What we are looking for
- USD continues to fall: The risk rally is evident as USD has been sliding lower across major forex. The flash PMIs will elevate volatility around this move but are likely to sustain the existing trends.
- Indices mixed to slightly higher: A strong close on Wall Street (led by the rally in big tech stocks) has settled overnight. Although European indices are broadly trading higher, US futures are consolidating yesterday’s gains.
- Commodities looking to sustain rallies: Precious metals are trading higher, whilst oil is just consolidating yesterday’s move to multi-week highs.
- Data traders: GBP traders will be looking for the UK Flash PMIs, with USD traders watching for the US flash PMIs.
The rally in risk assets continues to build. The USD, seen as a safe haven, has fallen away, whilst pro-cyclical currencies such as the AUD trend decisively higher. Amid the weakness in the USD, there is also a continued recovery in the gold price, whilst oil has also broken out to a seven-week high. Equity markets are also reflecting the move. Strong subscriber numbers for Netflix appeared to fuel the fires of recovery in the high-growth NASDAQ on Friday. This has continued into the new trading week, with more tech earnings hotly anticipated in the coming days. This positive sentiment is helping to lead US equities to also break higher. With the Fed into its blackout period ahead of the FOMC meeting next week, there may be little to drive any real retracement to these moves.
However, the flash PMIs will be key on the economic calendar today. The UK flash Composite PMI are expected to improve slightly, driven by a pick-up in manufacturing. Although it is still expected to be below 50 and in contraction. The US flash Composite PMI is expected to only improve a shade, and remain in solid contraction around 45. The Richmond Fed Manufacturing Index is expected to improve slightly but also remain just in positive territory.
Market sentiment remains positive: USD weaknening across major forex, with metals prices higher.
US Treasury yields are consolidating early today: After rebounding over the past couple of sessions, yields are steady this morning.
Australian flash PMIs improve: The Composite PMI picked up to 48.2 in January (from 47.5 in December). It was driven by an improvement in services and was better than expected..
Japanese flash PMI moves back above 50: The Composite PMI has improved to 50.8 in January (from 49.7 in December). This was better than markets had forecast.
Eurozone flash PMIs back above 50: The flash Composite PMI has improved to 50.2 in January ( expected to improve slightly to 49.8), up from 49.3 in December.
Cryptocurrencies have rebounded once more: Crypto rallied yesterday and is looking to build support for the move today. Bitcoin is +0.3% at $23050, with Ethereum +0.2% at $1635.
Federal Reserve is in its “blackout period”: There will be no Fed speakers until after the meeting on Wednesday 1st February.
Major Economic Data:
- UK Flash PMIs (at 09:30 GMT) The Composite PMI is forecast to improve slightly to 49.3 (from 49.0)
- US Flash PMIs (at 14:45 GMT) The Composite PMI is expected to improve marginally to 45.1 (from 45.0)
- Richmond Fed Manufacturing (at 15:00 GMT) The index is forecast to improve slightly to +3 (from +1 in December)
Major markets outlook
Forex: USD continues to trend lower, whilst AUD looks strong.
- EUR/USD is still straining to break decisively clear of the resistance from last week at 1.0887. An initial breakout yesterday could not be sustained into the close, but the market is consolidating potentially for another attempt. Yesterday’s peak of 1.0926 is a nine-month high before the next resistance at 1.0935, the late April 2022 high. We still look to buy weakness in the uptrend channel, with the psychological 1.1000 level coming closer. Momentum is strong with the RSI into the high 60s Initial breakout support is 1.0860/1.0887 with 1.0765 a key higher low.
- GBP/USD has continued to push on the resistance at 1.2445. A “spinning top” candlestick is a slight warning from yesterday but the market is holding ground today and a test of the resistance is still on. Momentum remains positive with the daily RSI in the mid-60s, so still has upside potential. A close above 1.2445 opens 1.2600/1.2660. There is initial support growing between 1.2290/1.2335 with any supported weakness in this area seen as a chance for renewed upside.
- USD/JPY is once more trading around the resistance of the three-month downtrend and the falling 21-day moving average (c. 130.92). Throughout the move lower the old levels of support have consistently become new levels of resistance. As the pair has fallen back from yesterday’s high of 130.90, the prospect of another bull failure is there. Reaction to initial support at 129.05 will be telling now. The spike high of 131.57 (on the BoJ decision) is key resistance. The daily RSI remains negatively configured and has failed consistently around 40/45 in recent months. This still suggests selling into strength for a test of the low at 127.22 in due course.
Commodities: Gold is breaking out, along with oil. Silver remains stuck in a range.
- Gold has once more rallied from another higher low to push through resistance at $1937 for the highest level since April. Momentum remains strong with the RSI fluctuating around 70 but any near-term profit-taking is short-lived. The uptrend is a good basis for support (currently $1880) for any decisive correction, with the 21-day moving average also just below. The initial higher low is at $1896 just above the $1880/$1890 old pivot area of support. We continue to favour buying into near-term weakness. The next resistance is $1957 and then the key resistance at $1998.
- Silver has struggled in recent weeks. The price is stuck in a trading range and there is a growing threat of a downside break. Yesterday’s spike down to $22.75 could not sustain a breach of the one-month consolidation rectangle between $23.11/$24.55. However, having lost upside momentum with the RSI dropping below 50 we are cautious of the outlook amid this consolidation although for now we are happy to play the range.
- Brent Crude oil has continued to post positive closes and move clear of the resistance at $86.75 to test the late November lower high of $90.00. Momentum is increasingly positive, with the RSI into the 60s, there is an appetite to buy into weakness. The previous breakout at $86.75 is now a basis of support initially, whilst the higher low at $83.65 is key support.
Indices: Wall Street is gaining upside momentum although European indices are looking more cautious.
- S&P 500 futures have rebounded strongly from the support of the medium-term pivot area between 3912/3945 and are now looking to break clear of 4035 resistance to test the November/December highs of 4105/4140. This will be a key test of how bullish the market is now, as over the past few months, each time the RSI has moved towards 60 the rallies have lost momentum and a medium-term range has formed. However, the long-term downtrend has been broken and the outlook is more encouraging now. The support at 3901 is now a key higher low.
- German DAX has ticked back higher from the 14910 low of last Thursday but the move is just stalling slightly this morning. The faltering RSI momenutm is lending a sense of caution but we continue to see weakness as a chance to buy. Holding on to the support of the breakouts between 14604/14810 is helping to develop the strength of the outlook. The resistance at 15275 needs to be overcome to drive the next bull run higher.
- FTSE 100 has eased back this morning as the near-term correction threatens to gather pace once more. The initial support at 7731 will be watched but the more considerable support comes with the breakout of all the old highs between 7635/7695. We look to use supported weakness as a chance to buy. Falling over this morning has left 7818 as initial resistance under the January high of 7844, and just shy of a test of the all-time high of 7903.
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