What we are looking for
- USD is weakening again: With a broad risk appetite positive, the USD is under further pressure on major forex. Only the JPY is a worse performer.
- EUR is performing strongly: Klaas Knot said “Expect us to raise rates by +0.5% in February and March”.
- Indices are supported: European indices are positive after a strong close on Wall Street on Friday. US futures are holding ground.
- Commodities are slipping lower: There is a slight decline in commodities with metals around -0.5% lower and oil similarly weakening.
- Data traders: EUR traders will be looking out for the expectation of a continued improvement in Eurozone Consumer Confidence.
The ECB is pushing back against what had been suggestions of a slowing down of monetary policy tightening. Over the weekend, Klaas Knot, the ECB Council member for The Netherlands put forward a hawkish interview. He said that markets should “expect us to raise rates by +0.50% in February and March”. However, he also went on to add “and expect us to not be done by then and that more steps will follow in May and June”. Now, it is important to remember that Knot is probably the most hawkish member of the Governing Council, but these are still fairly forthright comments.
The EUR has been boosted by this on Monday morning. It is outperforming major forex, breaking to a nine-month high versus the USD. Elsewhere, the JPY is underperforming after a dovish set of minutes from the recent Bank of Japan monetary policy meeting. The USD is also a laggard as broad risk appetite remains positive through forex and equities.
The only important data of note on the economic calendar is the flash Eurozone Consumer Confidence. Confidence has improved for the past three months and is expected to continue this trend is improvement. If the expectation of -17 is hit this would be the highest confidence reasing in 11 months.
Market sentiment remains positive: USD and JPY are underperforming. EUR is positive with AUD also higher, whilst European equities are also stronger.
US Treasury yields are consolidating: Treasury yields bounced on Friday but are consolidating early on Monday.
EUR driven higher by ECB’s Knot hawkish interview: The interview on Sunday talked has put to bed the prospect of a smaller 25bps hike in February. Markets will position for 50bps hikes in the next two meetings at least now.
Dovish Bank of Japan minutes hit JPY: The minutes claim that the move to adjust the Yield Curve Control (YCC) was aimed at dysfunction in the bond market rather than as the start of interest rate tightening. JPY has fallen.
US tech sector bounce: Strong subscriber numbers for Netflix drove the NASDAQ higher on Friday.
Cryptocurrencies mixed to higher: After a weekend of choppy moves, Bitcoin emerged on Monday trading around +2% higher, c. $22750, compared to Friday’s close. Ethereum is flat at $1637.
Federal Reserve is into its “blackout period”: There will be no Fed speakers now until after the meeting on Wednesday 1st February.
Major Economic Data:
- Eurozone Consumer Confidence - flash (at 15:00 GMT) Confidence is expected to improve in January to -17.0 (from -22.2 in December)
Major markets outlook
Forex: EUR is breaking higher again. JPY and USD are the main underperformers.
- EUR/USD has built strongly from the support of the old 1.0785 May 2022 high and with some positive candles in recent sessions, this morning has broken above 1.0887 resistance. This is now a nine-month high and continues the uptrend channel rally. The next resistance is 1.0935, the late April 2022 high, with the psychological 1.1000 level coming closer. Momentum is strong with the RSI into the high 60s and we would favour buying into supported weakness. Initial breakout support is 1.0860/1.0887 with 1.0765 a key higher low.
- GBP/USD has continued to drift higher and is looking to push above the resistance at 1.2445. Momentum is 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 1.2240/1.2310 with any supported weakness in this area seen as a chance for renewed upside.
- USD/JPY is unwinding again back towards the resistance of the three-month downtrend and the falling 21-day moving average (c. 131.00). Throughout the move lower the old levels of support have consistently become new levels of resistance. This leaves 129.50/130.60 as overhead supply as the market has rebounded in the past couple of sessions. 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: Metals and oil are just easing back from recent strong moves.
- Gold rallied through the $1929 resistance late last week but has just eased back slightly since. This comes with the RSI still fluctuating around 70 which could induce some near-term profit-taking. The uptrend is a good basis for support (currently $1875) 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 above $1937 is $1957 and then the key resistance at $1998.
- Silver rebounded from the lows of a one-month consolidation rectangle between $23.11/$24.55 but has once more lost upside momentum for a potential breakout. As the price has dropped back again this morning, once more it is mid-range. The RSI is drifting back towards 50 again and is reflecting the consolidation. However, given the appetite to buy into weakness since October we still favour a test of the high and likely breakout, just.
- Brent Crude oil has been posting a series of positive daily candles in recent weeks. Any negative sessions are being seen as a chance to buy. Another two strong positive candles to close out last week have seen Brent Crude trading at its highest level since. Early December. The key now is to hold the breakout. There is an initial consolidation this morning but momentum is encouragingly confirming the break higher. Weakness is a chance to buy whilst the support at $83.65 remains intact. A break above $90.00 would be the key upside move.
Indices: Equities are consolidating Friday’s gains.
- S&P 500 futures have rebounded strongly from the support of the medium-term pivot area between 3912/3945. This comes with the RSI again above 50 and leading to a small positive bias within what is still a medium-term consolidation range. However, the long-term downtrend is once more being tested and the appetite to support weakness is encouraging. A move above the resistance at 4035 would be a bullish move now. It would also leave the support at 3901 as a key higher low.
- German DAX has been losing upside momentum in recent sessions but has reacted well from the 14910 low of Thursday. Holding on to the support of the breakouts between 14604/14810 will help to develop the sense that weakness remains a chance to buy as the RSI unwinds. The resistance is at 15275 and needs to be overcome to drive the next bull run higher.
- FTSE 100 has looked to build some initial support which has restricted the near-term correction. Picking up from 7731 is encouraging but there is a sense of consolidation rather than renewed buying yet. Despite this, the consolidation remains above the good support from the breakout of all the old highs between 7635/7695. Key resistance has been left at 7844, just shy of a test of the all-time high of 7903.
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.
All trading carries risk.