After the strong run higher on equities last week, there are signs of some profit-taking that are coming in. However, the potential renewed US dollar strengthening has failed to take hold and forex is in a consolidation phase for now. The ECB is in key focus, along with the first look at US Q3 growth.
- Main drivers: Tentative across major markets; No surprises from the BoJ; Oil slips on EU/Iran negotiation prospects; ECB monetary policy and Advance GDP in focusing on the calendar.
- Mixed to mildly positive sentiment: Wall Street dropped back last night, weighing Asian markets lower overnight. European indices look cautious/lower early today. Little direction on major forex with USD broadly flat. Commodities have ticked higher aside from the fall on oil.
- Bank of Japan holds rates as expected: no change to the interest rate at -0.10%, keeping the 10 year Japanese Government Bond yield target around 0%. One board member dissented, as usual. No surprises in policy decisions. BoJ also lowered its core CPI and real GDP forecasts for the current year. [Mild gains for JPY now unwinding]
- Oil begins to slip lower: talks between the EU and Iran to resume and could now bring the 2015 nuclear accord back in. This would bring Iranian supplies back into the market. [Negative for Oil price]
- Tech earnings drive NASDAQ outperformance: Strong earnings from Microsoft and Alphabet helps to support NASDAQ. Apple and Amazon are today. [Supportive for Wall Street]
- ECB monetary policy: This is unlikely to be a month for any significant action from the ECB (the economic projections are in December). Lagarde is likely to play it very straight [EUR volatility may be increased]
- Central bank speakers: No Fed speakers – FOMC in the “Blackout Period”.
- Economic Data:
European Central Bank at 1145GMT, expected to hold rates steady with the deposit rate at -0.50%. The press conference at 1230GMT will be more of a volatility event.
US Advance Q3 GDP at 1230GMT, +2.7% annualized growth expected (+6.7% final Q2)
US Weekly Jobless Claims at 1230GMT, 290,000 expected (290,000 last week)
· US Pending Home Sales at 1400GMT, +0.4% MoM growth expected (+8.1% in August)
- Broad outlook: A threat of USD strengthening has just calmed down and turned into consolidation. This is settling forex and precious metal commodities.
- Forex: USD has slipped into consolidation in the past 24 hours.
EUR/USD continues to find resistance at 1.1620 but support around 1.1585 is also holding. Expect volatility on the ECB meeting today, but we continue to look to sell into strength. Key resistance at 1.1665.
GBP/USD threatened to form a topping pattern but support at 1.3708 held firm. This is more of a ranging consolidation $1.3710/1.3835) for now. Resistance at .1.3833 is increasingly important.
AUD/USD the recovery uptrend is beginning to wobble as resistance mounts around 0.7535/0.7545. We remain positive whilst the support at 0.7450/0.7475 holds.
- Commodities: the failure of USD strength to develop is allowing precious metals to build support again. Oil begins to question the bull run.
Gold picking up from $1780 has been a positive reaction to hold the uptrend. Reaction to resistance around $1810 will again be key. Holding a breakout above $1810 opens $1834.
Silver consolidating above the key support band $23.75/$24.00 and the 4-week uptrend support. The bulls remain in control for now.
Brent Crude oil falling over at $86.65 and under the 2018 high of $86.95 is a sign of fatigue (also reflected in the bearish momentum divergence). So far the support of around $82.70 has held on an intraday rebound. A failure around $84.00/$84.70 would suggest growing corrective potential.
- Indices: a loss of momentum in the bull run is threatening near-term profit-taking. We still see weakness as a chance to buy.
S&P 500 futures a pullback from Tuesday’s high of 4590 is drifting back into initial breakout support around 4550. We are still looking to buy into weakness. Good support between 4470/4500.
DAX just drifting back from a 15,785 rebound high. We look to buy into any weakness with support growing around 15,600/15,700.
FTSE 100 is starting to unwind some recent gains. . We look to buy into any near-term pullback with good support between 7180/7246.