What we are looking for
- USD hints at strength resuming: With Treasury yields ticking higher again, USD is stronger this morning versus major forex. The recent USD correction could be coming to an end.
- Indices are positive for now: If USD is strengthening again, this would likely be negative for broad market sentiment and begin to weigh on indices. They are higher for now, but for how long?
- Commodities fall over again: Precious metals are faltering again, and although oil is higher, for now, the recent trends are more negative.
- Data traders: EUR traders will be watching for any surprise revisions to the Eurozone inflation. There will be a potential upside risk to Canadian inflation (forecast to drop slightly) which will keep CAD traders on alert. The US Housing Starts and Building Permits are both expected to run along the lines of continued deterioration in the outlook for US housing.
There has been a more positive bias to sentiment in the past few sessions. The immediate contagion risk of the UK’s fiscal outlook impacting bond markets has been contained as most of the worrying aspects of the now infamous mini-budget has been reversed. Also, US indices have been buoyed by a decent start to the US earnings season. However, this morning we are seeing these moves peter out and the prevailing bigger trends could be set to re-assert once more.
US Treasury yields are ticking higher again and the USD is strengthening across major forex. For now, there is a stalling in the rebounds on equity markets, but if the USD continues to strengthen then we can expect this to weigh down on indices once more. Already we see gold having broken below support at $1640 for a seven-week low. How markets react to this seeming renewal of the trends will be a key driver of the near to medium-term moves.
It is all about inflation and US housing on the economic calendar today. After the UK CPI data earlier this morning, the final Eurozone inflation for September is not expected to throw up any surprises. Canadian inflation will be worth watching later. The consensus is looking for slight declines on both core and headline. US Building Permits and Housing Starts are both expected to show continued deterioration.
Market sentiment is on the brink of turning negative again: A stronger USD and commodities falling over is a worry. Indices are holding up for now, but for how long?
Treasury yields are ticking higher: The US 10-year yield has been buzzing around 4.00% in recent days but has moved higher to 4.06% this morning. A close above 4.08% would be another breakout.
UK inflation ticks above 10%: UK headline CPI increased to 10.1% in September (from 9.9% in August) this was a shade above the 10.0% consensus. The core CPI has increased to 6.5% (from 6.3%) and again was slightly above the 6.4% forecast. PPI measures also came in slightly above consensus. GBP/USD initially fell around -30 pips lower on this. GBP is underperforming major forex this morning.
Fed’s Kashkari still worried about inflation: Kashkari (2023 voter, leans slightly hawkish) is concerned that core inflation has still not shown signs of peaking. He wants to see compelling evidence of a peak before looking to pause on rate hikes. He sees rates around 4.50% next year but could be higher if there is no progress on inflation.
Bank of England will proceed with QT: The BoE has confirmed that gilt sales will take place on 1st November. This refutes previous claims that it was ready to delay its quantitative tightening programme.
Three Fed speakers today: The FOMC’s Neel Kashkari (2023 voter, leans slightly hawkish) is speaking again at 17:00GMT, with Charles Evans (2023 voter, leans dovish) speaking at 22:30 GMT and James Bullard (2022 voter, extremely hawkish) at 23:30 GMT
Cryptocurrencies drop back: Crypto remains a decent gauge of risk appetite. Bitcoin has fallen back by -0.75% to $19200, with Ethereum down -1% at $1296.
- Eurozone final HICP (at 09:00 GMT) The final reading of September inflation is expected to be unchanged with the headline HICP at +10.0% (up from 9.1% final August) and core HICP at 4.8% (4.3% final August).
- Canada inflation (at 12:30 GMT) headline inflation is expected to drop slightly to 6.8% (from 7.0% in August) and core inflation is expected to fall to 5.7% (from 5.8%).
- US Housing Starts (at 12:30 GMT) Starts are expected to decline by -7% to 1.475m in September (from 1.575m in August)
- US Building Permits (at 12:30 GMT) Permits are expected to fall by -2% to 1.530m (from 1.542m)
- Fed Beige Book (at 18:00 GMT)
Major markets outlook
Broad outlook: An edge towards less risk positive outlook is hinting this morning.
Forex: The USD is stronger and is outperforming major forex this morning.
- EUR/USD has dropped back towards the bottom of the band between 0.9800/0.9900. Testing the initial support at 0.9800/0.9820 is a near-term gauge. A close below would hint that the USD is beginning to strengthen once more. This would be confirmed below the support at 0.9705. Initial resistance at 0.9875 is strengthening the barriers overhead.
- GBP/USD is beginning to struggle again. The rebound faltered at 1.1440 which is in the middle of the resistance between 1.1380/1.1490. It is also coming under the 55-day moving average which is an important near-term gauge. We continue to favour selling into strength, with the RSI again around 50/60 where rallies tend to fade in recent months. Initial support is at 1.1255 but under 1.1150 would be a decisive corrective signal again.
- AUD/USD has been choppy in recent sessions and once more yesterday’s rebound has faltered under the. strengthening resistance at 0.6345/0.6390 within the downtrend channel. We continue to see near-term rallies as a chance to sell. A confirmed move below initial support at 0.6265 would open the low at 0.6170.
Commodities: A near-term rebound within a run of lower highs.
- Gold has faltered at the resistance around $1660/$1670 and this morning dropped under the support at $1640. This saw gold trading at a seven-week low. Although the break has not been confirmed, a continuation of the lower highs and a new downtrend shows that further downside is likely. We favour a retest of the $1615 low in due course.
- Silver rebounded but the move has faltered around the $18.86/$19.30 resistance and the potential for renewed downside is growing. A confirmed move below $18.54 would point to a retest of the $18.08 low. The rebound high at $18.94 is adding to the corrective pressure.
- Brent Crude oil has now traded clear below the old pivot in the $93 area and is deteriorating. The price is edging lower once more this morning and a test of an old pivot band at $88/$90 is underway. A move below there would open the key low at $83.55. The resistance at $91.45/$93.00 is mounting.
Indices: A big rebound on Wall Street is translating well through to European indices too.
- S&P 500 futures have just hit the buffers this morning after two strong sessions this week. This comes as the RSI has unwound to 50 and the market is backing away from a test of the important near to medium-term resistance at 3820. Reaction to this pullback is important now. A move below 3697 would be a negative signal. Initial resistance is at 3777.
- German DAX is pulling back into the near-term breakout support around 12700. Technically, this is a pullback and depending upon the reaction to the support, it could be an opportunity to buy. A move below 12615 would be a warning that the bulls may be losing control of the market again. Also, the RSI moving back under 50 would be another warning. Resistance is initially at 12935.
- FTSE 100 has not managed to engage the recovery of the DAX and is already falling over. A bull failure at 6923 has come well below the key near-term resistance at 7106. The daily RSI is also faltering well under 50. The four-hour chart suggests that a decisive move back under 6910 would add a corrective bias once more.
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