What we are looking for
- USD is consolidating: There is a mild risk-positive bias this morning, leaving the USD with losses against major forex. However, taking a step back, after yesterday’s gains, is essentially a pause ahead of the Fed.
- Indices find support: After Wall Street closed lower last night, US futures are a shade higher this morning, helping European indices to build support. This is likely to leave a consolidation, with the FOMC meeting approaching.
- Commodities tick higher: Precious metals and oil rebounded yesterday and are slightly higher again today.
- Reaction to the Fed will be crucial: The Fed announcement is at 18:00 GMT. With such a lot riding on the decision, we can expect huge volatility on the announcement.
- Data traders: USD traders might find initial volatility on the ADP Employment change, if there are any surprises. However, moves may be limited in front of the Fed meeting later.
Major markets look settled ahead of a crucial FOMC meeting later. After the USD has been gradually regaining lost ground in recent sessions, there is an initial move against the USD once more today. This is helping commodities and equities to build on support. However, although there is a slightly more positive bias to sentiment this morning this is more likely to develop into a consolidation as traders wait to see the outcome of the Fed meeting. US Treasuries have been choppy recently, but the 10-year yield having rebounded since Friday is hovering around the 4% mark. US index futures especially sit cautiously in wait.
Markets have been building up to another crucial FOMC meeting. All the talk in the past couple of weeks has been about whether we are about to see a Fed pivot. Another aggressive rate hike of 75bps is all but nailed on. However, will the Fed begin to guide towards less aggressive hiking over the coming meetings into Q1 2023? Market reaction will be fascinating. The Fed is still likely to be another 75/100 basis points away from the terminal rate (currently priced around 4.90%). There is room for another leg up in the USD over the coming weeks. However, this is also likely to be seen as the USD bull run reaches maturity. This could be a very important meeting for knowing more.
The Fed dominates the economic calendar today, but also a look at US jobs. The ADP Employment change is expected to dip slightly but remains broadly around the 200k level. Coming into the FOMC meeting, the consensus is still looking for +75 basis points of hikes taking the Fed Funds range to 3.75% / 4.00%. Markets will be looking for signs of a “Fed pivot” in the statement or press conference.
Market sentiment is slightly positive ahead of the Fed: USD is falling back again, with commodities and equities higher. However, this may recede as the Fed meeting approaches.
Treasury yields are a shade lower: Having rebounded in recent sessions, Treasury yields are lower today. However, yields were strongly lower yesterday and rebounded into the close. With the Fed meeting later, we do not expect any serious view to be taken.
Tensions on the Korean Peninsula: Both North and South Korea are reported to have conducted missile tests near the border. This may heighten tensions between the two.
Eurozone final Manufacturing PMI revised slightly lower: The final October Composite has been revised down to 46.4 from the 46.6 flash. This is a deterioration on the final September reading of 48.4.
Cryptocurrencies a shade lower: Crypto was choppy during yesterday’s session, with mild gains. Bitcoin is slightly lower this morning, -0.2% at $20440, with Ethereum -0.5% at $1566.
- US ADP Employment (at 12:15 GMT) Consensus is expecting a small drop to 195,000 jobs in October (down from 208,000 in September
- FOMC monetary policy (at 18:00 GMT) The consensus is expecting a 75bps hike to 4.00% (from 3.25% in September).
Major markets outlook
Broad outlook: With a continuation of choppy recent moves, sentiment is more positive initially today. The Fed meeting is likely to be a big driver later though.
Forex: The USD is back lower again, underperforming major forex. The JPY and NZD are the main outperformers.
- EUR/USD has been sliding in recent days and has closed again back under 0.9900. Intraday rallies have been sold into for each of the past four sessions, leaving a corrective bias. An early rebound comes ahead of a crucial FOMC decision later. Although the daily RSI is holding above 50, another close today (post-FOMC) below 0.9900 would add a negative bias and a test of the recovery uptrend (currently c. 0.9770) is increasingly likely. Subsequent support is 0.9806. Resistance is mounting between 0.9950/1.0000.
- GBP/USD has been trading around the 1.1500 area which we continue to view as a near-term gauge. The recent breakout support is between 1.1380/1.1500, but as the pair has again rebounded above 1.1500 this morning, if there is another sell-off into the close it would begin to add a slight corrective bias again. Under 1.1380 would renew the downside. The resistance is firming between 1.1625/1.1645.
- AUD/USD has pulled back to try and build support around the previous breakout area at 0.6345/0.6390. Moves have been a little choppy in recent sessions, with a bull failure candle yesterday adding to the lack of decisive trading. We continue to see the 0.6345/0.6390 band as a key gauge. Initial resistance is at 0.6465 with strengthening resistance between 0.6525/0.6555.
Commodities: Precious metals are ticking higher again. Oil has rebounded well from a five-week uptrend.
- Gold has rebounded well from $1630 posting a bullish engulfing candle yesterday. The move is adding further minor gains today. However, we continue to view this move as playing out underneath key resistance. Falling moving averages, a six-month downtrend and an overhead supply of resistance at $1680/$1690 are all barriers to gains. We favour playing for bull failures and a test of the support band $1615/$1617. Initial resistance is building at $1660/$1670.
- Silver has swung back higher once more from the support band $18.80/$19.20. The market flirted above $19.77 resistance. There is a very slight positive bias within what is a rather uncertain outlook. This is reflected in the RSI sitting a shade above 50, and the price trading slightly above mixed moving averages. We are therefore cautious with chasing any breakouts now until a more decisive trend develops.
- Brent Crude oil has rebounded well from $93.40 in the past couple of sessions. Holding on to what is now a five-week uptrend, the market is putting pressure on resistance around $97.60/$97.80 which is protecting the early October high at $99.50. Momentum retains a mild positive bias with the daily RSI above 50, suggesting near-term weakness is being used as a chance to buy.
Indices: Wall Street has been slightly more cautious in recent days, and with the Fed meeting approaching, European markets are also a little shy.
- S&P 500 futures have struggled just under the 3935 resistance in the past few days as the market has begun to look more cautious. As the three-week uptrend approaches (currently around 3835) the Fed meeting tonight, is an important crossroads. The bulls will be eyeing the next breakout, but back under support at 3820 would be a disappointment now. A base pattern from 3820 implies c. +250 ticks towards 4070 as a target. The initial support is around 3850.
- German DAX continues to move higher along a sharp three-week uptrend. However, a pullback from 13441 yesterday and a slightly more cautious look this morning is leaving the market tentatively poised ahead of the FOMC meeting. The technicals suggest a strong recovery is in place and if support at 13211 can hold then a test of the next important resistance at 13560 is still on.
- FTSE 100 has broken decisively higher and the old resistance at 7106/7128 is now a basis of support. With a three-week uptrend in place and a strong positive configuration on the RSI, the market is well-positioned for continued recovery. With initial resistance at 7228, the next resistance of note is at 7333.
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