is a slight threat of a near-term pullback today. Reaction to near-term weakness will now be key, with the breakouts between 1.0095/1.0197 a basis of support.
- GBP/USD with a breakout through resistance at 1.1645 and subsequently, the September high at 1.1738 the outlook is looking far more positive now. The market is now in a developing uptrend channel over the past six weeks. Reaction to any unwinding move will be key now, with support between 1.1500/1.1645 key. The next upside resistance is at 1.1900.
- AUD/USD is sustaining the recovery and is looking to break decisively clear of 0.6670/0.6680 which were old lows from July and September. Momentum is strong on the RSI but the reaction to an unwinding move will now be key. The old resistance band 0.6520/0.6550 needs to become a basis of support now. The next important resistance is at 0.6915.
Commodities: Precious metals are showing some initial signs of a pullback. Oil is consolidating.
- Gold has had a huge rally in the past six sessions. However, the move is slightly overbought on the RSI (above 70 on Friday) and a near-term pullback is threatening. The reaction to the breakout of the old $1730/$1735 resistance will be key now. A completed medium-term base pattern still implies recovery towards $1855. The next resistance is $1786/$1807.
- Silver continues to consolidate above the breakout old resistance band of $20.85/$21.23. Friday’s “long-legged doji” candle suggests the potential for a near-term unwind. Momentum is strong but approaching 70 (where previous bull runs have faltered), so needs some caution. Reaction to a pullback will be key. Forming support between $20.85/$21.25 would be positive. Under $20.85 the support is $20.37.
- Brent Crude oil swung back higher at the end of last week back into the long-term pivot area between $96/$100. However, as the move just starts to consolidate again, there is a risk that this turns into a ranging phase again. There is a slight positive bias on RSI momentum which favours a move to test the resistance between $99.50/$101.20 but for now, the outlook is fairly neutral. Support at $93.00 is now key.
Indices: Markets are starting to consolidate recent gains.
- S&P 500 futures have broken through resistance at 3883/3935 breaking a three-month downtrend. The next big test for the bulls is the primary 10-month downtrend (c. 4125). However, there is an initial pullback this morning and a reaction to the breakout support now between 3883/3935 will be key. A positive RSI momentum also confirms the more positive outlook to the recovery now.
- German DAX is just easing back from 14335 again this morning as the recent run higher begins to consolidate. With the RSI faltering above 70, there is a risk of a near-term pullback. The breakout support around 13970 is the initial support. The June high of 14708 is the next big upside test.
- FTSE 100 just eased back in its recovery on Friday as a near-term unwind threatens. The market has responded well this morning and is holding up. The four-week recovery uptrend comes in around 7230 whilst the breakout support is at 7228/7250. Resistance is initially at 7442 and then 7516.
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