Market sentiment has deteriorated sharply at the start of the final week before Christmas. There is no sense of a Santa Claus rally today. After a series of shocks to demand over the weekend, anything seen as being higher risk is being hit hard. Indices, oil, and higher beta forex are all under negative pressure; whilst the Japanese yen and the euro are performing well. There is no economic data on the calendar to shift the narrative today either.
- Main drivers: Market sentiment dives; COVID surges across Europe; Bidens spending plans halted; UK Brexit Minister resigns; no Fed speakers; Economic calendar: no major data
- Broad sentiment turns sour: anything higher risk is being sold. Indices and oil are under significant downside pressure. Commodity currencies (AUD, NZD, and CAD) are all underperforming. GBP lower too. JPY and EUR are outperforming in forex
- COVID surge in Europe: Omicron is spreading rapidly with infection rates sharply higher. UK social restrictions could be set to increase. The Netherlands into full lockdown. New Measures in France and Germany [risk negative]
- US fiscal spending hampered: One US Democrat senator not supporting President Biden’s spending plans means the bill will need to be re-assessed in the new year. Goldman Sachs is cutting US growth forecasts for Q1 and Q2 next year [risk negative but also slightly USD negative]
- UK Brexit minister resigns: this creates another big headache for PM Johnson and further delays getting any agreements with the EU done [GBP negative]
- Central bank speakers: none due today
- Economic Data:
- No major economic data is due today
Broad outlook: negative risk appetite across asset classes. Anything safe haven is holding up well, anything deemed to be a higher risk is being sold off.
Forex: Safe haven majors (JPY especially) performing well again, but also EUR and to an extent USD. AUD, NZD, and CAD are the main underperformers, along with GBP.
- EUR/USD Despite the sharp move lower on Friday, EUR has found support today and the trading range remains firmly intact. Support at 1.1185/1.1220 up towards resistance at 1.1360/1.1380.
- GBP/USD has pulled sharply lower and the prospect of a recovery is being seriously questioned. A retest of the 1.3160 support could easily now be seen. Initial resistance around 1.3280.
- AUD/USD once more the bulls have failed in recovery with a sharp move lower Friday and early today. A close under 0.7090 opens further correction towards 0.6990.
Commodities: precious metals consolidating, oil generating downside momentum.
- Gold after a bull failure above $1800 on Friday, gold needs to hold on to $1790 to sustain recovery potential. A break above $1815 would be bullish and open $1835/$1845.
- Silver is less convincing than gold in this recovery after faltering around $22.60 on Friday. Holding initial support around $22.20/$22.30 would help to sustain a potential improvement.
- Brent Crude oil has broken $72.80 the downside momentum is increasing. A break below initial support at $69.80 opens a key reaction low at $66.35.
Indices: big selling pressure today across major indices.
- S&P 500 futures falling sharply below 4585 has opened the long-term uptrend channel support (around 4510) and the key reaction low at 4492. There is a pivot band of resistance 4585/4610.
- DAX falling sharply to test the crucial medium-term range support 14,810/15,000. Previous selling phases have found willing buyers. The first real resistance is around 15,420.
- FTSE 100 has broken under the mid-range pivot at 7180/7200 and the now opens the channel low around 7005 and the key November low at 6977. 7180/7200 now becomes a basis of resistance.