What we are looking for
- USD turns increasingly corrective, near-term: As broad risk appetite continues a recent rebound, the USD is pulling back on major forex. For now, we expect this to be a near-term move.
- AUD fluctuates on dovish lean from RBA: Risk appetite is positive and commodities are higher. This is helping to support the AUD after a surprise smaller-than-expected rate hike from the RBA.
- Indices rebound strongly: Several big bullish reversal signals (bullish key one-day reversals) have been posted on major markets.
- Commodities recover well: Oil has broken a five-week downtrend and silver has stormed to three-month highs.
- Data trading: US Factory Orders could move the USD slightly. However, traders will be also keeping an eye on not only five Fed speakers but also EUR positions with ECB President Lagarde speaking.
There has been a big turnaround in major markets in the past few sessions. The trigger has come from the UK where the GBP has embarked upon a remarkable recovery. GBP has been helped by the Bank of England stepping in to support the Gilt markets and laterally a u-turn on some of the fiscally irresponsible moves from the UK Government. This has fed through to a wider kickback against the USD on major forex. US bond yields have also fallen after the surprisingly weak ISM Manufacturing data.
Markets are now starting to wonder whether it is time for a pivot by central banks. Although the Reserve Bank of Australia came in this morning with a smaller than expected rate hike, it is still too early to know whether there is a bigger trend shift at play. For now, commodities and indices are rallying, with US futures strong again this morning. With little game-changing data today, this move may continue to trend. However, the flood of Fed speakers will be worth noting. It is still likely that the USD strength will endure in the end. However, a near-term kickback is certainly underway.
It is a day of US factory orders and a swathe of central bankers on the economic calendar today. US Factory Orders are expected to be flat in the month of August. Away from the data, there are five FOMC members and ECB President Lagarde to look out for.
Market sentiment continues to improve: USD weakness across major forex, commodities higher and indices also rebounding well.
Treasury yields are lower again: After the big moves lower yesterday (10-year yield fell -15bps and the 2-year yield fell -11bps), yields are lower again today.
Reserve Bank of Australia hikes by 25bps: The hike was lower than the 50bps that had been forecast by the consensus. The rate is now at 2.60%. The RBA highlighted that uncertainty over the economic outlook had increased and there were fears of a housing market slowdown.
Cryptocurrencies rallying: The rebound that began yesterday has continued today. Bitcoin is +1.5% at $19900, with Ethereum +1.7% at $1347.
Five more Fed speakers: There are five Fed members scheduled to speak today. John Williams (permanent voter, leans slightly hawkish) is at 13:00 GMT. Lorie Logan (2023 voter, leans slightly hawkish) is also at 13:00 GMT. Loretta Mester (2022 voter, hawkish) is at 13:15 GMT. Later on, there is Philip Jefferson (permanent voter, centrist) at 15:45 GMT and Mary Daly (2024 voter, leans slightly dovish) at 17:00GMT.
ECB President is also scheduled: Also keep an eye out for the ECB President Christine Lagarde who is speaking at 15:00 GMT.
- US Factory Orders (at 14:00 GMT) Orders are expected to have shown zero growth in August (after a -1.0% decline in July).
Major markets outlook
Broad outlook: Market sentiment is recovering decisively. USD is underperforming, helping commodities and indices higher.
Forex: GBP is leading the gainers today. AUD is positive versus USD but is lagging behind other majors.
- EUR/USD has rebounded strongly into the overhead supply between 0.9865/0.9950. However, this is an important barrier to recovery. Old support becomes new resistance. We still see near-term rallies as a chance to sell but we wait to see how this move plays out. There is the bigger resistance of the 55-day moving average (at 1.0030) and the 8-month downtrend to overcome just above parity. The daily RSI is back around 50/55 where previous rallies have faltered. Initial support is at 0.9735.
- GBP/USD has rebounded strongly in recent sessions and is into a sixth consecutive day of gains this morning. The rally is into the 1.1350/1.1450 resistance area. A close above 1.1460 would continue for the next phase of recovery and the more considerable resistance between 1.1715/1.1760. We still see this as an unwind from oversold within a bearish outlook and is a rally that is likely to falter. For now, though momentum is with the rebound. For now, the recovery is holding, but we expect to see the selling pressure resuming in due course. Initial support is at 1.1025/1.1230.
- AUD/USD has been consolidating under the resistance between 0.6525/0.6535. However, an encouraging reaction to the RBA disappointment has seen another test of 0.6535. A decisive move above 0.6535 would imply a recovery towards 0.6770. Support at 0.6450 is increasingly important.
Commodities: A huge rebound in precious metals has taken hold.
- Gold has spiked through the overhead supply of $1680/$1691 and is now eyeing a bigger rebound towards $1720/$1735. The big 8-month downtrend (currently $1717) is a barrier, however, momentum in the move is strengthening. Reaction around $1735 will be an important gauge for the medium-term outlook. The old pivot at $1680/$1691 is now a basis of support.
- Silver has engaged in a massive rebound that has broken a five-month downtrend (at $19.64) and moved above the key August high of $20.84. The market is now into huge long-term resistance that sits between $20.85/$22.00. However, the near-term recovery momentum is very strong. The bulls need to now build a basis of support between $20.00/$20.85 to sustain this recovery.
- Brent Crude oil is just struggling to break the shackles of the resistance from the old September lows between $88.25/$89.75. However, a four-week downtrend has been decisively broken now and increasingly, the market is trading above $90. This should begin to see the market creeping higher in recovery. This opens a test of the key resistance overhead between $93.25/$96.60. We still favour looking at near-term rallies within the bigger near four-month downtrend as a chance to sell.
Indices: Equities are engaging in a significant near-term rally.
- S&P 500 futures managed a big intraday rally yesterday to post a big bullish engulfing (bullish key one-day reversal). This is a powerful rally signal. A move above resistance at 3750 would open the way for a much bigger rebound towards the big overhead supply resistance band at 3883/3935. Initial support is at 3686/3700.
- German DAX is accelerating higher after posting a bullish engulfing (bullish key one-day reversal) yesterday. The move has continued today and is now testing the important overhead supply resistance at 12375/12590. Reaction to this resistance will gauge the enduring strength of the recovery. Initial support is at 12290/12310.
- FTSE 100 is also recovering well, even if it does not has the reversal patterns of other major markets. The RSI is moving sharply higher and has upside potential in the recovery. Moving above 7010 would be the next step and then a break above 7080 resistance. There is good initial support at 6945/6955.
This material is for general information purposes only and is not intended as (and should not be considered to be) financial, investment or other advice on which reliance should be placed. INFINOX is not authorised to provide investment advice. No opinion given in the material constitutes a recommendation by INFINOX or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.