What we are looking for
- USD pulling back lost ground: The USD has had a sharp correction in recent sessions, but there is a minor rebound against major forex this morning. This comes ahead of the ECB and US Advance GDP.
- Indices consolidate: After further gains yesterday, markets have been consolidating overnight and into the European session today. US futures are a shade positive with European indices mixed.
- Commodities unwind recent gains: Cautious sentiment is weighing on commodities. After strong gains yesterday, precious metals are lower with silver being the main drag. Oil has pulled back from yesterday’s gains.
- Data traders: EUR traders will be on alert for elevated volatility with today’s ECB meeting. USD positions will also be impacted by US Advance GDP. It could be an action-packed start to the US session.
Major markets have significantly re-priced in recent days on the back of positioning for a Fed pivot. The Bank of Canada became the second major central bank to hike less than expected (after the RBA) and cited concerns over the economic impact of tightening too hard. This further plays into the view that the Fed might be setting up for a pivot. However, this morning, all focus is on today’s ECB meeting. A hike of 75bps is not in question, but issues of excess liquidity in the banking sector and the prospect of quantitative tightening will be debatable. The US Advance GDP will add further volatility to the mix later.
Markets are looking more cautious this morning. This is reflected in falling commodity prices and the stalling of the equity markets rally. In major forex, the risk negative bias is reflected in the further recovery of JPY, whilst USD corrective weakness has eased off slightly and USD is rebounding clawing back some prior losses. Markets seem to be getting ready for another afternoon of elevated volatility.
The ECB and US growth are key on the economic calendar today. The European Central Bank is expected to hike by 75 basis points across its rates corridor. This would mean the main refi rate at 2.00% and the deposit rate at 1.50%. It is likely to be too early for discussion over quantitative tightening. US Advance GDP is expected to rebound to +2.4% annualised in Q3. The final gauge of the Atlanta Fed’s GDPNow suggests it could be up at 3.1%. Elsewhere, jobless claims are expected to rise marginally in the past week, whilst durable goods orders are expected to have shown marginal month-on-month growth in September. However, coming at the same time as the GDP data any negative surprises could take the heat out of any USD positive reaction to the GDP.
Market sentiment turns slightly cautious: After such a strong risk recovery, this is coming ahead of the key risk events of the week. JPY and USD are outperforming major forex, with commodities lower and equity markets mixed.
Treasury yields tick back higher: After falling back to 4.00% yesterday (it hit 4.33% last Friday) the US 10-year yield has rebounded this morning but is around +6bps.
US futures choppy on Meta results: Meta (Facebook) missed on its earnings but beat expectations on revenue. However, the near-term “challenges” on revenue is driving volatility in moves which are likely to leak into moves on US futures.
Apple and Amazon results: Two of the mega-tech companies report earnings today.
Cryptocurrencies consolidate: After two days of big gains, crypto is consolidative this morning. Bitcoin is -0.2% at $20700, with Ethereum flat at $1554.
- European Central Bank monetary policy (at 12:15 GMT) The ECB is expected to increase the interest rate corridor by 75 basis points, with the main refinancing rate up to 2.00% (from 1.25%)
- US Advance GDP – Q3 (at 12:30 GMT) GDP is expected to increase to an annualised +2.4% (from -0.6% in Q2).
- US Weekly Jobless Claims (at 12:30 GMT) Claims are expected to increase slightly to 220,000 (from 214,000 in the previous week)
- US Durable Goods Orders – ex-transport (12:30 GMT) Adjusted orders are expected to be +0.2% MoM in September (after growing by +0.2% in August)
Major markets outlook
Broad outlook: Caution has taken hold ahead of the ECB meeting. With yields higher there is a move back towards the USD. Commodities are lower and equity markets mixed to lower.
Forex: The USD correction is seeing some near-term kickback this morning. The ECB will be a key risk event though.
- EUR/USD has seen a huge rally that has broken a nine-month downtrend, moved above the 55-day moving average and most importantly moved above the parity resistance. A slight unwind is being seen this morning, but how the market now reacts to weakness will be key. If the support around 0.9900/1.0000 can hold then it would be a key medium-term improvement. The next important resistance is around 1.0200.
- GBP/USD has broken decisively clear of 1.1380/1.1495 in a move that opens the way towards the next key resistance around 1.1750. Reaction to a pullback will be important now. If this old resistance becomes supportive it would be encouraging for further gains. Holding above 50 on the RSI also helps to improve.
- AUD/USD has broken decisively clear of the resistance band between 0.6345/0.6390. However, the move has pulled back from the resistance at 0.6530/0.6545 this morning and remains under the 10-week downtrend. Reaction to renewing selling pressure will be key now. There is good initial support now 0.6370/0.6410.
Commodities: A recovery in precious metals is stalling, but oil is struggling for traction.
- Gold picked yesterday after struggling for traction, but another consolidation this morning reflects very much of a stop-start rally. This continues to play out under the resistance between $1680/$1690 and also the primary downtrend. For now, this is still just a recovery within the downtrend but given how other major markets are breaking their downtrends, it needs to be watched. Support at $1638 is a higher low above the $1615/$1617 support.
- Silver has been uncertain in recent sessions with some wide sessions and long shadows on the candlesticks. However, even as the market just pulls back again early today there is still a positive bias to the near-term move higher. The four-hour chart shows a base pattern forming and a move back towards a test of $20.00 resistance is now on. Holding on to the near-term support between $18.80/$19.20 is key though.
- Brent Crude oil finally looks to be breaking the shackles and is looking to move higher again. A strong bull candle ended a run of indecisive candles and now looks to have formed a four-week uptrend. This comes with the daily RSI starting to move above 50. The neutral outlook is edging towards a positive bias, as resistance at $95.75 has been breached a decisive bull move would come above $99.50. Initial support is now $92.60/$94.80.
Indices: The positive momentum of Wall Street is just leaking away slightly. Reaction to weakness will be key.
- S&P 500 futures have broken decisively above resistance at 3820 to complete a double-bottom base pattern. This implies a recovery of around +250 ticks towards 4070. However, the move is beginning to stall slightly and yesterday’s candlestick close was well below the session high of 3897. Coming around a two-month downtrend and the old resistance is now at 3883/3935 a key moment. There is good support now between 3775/3820 to buy into the supported weakness.
- German DAX has unwound back to the big 10-month downtrend. The move is just stalling today. There is a positive bias to momentum and if the downtrend can be breached then it would open the way to test the September high of 13560. Initial support is at 13000 this morning, with stronger support in the 200 tick band between 12735/12935.
- FTSE 100 is bucking the trend today and whilst other markets are stalling, there is upside traction in a move above 7068 and towards a test of the resistance at 7106/7128. With the daily RSI now moving above 50, this is an improving chart now. A breakout above 7128 would be encouraging for further gains. Support is initially at 7020/7068.
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