A risk rally and a US dollar correction have combined to see an improvement in risk appetite in recent sessions. This has continued across major markets early today.
- Main drivers: Market sentiment continues to rally; US banks earnings beat estimates; Fed speak plays into USD correction; US Retail Sales and Michigan Sentiment data later
- Mixed sentiment: A recovery in sentiment as longer-dated yields have dropped back and USD has seen profit-taking.
- Big banks beating estimates buoys sentiment: JP Morgan, Citigroup, Bank of America, Wells Fargo, all beat analyst estimates. [Helping positive sentiment]
- USD correction continues: The profit-taking on USD which has set in for the past few sessions has continued. This is driving moves across major forex, commodities, and helping equities recover. It is still too early to ascertain whether this is just a pullback on the USD or whether it is a crucial turning point for markets [Positive for risk appetite]
- Fed speakers: FOMC’s Harker (2023 voter, hawk) suggested he would not expect interest rate rises until late 2022 or early 2023. This is a relatively dovish position for a hawk to be taking.
- Central bank speakers due today: Two from the Fed today. FOMC’s Bullard (2022 voter, hawk) at 1545GMT; Williams (permanent voter, dove) speaks at 1620GMT.
- Data watch: US Retail Sales at 1230GMT is expected to a headline fall of -0.2% MoM but the core sales to increase by +0.5% MoM. Prelim Michigan Sentiment for October at 1500GMT expected to improve again slightly to 73.5 (from 72.8 in September)
- Broad outlook: Risk positive recovery continues across markets. The continuation of a USD correction is important to this, as are subdued longer-dated bond yields.
- Forex: US dollar unwinding gains, 93.70 is a crucial support area on Dollar Index. EUR/USD is developing a near term recovery. Old resistance at 1.1585/1.1600 is now supportive. Above 1.1625/1.1640 opens 1.1665/1.1700 key resistance. We look for a near term rally and then assess potential medium-term selling opportunities again. GBP/USD recovery through 1.36501.3670 is now near term support. Recovery is eyeing 1.3730 resistance again. This is approaching a key medium-term crossroads. Above 1.3800 would be a decisive improvement. AUD/USD recovery continues, with the base pattern implied target of 0.7460 and the rally eyeing 0.7475 resistance.
- Commodities: Gold rally above $1780/$1790 was key. Just seeing a near term pullback, but bulls need to use this band as support. Silver rebound through $23.18 was a key move, breaking the four-month downtrend. This now needs to be used as a basis of support for continued recovery. Brent Crude oil breaking to new multi-year highs again. The next resistance is $86.95.
- Indices: A near term recovery is looking to turn into something more. S&P 500 futures rebounding through 4385/4420 now will be seen as a basis of support for the recovery. Next resistance at 4471. DAX recovery into the mid-range pivot band 15,450/15,530 is just easing back slightly today. A move above here would suggest a continuation of the recovery. Support is strong near term around 15,265. FTSE 100 has just eased back from 7246, with 7240 being the key medium-term range resistance. A closing breakout opens upside but the bulls need to build support above 7197 to sustain rally momentum.