What we are looking for
- USD correction consolidating but remains in place: The USD corrective trend remains in place across major forex pairs, although there is a near-term pause that is coming today amid the US public holiday.
- Indices mixed to slightly higher: European indices are starting the week supported and slightly higher following another positive close on Wall Street on Friday. US futures are just a shade lower but with US bond markets shut for the public holiday, the direction may be limited.
- Commodities just tailing off slightly: Prices have just pulled back as the European session takes hold. Oil was lower overnight, but gold is a shade lower and silver has given up earlier gains.
- Martin Luther King Jr Day: It is a US public holiday today. US bond markets are shut, but US index futures are trading. We expect reduced liquidity/trading volumes across major markets. It will likely be quiet but there could be some erratic moves.
- Data traders: It is a quiet day for data traders, with no announcements due.
The corrective trend on the USD has been a feature of the moves of early 2023. Following the signals of a slowdown in the pricing pressures from Nonfarm Payrolls, ISM Services and most recently the decline in the US CPI inflation, there is continued pricing for a less aggressive monetary policy from the Federal Reserve. This has been weighing on the USD. There is a degree of consolidation on Monday morning with the US public holiday, something that could even induce a pullback.
Traders have also been pulling equity markets decisively higher too, along with metals prices. However, there is an increasingly stretched and arguably overbought position that may induce some profit-taking near term. However, in light of the growing position of USD correction, we would expect any near-term unwinding moves on major markets to be short-lived.
It is very quiet on the economic calendar. There are no major data announcements today.
Market sentiment is looking a little mixed: As European trading has kicked into gear the USD has started to recover. This is pulling metals prices lower and dragging on US futures slightly. For now, European indices remain positive.
US Treasuries are closed today: There is no direction from US bond markets today.
OPEC+ is watching China demand: With China re-opening, there could be a need for OPEC+ to increase supplies. For now, though, there is still caution signalled from “delegates” according to reports.
Is it too early for the BoJ to remove YCC? Former BoJ executive director Momma believes this could happen as early as this week. Analyst expectations for Wednesday’s meeting are not expecting this to be the case.
JPY volatility is elevated: This is coming ahead of a much anticipated Bank of Japan meeting on Wednesday. The closed of US bond markets will be playing into this today.
Cryptocurrencies continue to accelerate higher: Crypto has accelerated higher in recent sessions. Another jump over the weekend has seen Bitcoin +5% up from Friday’s close, now around $20800, with Ethereum +5.9% at $1540.
- There are no major economic announcements today
Major markets outlook
Forex: JPY has fallen back after sharp gains last week. USD has clawed back some losses.
- EUR/USD has broken above the 1.0785 resistance of the May 2022 high in recent sessions. However, the moves have just been struggling around the 1.0865/1.0875 resistance area and have just started to ease back slightly this morning. For now, this is a consolidation and there is a good band of breakout support between 1.0712/1.0785 for any initial unwinding moves. Above 1.0875 would continue the recovery and open 1.0935 as the next resistance. Technically, the outlook remains very strong with RSI momentum in the 60s. We look to buy into near-term supported weakness.
- GBP/USD has been edging higher in recent sessions but has lacked the positive traction that would point to an imminent test of the high at 1.2445. The market has just pulled back slightly this morning. There is good support between 1.2075/1.2125 to contain an initial pullback. The RSI momentum has a mild positive bias in the 50s. Reaction to the support at 1.2075 will determine whether there is still a mild positive bias within the developing medium-term ranging formation. Initial resistance is at 1.2290. Support at 1.1840 remains key.
- USD/JPY accelerated below the support at 129.50 last week to hit the lowest level since late May. However, this morning there is an unwinding and a technical rally with the daily RSI unwinding from 30. We look to use this unwind into the overhead supply resistance now between 129.50/130.60 as a chance to sell. Initial support is at 127.20 with the next important support not until the May 2022 low of 126.35.
Commodities: Metals and oil are just pulling back from last week’s gains.
- Gold has accelerated higher in recent sessions, through resistance at $1910/$1920 and through the top of a two-month uptrend channel. However, with the daily RSI into the mid-70s (the highest since March 2022), there is a sense that near-term profit-taking could be seen. This is coming as the price has begun to unwind slightly this morning. A pullback into initial support at $1867/$1881 could be seen. We would though still look to use near-term weakness as a chance to buy.
- Silver rallied sharply on Friday but early gains this morning have eased off. This move has once more been unable to break through the resistance at $24.11/$24.54. It also sustains the consolidation range between $23.11/$24.55. There is a positive bias to momentum which favours testing the resistance, but an upside break remains elusive. Given the RSI configuration, we favour buying into weakness to play the range, but for now, are cautious of playing for a breakout. Below $23.95 the support is at $23.50.
- Brent Crude oil has been moving decisively higher in recent days but the rally is into the resistance between $83.50/$86.75 and is just tailing off this morning. The rally high of $85.45 is just shy of the $86.75 January high that needs to be broken for a more sustainable recovery outlook to take hold. For now, the run of lower highs continues and this rebound needs to be treated with caution with the risk of another bull failure. Initial support is at $83.10.
Indices: Wall Street is more positive now, although the rally on European indices is beginning to look slightly stretched.
- S&P 500 futures have moved higher to test the primary downtrend from 2022 (which comes in around 4010 today). The candles are positive but with long lower shadows, there are intraday sellers but they are unable to sustain the move into the close. The futures are lower again this morning (from a 4027 high) and it will be interesting to see if the move once more fails. The big resistance from the November/December highs comes in at 4050/4140. The daily RSI momentum has eased back from the low 60s, where the rally momentum tailed off in November/December. This could become an important moment. The pivot area between 3912/3945 is supportive.
- German DAX has had a strong run higher, moving into the 15000s, but is just easing back initially this morning. With the RSI tailing off above 70 this needs to be watched. The consolidation could be part of the US public holiday, but could also be the threat of some profit-taking. There is good support at the breakouts between 14604/14810. We would still look to buy into supported weakness. The next key resistance is in the 15550/15740 area.
- FTSE 100 is seeing the bull run higher just on pause this morning, just shy of a test of the all-time high of 7903. This stalling is coming with the RSI into increasingly overbought territory. The last time the RSI was around 75 was late November when a three-week correction then set in. There is good support from the breakout of all the old highs between 7635/7695 with initial support at 7747.
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