The Monday consolidating continues today amidst cautious early trading. The signs of a developing near term correction are on hold today as the USD consolidates. With all the central banks and tier-one announcements of the past couple of weeks, markets seem to be in wait and see mode. US inflation on Wednesday could be a catalyst for the next move.
- Main drivers: Cautious trading continues; US dollar easing; Lagarde and Bailey talk about inflation; energy prices volatile; Brainard interview; German ZEW and US PPI later.
- Cautious early trading: Wall Street edged into all-time highs again amidst cautious trading yesterday. This feeling continues today, with few real movers across major markets.
- USD easing continues: The easing of USD since Friday’s payrolls has continued. This is impacting forex and commodities.
- Lagarde and Bailey talk about inflation: ECB President Lagarde believes in a positive Eurozone outlook and inflation is still transitory (no change there). Also, BoE Governor Bailey is concerned that they will have to act on high inflation if it begins to feed into wages; also worried about the spread to becoming generalised inflation (no real market reaction).
- Energy prices volatility ahead: Suggestions are that President Biden is preparing an announcement on oil regarding the Strategic Petroleum Reserve. If the US releases reserves into supply this would be oil negative. [Oil volatility]
- Brainard interviews for the chair: Lael Brainard was interviewed by President Biden for the next Fed chair. She is historically one of the most dovish FOMC members.
- Central bank speakers: Four central bank heads speak today including Fed Chair Powell (again), plus one Fed member:
ECB President Lagarde speaking at 1300GMT
FOMC Chair Powell (mild dove) speaking at 1400GMT
Bank of England’s Governor Bailey speaking at 1600GMT
Bank of Canada Governor Macklem speaking at 2245GMT
plus the FOMC’s Daly (2021 voter, mild dove) speaking at 1635GMT
German ZEW Economic Sentiment at 1000GMT is expected to decline to 19.0 in November (from 22.3 in October)
US PPI at 1330GMT with core PPI expected to remain at 6.8% YoY in October (6.8% in September)
- Broad outlook: Indices are still consolidating today. USD has slipped in the past couple of sessions but is holding ground initially today.
- Forex: USD continues to battle against near term corrective forces.
EUR/USD rally through 1.1570/1.1585 and will now look to use this as support for a test of 1.1615. Above 1.1615 would continue the recovery and means a test of the 5-month downtrend. We play this as a range trade between 1.1515/1.1690 for now.
GBP/USD has rallied into key pivot resistance around 1.3570/1.3600. How the bulls react around here will determine the near term outlook. We still prefer to sell into strength and look for renewed sell signals. We favour pressure on 1.3410 in due course.
AUD/USD near term recovery from 0.7360, but the rally is struggling for traction, with key resistance 0.7450/0.7475 overhead. We still favour selling into strength.
- Commodities: precious metals rebounding to eye crucial medium-term resistance, oil remains very volatile
Gold rallying above $1800/$1810 is now consolidating the breakout. The market is now eyeing the crucial $1834 resistance. Momentum suggests this is a key inflexion point and could be an outlook changing move. $1800/$1810 needs to hold as a support area now.
Silver has rallied and is now looking towards a test of the crucial medium-term resistance around $24.80. This is a key moment for the near to medium-term outlook. Support holding around $24.00 would maintain the improvement.
Brent Crude oil near term volatility just starting to settle slightly amidst consolidation. Very difficult to have any conviction in a view near to medium term. Reaction to the resistance around $84.50/$85.10 will be key.
- Indices: Wall Street continues to edge higher but the run may be starting to lose momentum. European markets holding ground for now.
S&P 500 futures are strong with 8 consecutive positive closes. However, with an “inside day” session under Friday’s all-time high of 4711 and failing to ignite today, momentum may be starting to sag. We remain mindful of potential near term correction and are cautious. Key support starts around 4590.
DAX is just consolidating under Friday’s all-time high of 16,090 in the past couple of sessions. No exhaustion signals yet though. Good support 15,755/15,845.
FTSE 100 holding on to the breakout. Any unwind towards 7215/7246 support is a chance to buy for the medium-term bullish breakout targeting 7700.