What we are looking for
- USD continues to regain ground: The strengthening of the past few days has been sustained in the wake of the FOMC minutes. Key levels are being eyed on major forex pairs.
- Indices continue to pull back: After falling yesterday, US futures are again lower today. European markets are holding up OK for now, but the threat of a near-term pullback is growing.
- Commodities are building corrective momentum: Decisive moves lower on precious metals yesterday have held this morning. Key support levels on gold and silver are approaching.
- Data trading: Data traders may not get too much out of the final Eurozone inflation, which is expected to be unrevised. The steady increase (and therefore deterioration) in the jobless claims are expected to continue. After the huge negative surprise in the NY Fed Manufacturing earlier in the week, the Philly Fed Manufacturing could cause a stir in risk appetite. Existing Home Sales should continue the trend of the housing market slowdown.
There is a growing bias towards supporting the USD once more. The move started over the weekend and has developed throughout this week, helped by a series of negative shocks in economic data from China and the Eurozone. However, even in the wake of the FOMC minutes which could be taken as holding a dovish lean, the USD is holding firm. This continues a cautious feel to commodities, whilst some cracks are starting to appear in the recovery on indices.
There is Final Eurozone inflation and some lower-tier US data on the economic calendar today. Final Eurozone HICP inflation is not expected to show any revision. Flash inflation increased by +0.3% on both core and headline measures. The US data starts with Weekly Jobless Claims which are expected to continue to increase. The Philly Fed Manufacturing survey is expected to improve although remains in negative territory. Since the New York Fed data dropped alarmingly earlier in the week, this will take on added interest. The Existing Home Sales are expected to follow other housing data and reflect the continued slowdown in the housing market.
Market sentiment remains cautious: There is no decisive trend formation yet, but a stronger dollar tends to come with less positive sentiment. A pullback on Wall Street is in its infancy but if it is not checked, it could turn into a more considerable retracement.
Treasury yields tick higher: Yields fluctuated during yesterday’s session, but there is a bias towards higher yields again.
FOMC minutes arguably reflect a dovish lean: “All” participants agreed to a +75bps hike. “Some” participants believed that interest rates would need to be sufficiently restrictive and stay there for some time. “Many” saw the risk that the Fed could tighten more than necessary. It is this last bit that suggests maybe a feeling that they do not want to push into the territory of over-tightening. It may mean lower peak rates.
Australian unemployment falls more than expected: Unemployment has fallen to 3.4% which was lower than the forecast of 3.5%. However, the Employment Change number fell and the participation rate fell unexpectedly to 66.4% (from 66.8%).
Cryptocurrencies continue to move lower: Bitcoin has now fallen in each of the past four sessions. The price is all but flat this morning at $23400.
Two Fed speakers to watch for: The FOMC’s Esther George (2022 voter, centrist) speaks at 17:20 GMT; whilst Neel Kashkari (2023 voter, now centrist) speaks at 17:45 GMT
- Eurozone Inflation - final (at 09:00 GMT) – No revision is expected to the flash July inflation of 8.9%, with core inflation expected to remain at 4.0%
- US Weekly Jobless Claims (at 12:30 GMT) – Claims are expected to increase to 265000 (from 262000 in the prior week)
- Philly Fed Manufacturing (at 12:30 GMT) – The survey is expected to improve slightly to -5 in August (from -12.3 in July)
- US Existing Home Sales (at 14:00 GMT) – Sales are expected to decline by -4.5% in July to 4.89m (from 5.12m in June)
Major markets outlook
Broad outlook: A USD positive and mild risk-negative bias continues. This is starting to weigh on indices.
Forex: USD is performing once more, with NZD again underperforming. There is little direction on forex away from USD pairs.
- EUR/USD held continues to firm support between 1.0095/1.0120 but there is little appetite to buy, for now. 1.0095 is the bottom of a month-long range, however, yesterday’s rebound has fallen over under the mid-range resistance band 1.0200/1.0250. With a corrective bias on the four-hour chart, it suggests that near-term strength is a chance to sell. This suggests pressure on 1.0095. A closing break under 1.0095 opens parity again.
- GBP/USD is mounting downside pressure on the support at 1.2000. The growing corrective bias forming on both daily and four-hour charts suggests that near-term strength is a chance to sell. The bull failure at 1.2142 has left a lower high. A close below 1.2000 opens 1.1890 and possibly 1.1760.
- AUD/USD has moved sharply lower to now breaching the recovery uptrend channel of the past five weeks. Seeing the RSI below 50 is a warning sign, but already there is a growing corrective configuration on the four-hour chart. Intraday rallies are increasingly seen as a chance to sell. A test of the support at 0.6860/0.6870 is increasingly likely. The initial resistance is 0.6990/0.7040.
Commodities: Precious metals continue to pull back, whilst oil is struggling to sustain any recovery momentum.
- Gold has posted a third negative session in a row and is now close to testing the key support of the higher low at $1754. With the daily RSI under 50 and the four-hour chart RSI in an increasingly corrective configuration, intraday rallies are being seen as a chance to sell. Initial resistance is $1771/$1783. Below $1754 the next support is $1739.
- Silver has posted another negative candle as the market has fallen towards a test of the key higher low at $19.54. The daily RSI dropping back below 50 suggests that corrective momentum is mounting, something that the four-hour chart also reflects. Resistance initially between $19.90/$20.27. Reaction to the key support at $19.54 will be an important gauge now.
- Brent Crude oil has picked up from yesterday’s low at $93.25 and is higher this morning. However, the move is unwinding into the resistance of overhead supply. There are several levels of resistance overhead, initially between $96.00/$97.90. The daily RSI is picking up from levels where previous sell-offs have rebounded for a couple of days, so we look to use any near-term strength as a chance to sell. There is key resistance at $102.90.
Indices: US futures are pulling back near term. This has weighed on European indices.
- S&P 500 futures have started to unwind some of the bull run. At the moment this is still within the five-week uptrend (today c. 4232). We watch to see how considerable the pullback becomes. There is a basic sell signal on the RSI (crossing back below 70) but for now the four-hour chart RSI is holding above 40/50 (where previous mini corrections have held). If this moves below 40 then it would suggest a deeper correction. There is good initial breakout support 4190/4230. Initial resistance is now 4327.
- German DAX has been following a trend higher over the past four weeks with weakness being bought into. However, yesterday’s strong negative candle has breached this uptrend. There have been instances of single session declines before the buyers have returned. Subsequently, reaction to early support today will be important. A close below 13600 would suggest mounting corrective momentum. . Initial resistance is now between 13730/13815 and this needs to be quickly recovered to get the bulls back in control.
- FTSE 100 fell decisively yesterday and is lower again today to test the four-week uptrend (which is around 7505 today). There is faltering momentum with the four-hour chart RSI threatening one-month lows. A break below the support at 7457 would drive growing corrective momentum. Initial resistance 7520/7548.
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