What we are looking for
- Fed reaction as the dust settles: The Fed is still not ready to pivot. This is driving yields and USD higher, weighing on equities and commodities.
- USD is outperforming: USD is stronger on all major forex pairs. This looks to be an outlook-changing move.
- Indices fall over: Wall Street dropped sharply during the Powell press conference. After a mild attempt at a rebound overnight, US futures look to be falling over again. This is weighing on European indices this morning.
- Commodities also turned sharply lower: The pop to the upside was sold into during the press conference. Precious metals are eyeing important support levels.
- Data traders: The Bank of England will drive significant volatility for GBP traders. USD traders will be looking for jobless claims initially, but focus more on the ISM Services PMI later.
It was a remarkable Fed meeting last night, one in which markets went on a bit of a rollercoaster ride. The +75bps rate hike was fully expected, but markets moved initially on a rather dovish sounding lean in the statement. Hints towards a potential pivot saw a spike higher in risk appetite and the USD falling. However, these hopes were dashed during a fairly hawkish-sounding press conference from Fed Chair Powell. He said that the Fed “still has some ways to go”. He also noted that he expected the terminal rate to be higher than the Fed expected in September (when the dots were guiding towards 4.75%). Cue a big rally in USD and risk appetite selling off. This is the lasting legacy into markets this morning.
After initially consolidating overnight, European traders have come in and bought the USD, whilst selling risk assets. This is weighing on commodities with Silver leading gold lower, whilst oil is also falling. Equity markets are also under selling pressure in Europe. For now, this is more of a reaction to the big sell-off into the close on Wall Street. US futures ticked slightly higher overnight but are back around flat now. We will be watching the reaction on the S&P 500 futures to the late October higher low of 3757. A decisive move back below this would suggest a reversal of the October rally is on.
The Bank of England is key on the economic calendar today, but also the US ISM Non-Manufacturing PMI. However, first up is the final UK Services PMI, which is expected to be unrevised from the flash and to remain decisively in contraction, along with the Composite and both well below 48. The Bank of England monetary policy decision is expected to show a 75bps rate hike. Although the consensus is for the decision to be unanimous, there could be some dovish dissenters to this decision, which could weigh on GBP. US jobless claims are expected to rise slightly, as the consensus habitually does. The ISM Services survey is expected to decline, but to remain solidly in expansion above 55. Finally, US Factory Orders are expected to show mild monthly growth of +0.3% in September.
Market sentiment turns sour again: USD positive and selling on risk assets in the wake of the FOMC meeting.
Treasury yields are higher: This is especially on shorter-dated Treasuries. The 2-year yield has continued to move higher to around 4.68% today. Given Powell’s comments on the terminal rate, this could have further room towards 5% in due course.
China Caixin Composite PMI is all but in line with the forecast: The composite PMI has fallen to 48.3 in October (from 48.5 in September). This was a shade above the 48.1 forecast.
Swiss inflation falls: October YoY inflation has fallen to 3.0% from 3.3% in September. The consensus was expecting a drop to 3.2%. The CHF has fallen decisively on the news.
Cryptocurrencies clawing back yesterday’s losses: Crypto fell into the close last night after the FOMC decision. However, there has been a decent stab at forming support this morning. Bitcoin is +0.6% at $20300, with Ethereum at +2.1% and $1544.
- UK final Services PMI (at 09:30 GMT) No change is forecast from the 47.2 flash October (which is down from 49.1 at the final September reading)
- Bank of England monetary policy (at 12:00 GMT) The consensus is looking for a 75bps rate hike to 3.00% (from 2.25% previously).
- US Weekly Jobless Claims (at 12:30 GMT) Analysts expect claims to increase slightly to 220,000 (from 217,000)
- US ISM Services (at 14:00 GMT) Consensus is expecting the services survey to reduce to 55.5 in October (from 56.7 in September)
- US Factory Orders (at 14:00 GMT) Forecasts are for growth of +0.3% in September (after zero growth in August)
Major markets outlook
Broad outlook: There has been a decisive shift back towards a bearish outlook for risk The USD is a winner in this scenario, with metals and equities suffering.
- EUR/USD ended yesterday with a sharp intraday swing lower to close with a huge bear candle. The latest bull failure in the old pivot band between 0.9900/1.0000 leaves this as a key area of resistance once more. The move lower has continued today and is now breaching the recovery uptrend. As the RSI is now deteriorating sharply below 50, there is downside potential in the outlook. The next support is at 0.9705. The initial resistance is 0.9840/0.9850.
- GBP/USD has seen the outlook deteriorate in the past 24 hours as the breakout support between 1.1380/1.1500 has been breached to the downside. This move has taken increasing downside momentum this morning and an arguable recovery uptrend has been broken. The move below 1.1255 now opens the key higher low at 1.1060. This will be a volatile session with the Bank of England set to hike later. Initial resistance is at 1.1420/1.1440.
- AUD/USD has been volatile as all major pairs have been, but the big shift into the USD has weighed decisively on AUD/USD. A breach of the support band at 0.6345/0.6390 has turned the outlook decisively corrective again. With the daily RSI deteriorating sharply under 50 but with further downside potential, a move to retest the lows at 0.6170/0.6210 could now be seen. The old pivot 0.6345/0.6390 band will now be seen as a basis of resistance.
Commodities: Precious metals have fallen over once more. Oil is edging lower following yesterday’s breakout.
- Gold has once more seen a rally fail and the market has turned sharply lower. With a break under $1630 this morning and RSI falling into the 30s, there is downside potential for a test of the key support band $1615/$1617. Resistance is strengthening at $1660/$1670 which is underneath the bigger resistance band of $1680/$1690. Below $1615 is two-and-a-half-year lows and opens the way towards the mid-$1550/$1560.
- Silver continues the elevated volatility of the past couple of weeks. Big daily swings higher and lower continue to be seen above the support band $18.78/$19.05. The latest move is back lower from the Fed, but how the market reacts now to the support band will be an important indication. In the past two weeks, several tests have resulted in intraday buying into the close. If this changes, then moves toward the low $18s could be seen. Resistance is above $20 now.
- Brent Crude oil posted a second positive daily candle in a row as the market has been putting pressure on the resistance around $97.60/$97.80. A close above would bring the early October high at $99.50 into view. Today’s early slip lower could be an opportunity now as momentum retains a mild positive bias with the daily RSI above 50. This suggests near-term weakness is being used as a chance to buy. Support at $93.40 is now a higher low.
Indices: Wall Street has fallen sharply to lose the positive outlook of the recovery. European markets are also being dragged lower.
- S&P 500 futures have fallen sharply on the FOMC decision to break the three-week uptrend. Reaction to the key higher low at 3757 is now crucial. It is under considerable threat today and a decisive close below would end the recovery. It would begin to form a new negative trend. The buyers need to respond by pulling the market above 3820 to re-engage the positive outlook.
- German DAX has turned decisively lower as equities have sold off since the Fed meeting. The sharp three-week uptrend has been broken. The key now is how traders react to gains. If an initial intraday tick higher is just seen as a chance to sell, then the risk is that selling momentum begins to take hold once more. Reaction to initial support at 13000/13030 will also be a gauge as a breakdown would complete an intraday top pattern.
- FTSE 100 reacted lower to the Fed meeting but the selling pressure is yet to decisively take hold. The three-week uptrend has been tested but is not yet broken. Having pulled back from 7228 in the past couple of days, an intraday rebound is back around the 7105/7128 old pivot band. Closing decisively back above this would be an encouraging signal. Initial support is at 7078.
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