What we are looking for
- USD falling away again: With risk appetite recovering again USD is falling once more versus major forex. This continues the trend of selling USD into strength for a correction.
- Indices rebounding: Early gains for risk assets are helping equities higher. US futures are around +0.5% higher, whilst European indices are similarly higher, with FTSE 100 leading the way.
- Commodities rebound after yesterday’s decline: An intraday rebound yesterday on oil has continued higher this morning. Silver is also leading gold higher.
- Data traders: EUR will move on the sentiment gauges initially, but the German inflation will be an early gauge for Eurozone inflation tomorrow and will be important. CAD positions will move on the prelim October GDP. US Consumer Confidence will drive elevated volatility on USD positions.
Markets have fluctuated early this week. As traders increasingly look ahead to the next FOMC interest rate decision, the comments of Fed members will be keenly watched. Yesterday’s hawkish rhetoric from the Fed’s arch-hawk, James Bullard is to be expected. However, John Williams is a little more around the balance of the committee. Williams was talking about needing more time to get inflation down and more rate hikes will be needed in 2023. The USD strengthened on this yesterday and risk appetite suffered, pulling Wall Street lower.
This morning though there is a more constructive position for risk appetite. It may not be an entirely wholesome reason either, as Asian markets rallied overnight on reports of a crackdown by police in China on protestors. The prospect of restricting protests improves the outlook for China. This is allowing commodities to recover, helping higher risk currencies to outperform (AUD and NZD are over +1% higher versus the USD) and also equity markets higher too. Even cryptos are higher, despite continuing to be rocked by news of massive withdrawals from crypto exchanges.
It is a packed economic calendar today. The Eurozone sentiment gauges for the economy, in addition to the industrial and services sectors, are expected to all improve marginally in November, whilst German inflation is released throughout the European morning and is expected to reduce slightly. Canadian growth is expected to be confirmed at around +1.5% for Q3, but traders will be watching how far into negative the prelim October GDP will go. The main focus will be US Consumer Confidence which is expected to fall back for the second month in a row having picked up over the summer.
Market sentiment improves: There is a decisive risk positive bias on major forex, with commodities and equity markets also stronger.
Treasury yields fall back: Yields have tailed off early this morning. This is weighing on USD once more.
US Dollar Index “bullish engulfing candle” needs to be watched: The sharp USD rally into the close yesterday has formed a “bullish engulfing” one-day candlestick pattern. This can be a powerful reversal signal. The early drop back this morning is questioning the reversal though.
Swiss GDP misses forecast: Swiss GDP increased by +0.2% in Q3 which was marginally lower than the +0.3% forecast. It was lower than the +0.5% in Q2.
Cryptocurrencies continue to range: Another crypto exchange, BlockFi, has filed for Chapter 11 bankruptcy protection, following the collapse of FTX a few weeks ago.
- Eurozone Economic Sentiment (at 10:00 GMT). Sentiment for the economy is expected to improve slightly in November to 93.5 (from 92.5 in October)
- Eurozone Industrial Sentiment (at 10:00 GMT). Sentiment for industry is expected to improve marginally to -0.2 in November (from -1.2 in October)
- Eurozone Services Sentiment (at 10:00 GMT). Sentiment for services is forecast to improve very slightly to +2 (from +1.8)
- German HICP inflation (at 13:00 GMT). Harmonised inflation is expected to reduce slightly to 11.3% in November (from 11.6% in October).
- Canadian GDP (at 13:00 GMT). Growth is forecast to be +1.5% in Q3 (down from +3.3% in Q2)
- US CB Consumer Confidence (at 15:00 GMT). Confidence is forecast to decline to 100 in November (from 102.5 in October)
Major markets outlook
Broad outlook: Risk appetite has rebounded this morning and is looking strong.
Forex: USD is selling off again across major forex. AUD and NZD are strongly outperforming.
- EUR/USD posted a significant warning signal to the recovery yesterday. A big “Shooting Star” candle has left resistance at 1.0496 and is a corrective signal. Reaction to this candle will be important though, with the early rebound already questioning the implications of the candle yesterday. We still see weakness as a chance to buy though, with the RSI above 60. Any supported correction that finds a low above 1.0220 would be another opportunity. A breakout into the 1.05s opens 1.0615 as the next test.
- GBP/USD has fallen back from 1.2153 but still seems to be finding buyers in the important 1.1950/1.2030 breakout area. With RSI momentum still in the 60s and recently hitting its strongest since January, the outlook remains positive. This continues to suggest near-term corrections remain a chance to buy. The next important resistance remains the August high of 1.2295. The support between 1.1710/1.1780 continues to strengthen with recent moves.
- AUD/USD has struggled around a test of the 0.6797 resistance in recent days, but there has been a strong reaction this morning to yesterday’s pull lower. Holding a higher low above the higher low at 0.6585 is important which means that rebounding from 0.6640 could be a significant low. Momentum remains strong with the RSI positively configured, weakness is being seen as a chance to buy. A move above 0.6797 would be a key breakout and would open 0.6915 as the next test.
Commodities: Precious metals are reacting well this morning to yesterday’s sell-off, but they need to hold the gains. Oil has also recovered well from recent weakness.
- Gold has been fluctuating considerably in the early part of this week, but taking a step back, the net effect is very little gain. Despite this, with the RSI holding decisively above 50 and moving back into the 60s, the outlook remains positive. Moving above resistance at $1764/$1767 would be the next trigger for further upside to test $1786. The low at $1728 continues to grow in importance.
- Silver has been trading around the old pivot band between $20.85/$21.23 for over a week now and continues with the fluctuations as the market has rebounded this morning. There is still a sense of buying into a weakness that is helped by the RSI momentum remaining above 50. There is initial resistance now at $21.67 but we favour a retest of the $22.24 high in due course. A close under $20.57 would be a disappointment.
- Brent Crude oil briefly broke the support of the $20 multi-month trading range between $82.85/$101.20 yesterday before an intraday rebound into the close. A further rally this morning is driving a recovery back towards the old mid-range pivot band of $88.30/$90.40. There is also the resistance of a near four-week downtrend which also comes within the pivot band. The RSI unwinding towards 50 would likely be seen as another chance to sell.
Indices: Wall Street has fallen over but this looks to be a chance to buy. European indices also look to be buying opportunities into supported weakness.
- S&P 500 futures have fallen decisively back from a test of the 4050 resistance but the support band of the previous breakout between 3883/3935 is key, along with the seven-week recovery uptrend. An overnight rebound from 3960 is initial support, and with the RSI still holding above 50, weakness looks to be a chance to buy for a retest of 4050 again.
- German DAX has eased back from the 14575 high with a negative candle yesterday. Previous negative candles that have come in recent weeks within the recovery uptrend have soon been followed by renewed buying. The uptrend is supportive around 14250, with initial support around 14323 holding this morning. A move below 14125 would be a corrective signal now.
- FTSE 100 has continued to edge higher and resisted the selling pressure that other major markets saw yesterday. Another move higher this morning has moved above 7516 to open a test of 7578, the key August high. A six-week uptrend is supportive around 7460 with yesterday’s higher low at 7438 coming around the good breakout support around 7380/7440.
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