The shockingly high US inflation reading for October has sent shockwaves through markets. There will be questions now over whether inflation is still “transitory” and whether the Fed will need to accelerate its tightening of policy. Higher bond yields, higher USD. Risk sentiment has been hit and safe-haven assets such as precious metals have jumped. It is a US public holiday today so this will mean thin markets.
- Main drivers: Mixed sentiment today; USD strength as US inflation spikes higher; UK growth disappoints; EUR hit by ECB comments, quiet economic calendar.
- Cautious early trading: after US inflation spiked higher yesterday, this was risk negative. Wall Street slipped back but with the US public holiday today, there is a degree of consolidation. USD is strengthening whilst precious metals are pulling higher.
- US inflation spikes higher: much higher than expected US inflation now means the Fed may need to accelerate its tightening [risk negative, USD supportive].
- UK growth disappoints: Q3 GDP comes in marginally weaker than expected at +1.3% (+1.5% was forecast) [GBP negative].
- ECB’s Holzmann hits EUR: Holzmann (Austria finance minister, hawk) is concerned that the economic situation in the Eurozone has deteriorated since the summer [marginally EUR negative].
- US public holiday today: It is Veterans Day for the US today. Expect reduced liquidity and likely quiet markets. [muted markets]
- Central bank speakers: There are no central bank speakers due today.
- Economic Data: No major data due
- Broad outlook: Risk turning negative and a big jump on USD after the inflation surprise.
- Forex: USD strength continues today.
EUR/USD a decisive downside break of 1.1515/1.1525 support opens downside. This old support now becomes new resistance to sell into a near term technical rally. GBP/USD A break under 1.3410 opens 1.32/1.33. We favour selling into strength with resistance 1.3410/1.3500.
AUD/USD downside continues. We favour selling intraday rallies into resistance. Initial resistance 0.7340/0.7380.
- Commodities: precious metals are strong on the decisive breakout, oil outlook remains highly uncertain
Gold is pulling higher once more this morning after the breakout above $1834 key resistance. A move towards $1900 looks on now. Support at $1834/$1842
Silver Breakout above $24.80 is positive but needs to close above to confirm. We favour buying into weakness now, with $24.50/$24.80 supportive.
Brent Crude oil Another bull failure, with a “bearish engulfing candle”. This simply reflects the continued volatility within a ranging phase for oil. A market lacking conviction. Resistance is growing at $85.90/$86.65.
- Indices: Wall Street minor correction is consolidating, still not yet reflected in Europe.
S&P 500 futures a minor pullback picked up from 4625 and is now consolidating. The corrective forces are still a factor and could still see the market unwind towards the 4550/4590 support area. Resistance initially 4657/4678.
DAX still consolidating between 15,980/16,107 and remains stretched. So far a Wall Street slip has not weighed on the DAX. If it does, we would then look to buy into weakness. Good support 15,755/15,845.
FTSE 100 breaking decisively higher on strong momentum. We look to use intraday weakness as a chance to buy for the medium-term bullish breakout targeting 7700. Good support now 7250/7300 area.