What we are looking for
- USD is looking to continue a recovery: After sharp recent selling, the USD rebounded against major forex yesterday. The move has become less decisive this morning but a slight USD positive bias remains.
- Indices still looking cautious: Equity markets fell yesterday, especially on Wall Street. US futures are ticking higher today but the move is tentative. European indices are lower, playing catch up on the weak close last night on Wall Street.
- Commodities find support: Huge recent gains on precious metals saw a retracement yesterday.
- Crypto tries to recover: Massive selling pressure over the past two days is looking more stable today with an attempt to recover. We are cautious of a dead cat bounce.
- Data traders: USD traders will be entirely focused on US CPI today. Upside surprises have previously driven USD strength. With the consensus looking for declines on both core and headline, the question is whether the USD can hold up if there is a dip.
The turmoil that has arisen in the world of cryptocurrencies has been finding contagion leaking into major markets. Huge selling pressure on cryptocurrencies such as Bitcoin and Ethereum has come amid the collapse of crypto exchange ETX. The negative sentiment helped to lend the USD some support and weighed on commodities (although the gold price held up well). Crypto has found a degree of support this morning but remains volatile and this continued to lend a sense of risk aversion to broad sentiment.
US inflation is the key risk even for the economic calendar. US CPI is the key data for the whole week. Headline and core CPI are expected to dip slightly in October. Previous months have come in above expectations and have driven renewed USD strength. It will be interesting to see if USD can hold up so well if inflation does begin to fall on both core and headline. Weekly jobless claims have picked up again in recent weeks. This is beginning to reflect a slight easing of tight labour market conditions.
Market sentiment remains slightly negative: The negative risk appetite that has come in from the meltdown in crypto is still hanging around this morning.
Treasury yields fell yesterday and are holding lower: Yields have turned lower amid the risk aversion.
US midterms outcome still uncertain: The Republicans are edging towards control of the House of Representatives, as expected. Although they did not achieve the numbers predicted, suggesting a “red wave” did not materialise. However, there are Senate seats are still to be decided, with the current tally at 48:48. The races in Arizona (leaning Democrat), Georgia, Nevada (a toss-up) and Alaska are yet to be declared. Georgia will go to a run-off in December after neither candidate reached the required 50% threshold.
Binance pulls out of a deal to rescue FTX client base: After doing its due diligence, Binance has chosen not to push ahead with a rescue of FTX, amid reports of mishandling of client funds.
Cryptocurrencies rebound: After massive declines on Tuesday and Wednesday, cryptos are rebounding today. Bitcoin fell -10% on Tuesday and another -16% on Wednesday. The price has rebounded by +6% early today back up to $16700. Ethereum has fallen by -30% in two days but is bouncing by +7% this morning to $1185.
Five Fed speakers due today: Scheduled for after the US CPI data there are as many as five FOMC members giving speeches. Patrick Harker (2023 voter, hawkish) speaks at 14:00 GMT. Lorie Logan (2023 voter, leans slightly hawkish) speaks at 14:35 GMT. Loretta Mester (2022 voter, hawkish) speaks at 17:30 GMT. Esther George (2022 voter, centrist) speaks at 18:30 GMT. Finally, John Williams (permanent voter, slightly hawkish) speaks at 23:35 GMT.
- US CPI (at 13:30 GMT). Headline CPI is expected to fall slightly to 8.0% in October (from 8.2% in September). Core CPI is expected to fall to 6.5% (from 6.6%)
- US Weekly Jobless Claims (at 13:30 GMT). Claims are expected to increase to 220,000 jobs (from 217,000 jobs in the previous week).
Major markets outlook
Broad outlook: There is a sense of consolidation but with a slight bias towards USD strength amid negative risk appetite.
Forex: Mild outperformance on the USD today, however after sharp selling pressure on GBP yesterday it is rebounding.
- EUR/USD the huge swing higher has unwound towards parity. The band of support is around 0.9970 and parity will be an initial gauge and a drift back below this would bring a pivot band at 0.9865/0.9900 back into play. Resistance is strengthening around 1.0095.
- GBP/USD has unwound back from the seven-month downtrend and has moved back below the 1.1380 support. With the RSI around 50 and trading around a mixed set of moving averages, there is a neutral configuration to the technicals with the market at a key crossroads. The key October reaction high at 1.1645 is the big barrier. The higher low at 1.1145 is key.
- AUD/USD has pulled back from the three-month downtrend and the key price resistance band around 0.6520/0.6545. The RSI momentum continues to oscillate around 50, pulling this morning just below. The reaction to the higher low at 0.6270 is key.
Commodities: Precious metals are just easing back slightly after huge recent gains. Oil has fallen decisively to break the recovery trend.
- Gold has just eased back after a huge breakout through the key medium-term resistance of $1670/$1690. Having also broken a six-month downtrend and moved decisively above the 55-day moving average has improved the outlook significantly. The market has just eased back from $1722 which is under the crucial resistance at $1735. Holding above $1780/$1790 will be key now.
- Silver has pulled back following the move through the top of the medium-term trading range at $21.23 to a three-month high. Resistance at $21.62 has been left. As the price has just unwound the bulls need to build support around the breakout to validate and sustain the recovery. This means forming support between $20.85/$21.25 would be positive. Under $20.85 the support is $20.37.
- Brent Crude oil has fallen sharply in the past two sessions to break the six-week recovery uptrend. The market has continued to fall early today and a close below the higher low at $93.40 would be a key change in outlook. It would be the first break of an important higher low and suggest a changing trend. Initial resistance is now at $96.00.
Indices: Wall Street is increasingly rangebound. The DAX is consolidating higher, with FTSE quietening in consolidation.
- S&P 500 futures have tempered the recovery with a pullback yesterday. The market remains restricted by a three-month downtrend with the resistance between 3883/3935 being the crucial test for the bulls. There is a ranging feel to the daily RSI (between 45/60 for the past four weeks). Holding on to support at 3705 is key to holding up the range.
- German DAX has continued to use weakness as a chance to buy with the continuation of the one-month uptrend recovery momentum is strong with the RSI in the high 60s. There is good initial support at 13390/13440. The August high of 13971 is the next big upside test.
- FTSE 100 continues to consolidate with the bull run on pause. This remains a pullback within a near four-week uptrend. With the RSI still solidly above 50, holding near-term support between 7179/7228 will help to maintain the improving outlook. Initial resistance is at 7383.
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