What we are looking for
- USD hit by Powell: Selling pressure has moved through USD positions on major forex. The move is especially playing out through a strengthening of the JPY.
- Indices supported: There is a risk-positive bias this morning. US futures are only slightly higher but European markets are playing catch up on a strong Wall Street close.
- Commodities find support: Metals prices have especially benefited from the lower bond yields. Oil is also recovering.
- Data traders: It is a hectic day with a constant stream of data. GBP traders will need to watch for any revisions to Manufacturing PMI. EUR traders are unlikely to get too much from Eurozone Unemployment which is expected to be unchanged. USD traders will watch for any surprises in the core PCE, but ISM Manufacturing will be the most interesting. CAD traders will need to watch Canadian Manufacturing PMI.
Markets have reacted once more to the prospect that the Federal Reserve is about to take its foot off the accelerator. Fed Chair Powell has said that the Fed would be “slowing down” from the aggressive rate hikes (after four 75 basis points hikes in a row). He was also intent that they did not “overtighten”. However, there was also a warning that “cutting interest rates is not something we want to do soon”.
The impact of this on financial markets has been decisive. US Treasury yields fell sharply across the curve, whilst the USD weakened dramatically. This has proven to be supportive for risk appetite, with commodities (especially metals prices) jumping and a significant Wall Street rally into the close. The moves are being sustained this morning, with the JPY leading the charge in outperformance.
It is another busy day for the economic calendar with the manufacturing PMIs in focus. First up, the European data continues with the final UK Manufacturing PMI, however, it is not expected to see any revision, remaining in solid contraction at 46.2. Eurozone Unemployment is expected to be unchanged. Into the North American session, the Fed’s preferred inflation gauge, the core PCE is expected to fall slightly in October. Weekly Jobless Claims have been rising again recently but are expected on consensus to dip back slightly. Then for the PMIs, the Canadian Manufacturing PMI is expected to drop further into contraction at 48.0, whilst the US ISM Manufacturing is expected to move into mild contraction at 49.8. There will also be three Fed speakers to watch for in the session, with Logan, Bowman and Barr all scheduled.
Market sentiment has turned positive again: Falling US bond yields and a weakening USD are helping to strengthen risk appetite.
Treasury yields fall sharply: Yields fell sharply on the Powell speech yesterday. There is a slightly more settled feel this morning but they are still lower.
China Caixin Manufacturing PMI improves slightly: An improvement to 49.4 from 49.2 last month was better than the deterioration to 48.9 that had been forecast. This is helping to support risk appetite.
China slightly easing COVID restrictions: According to Bloomberg there has been a slight easing of some of the restrictions with some COVID patients allowed to isolate at home. This is adding to the supportive environment for risk appetite.
Eurozone final Manufacturing PMI revised a shade lower: The final November Manufacturing PMI has been revised slightly lower to 47.1 (from the flash of 47.3). This is higher than the 46.4 final manufacturing PMI in October.
Cryptocurrencies improve: After rallying decisively yesterday on the Powell speech (Bitcoin +4%) there is more of a settled feel this morning. Bitcoin is flat around $17100 with Ethereum dropping back slightly by -1% at $1280.
Three Fed speakers today: Lorie Logan (2023 voter, centrist) is first up at 14:25 GMT and worth watching as a broad gauge. Michelle Bowman (permanent voter, leans hawkish), speaking at 14:30 GMT. Finally, Michael Barr (permanent voter, centrist) is at 20:00 GMT.
- UK final Manufacturing PMI (at 09:30 GMT). Analysts are not expecting any revision to the PMI in November, remaining at 46.2 (final October was also 46.2)
- Eurozone Unemployment (at 10:00 GMT). The euro area jobless rate is expected to remain at 6.6% in October.
- US Core Personal Consumption Expenditure (at 13:30 GMT). The core PCE is expected to fall slightly to 5.0% (from 5.1% in September).
- US Weekly Jobless Claims (at 13:30 GMT). Claims are expected to fall slightly to 235,000 (from 240,000)
- Canadian Manufacturing PMI (at 14:30 GMT). The PMI is expected to fall slightly to 48.0 in November (from 48.8 in October).
- US ISM Manufacturing (at 15:00 GMT). The ISM is expected to fall slightly to 49.8 in November (from 50.2 in October).
Major markets outlook
Broad outlook: Risk appetite remains positive after Powell’s speech.
Forex: USD is decisively weaker again, with JPY especially strong and NZD also outperforming.
- EUR/USD has moved back sharply higher since last night. The big “Shooting Star” candle that left resistance at 1.0496 is still intact, but a bullish engulfing candle yesterday negates the corrective outlook. What is now needed is a breakout above 1.0480/1.0496 resistance. This would open the next leg higher towards 1.0615. Momentum remains strong with the RSI above 60 and we still see weakness in EUR/USD as a chance to buy. 1.0290 is now initial support above 1.0220.
- GBP/USD has rebounded decisively from 1.1900 and is looking to test the 1.2150 resistance again. With RSI momentum in the 60s and remaining around its strongest since January, the outlook remains positive. This continues to suggest near-term corrections remain a chance to buy. Above 1.2150, the next important resistance is the August high of 1.2295. The support between 1.1710/1.1780 remains key.
- AUD/USD has pulled sharply higher in the past 24 hours to break the 0.6797 resistance. A closing break would open a test of the next resistance at 0.6915. Momentum remains strong with the RSI positively configured, consistently above 50, suggesting near-term weakness is seen as a chance to buy. There is initial breakout support around 0.6750/0.6797 above the 0.6585/0.6640 bigger support.
Commodities: Precious metals have reacted strongly and are pushing higher. Oil is pushing up towards a test of important resistance.
- Gold has pulled decisively above $1764 to open the upside test of the $1786 reaction high. With the RSI rising in the mid-60s there is upside potential. We look to use any near-term weakness as a chance to buy. There is initial support around the $1764/$1767 breakout area, with $1740 a higher low above $1728. A move above $1786 opens $1808 as the next test.
- Silver posted a huge bull candle yesterday and has moved above the $22.24 resistance this morning. A minor pullback has come before the $22.51 key resistance has been tested. However, with the RSI momentum remaining decisively positively configured above 50 we look to use weakness as a chance to buy. Initial support is at $21.67.
- Brent Crude oil has picked up decisively in the past couple of sessions. The market is now testing the confluence resistance of the four-week downtrend and the pivot band of $88.30/$90.40. The RSI has unwound into the 40s, back around where previous bear rallies have faltered. This is an important test now. Initial support is at $84.25.
Indices: The recovery moves continue to be bought into weakness.
- S&P 500 futures rallied over 3% yesterday, bursting through the resistance at 4050 and testing the primary downtrend. The next resistance at 4145 (September high) is open but the market is just easing back slightly early today. The breakout at 4050 now becomes a basis of support. With the positive configuration of the RSI decisively above 50, weakness remains a chance to buy.
- German DAX continues to be bought into weakness and is pushing ever closer to a test of the crucial resistance band between 14700/14800. The recovery uptrend is supportive around 14350 today as the early gains just unwind slightly. There is a warning signal growing though, with the RSI beginning to show a bearish divergence with the price. This could be an early sign of a correction. Initial support is at 14322.
- FTSE 100 has accelerated higher in the past couple of sessions, moving decisively through the resistance at 7578 to test the key May highs at 7650. Momentum is beginning to look slightly stretched with the RSI over 70, and given the importance of overhead resistance, this may be close to some near-term profit taking. The six-week recovery uptrend is at 7510 today which is also around good breakout support.
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.