With US bond yields continuing to pull higher and the US dollar (USD) still strengthening, the recent trends of forex major pairs and precious metals continue today. However, the moves appear to be less aggressive this morning and re are signs of consolidation with support forming on Wall Street indices after an extremely volatile series of sessions. The latest inflation data for the US (the Fed’s preferred gauge of core PCE) could rock the boat again, but today could be relatively calm to end the week. Don’t worry though volatility junkies, there is another huge week of announcements and data to stoke the fire once more approaching. Could this just be the calm before the next storm?
Volatile swings showing signs of settling down: It may not last long, but markets are looking reasonably calm this morning. There is still a USD positive bias on forex, but moves look less aggressive and US futures are at least relatively flat this morning.
Yields and USD continue higher: The curve flattening (shorter duration yields rising stronger than longer duration) and positive USD moves continue to impact forex and commodities [USD positive still]
No improvement in Russia/Ukraine uncertainty: News that US Senators are looking to push for increased US military presence in Ukraine will not help to defuse tensions. [Risk negative]
Japanese core inflation lower than expected: Core CPI at +0.2% was lower than the +0.3% forecast drop from last month’s +0.5% [JPY negative]
- Eurozone sentiment gauges (at 1000GMT). Economic sentiment, industrial confidence, and services sentiment to be watched.
- US Core Personal Consumption Expenditure (at 1330GMT). Expected to increase to 4.8% YoY in December (from 4.7% in November).
- Michigan Sentiment (at 1500GMT). Final sentiment is forecast to be revised slightly lower to 68.7 (from 68.8 prelims)
MAJOR MARKETS OUTLOOK
Broad outlook: Trends post-FOMC continue, but are slightly less aggressive today.
Forex: USD continues to outperform. Higher risk/pro-cyclical forex (AUD and NZD) are again underperforming.
- EUR/USD continues to drop and is well clear of the 1.1185 key November low. This old support is now the basis of key resistance. The next support is not until the 1.10 area, with a potential downside towards 1.08/1.10. The initial resistance is 1.1155 this morning.
- GBP/USD looked to be forming support but a rebound has failed around 1.3415 which is around an old 1.3410 pivot area. A move below yesterday’s low at 1.3357 re-opens for continued downside perhaps towards 1.3160/1.3200.
- AUD/USD is falling again and is looking towards 0.6990 which is an enormous long-term key support. A close below would be a new low dating back to July 2020. It would open 0.6760 as the next key low. Resistance is strong now around 0.7080, with 0.7045 initially resistance this morning.
Commodities: Gold and silver continue to fall. Oil remains supported.
- Gold fell below $1800 yesterday and this is now becoming the basis of resistance this morning. The market continues to sell into strength and a test of $1782 (next key reaction low) is on the cards. The medium-term outlook is once more neutral.
- Silver has broken below support at $22.82 and continues lower today. Momentum is with the decline and the next important support is now until $21.94. The old support at $22.80 is becoming resistant now.
- Brent Crude oil remains supported but the run higher has struggled in the past 24 hours. A sense of consolidation around $88.50/$89.00 support area, but under resistance now at $90.55. Momentum is not as strong as it has been previously and a move below $88.50 would be a sign of the uptrend stalling.
Indices: Wild swings on Wall Street have been a little more settled in the past 12 hours. European markets are still hinting at the control of the sellers.
- S&P 500 futures are showing signs of support formation, even if the market signals in recent sessions have been highly uncertain. The bulls will look to build from support around 4260/4300 as near-term signals begin to look less negative. Resistance at 4445 is key though. Initial resistance is at 4355.
- DAX has backed away in the past few hours, not forming a potential base pattern that would have signaled recovery. Reaction around mid-range pivot support at 15,260/15,280 will be important, but we still see buyers happy to support at 15,000 and below.
- FTSE 100 has turned back lower early today which is unwinding some of the recovery seen yesterday. It is clear that markets remain volatile and are not ready yet for decisive recovery. There is a basis of support around 7460/7500 and below this would re-open 7400 again. Resistance is growing around 7600.