What we are looking for
- USD selling continues: The USD has been smashed against major forex since Fed Chair Powell’s less hawkish speech earlier this week. The trend of correction is set, ahead of the payrolls report this morning.
- Indices ease back slightly: There has been a stalling of the recovery trends in the past day or so. US futures are unwinding slightly this morning and European indices too. Is this an early sign of fatigue in the strong uptrends?
- Commodities pause too: Metals have shot higher in the past couple of sessions, but are just consolidating today. The same is true of a rebound in oil.
- Data traders: US Nonfarm Payrolls will be key across major markets, but especially USD. A strong payrolls report would be USD positive. CAD traders will also be watching Canadian Unemployment for any surprises.
Markets have made a decisive move in the wake of Fed Chair Powell’s less hawkish speech on Wednesday. With another leg lower on both US Treasury yields and the USD, markets are seemingly taking a view that the Fed is on a pivot. Treasury yields have formed top patterns, with the US 10-year yield around 3.5% and over -80bps below the October peak. The USD is also breaking supports and with the US Dollar Index below 105 it is almost -9% off its September highs.
We come into the Nonfarm Payrolls report with decisive trends, however, they are also beginning to look near-term stretched. Inflation data from the US has peaked and it would take an extremely strong payrolls report to shift the narrative for markets. However, with payrolls expected at 200,000 anything more than 50,000 above could induce a near-term USD rebound. However, Wednesday’s ADP Employment change falling to 127,000 does not bode well for today’s payrolls. The USD correction trend is likely to prevail.
US Employment Situation report is key for the economic calendar today. The headline Nonfarm Payrolls growth is expected to reduce to 200,000 which is a rate that suggests the labour market is barely growing. Also, look out for the unemployment rate (expected to hold steady) and wages (expected to drop slightly). Canadian Unemployment is expected to increase slightly.
Market sentiment is consolidating ahead of payrolls: There is a continued edge of USD selling pressure still, but elsewhere markets are fairly settled. Commodities are a shade lower along with equities.
Treasury yields consolidate recent downside: The US 10-year yield fell another -18bps yesterday but is flat today.
China is planning a vaccination campaign: In an attempt to be able to ease COVID restrictions, the government is planning a vaccination campaign for elderly people in the next couple of months.
Cryptocurrencies disappoint in recovery: Amid the big USD correction and commodities rally, cryptos were disappointing yesterday with mild losses. They are consolidating today with Bitcoin +0.3% at $16970 and Ethereum +0.1% at $1277.
One Fed speaker today: Charles Evans (2023 voter but also set to retire early next year, leans dovish) is set to speak at 15:15 GMT.
Goolsbee to replace Evans on the FOMC: The Chicago Fed has announced that Austan Goolsbee will replace Charles Evans in 2023.
- US Nonfarm Payrolls (at 13:30 GMT). Headline jobs growth is expected to fall to 200,000 in November (from 261,000 in October)
- US Unemployment (at 13:30 GMT). The jobless rate is expected to remain at 3.7%
- US Average Hourly Earnings (at 13:30 GMT). Wage growth is expected to reduce slightly to 4.6% (from 4.7%)
- Canadian Unemployment (at 13:30 GMT). The jobless rate is forecast to increase slightly to 5.3% from 5.2% in October.
Major markets outlook
Broad outlook: Markets are slightly mixed but mostly consolidating ahead of payrolls.
Forex: USD weakness continues (especially versus JPY). NZD strength also continues.
- EUR/USD has accelerated higher in the past few sessions and has completed a breakout above 1.0480/1.0496 resistance. This opens the next leg higher towards 1.0615. Momentum remains strong but with the RSI now pushing towards 70 this may begin to restrict upside potential. We would prefer to use the weakness in EUR/USD as a chance to buy. Initial support is at 1.0395/1.0495, with 1.0290 now a key higher low.
- GBP/USD has rebounded decisively from 1.1900 breaking through the 1.2150 resistance to test the August highs at 1.2295. With RSI momentum in the high 60s and the strongest since January, the outlook remains positive and near-term weakness is a chance to buy. There is initial support between 1.2030/1.2150. A decisive move above 1.2295 opens 1.2665 as the next key resistance.
- AUD/USD has pulled strongly higher to break the 0.6797 resistance and open a test of the next resistance at 0.6915. Momentum remains strong with the RSI positively configured, consistently above 50 and moving now into the 60s. This suggests that near-term weakness is a chance to buy. There is initial support around 0.6730/0.6780 with 0.6585/0.6640 the more important support.
Commodities: Precious metals remain strong. Oil has rallied but is stumbling around important resistance.
- Gold has accelerated through important resistance throughout this week. The latest break above $1786 has opened a test of the August high of $1808. The market is consolidating slightly this morning ahead of payrolls and with the RSI around 70, there is a risk of a near-term unwind. However, we would still see near-term weakness as a chance to buy. There is initial support around the $1767/$1786 breakout. Above $1808 is the $1844 implied target of the base pattern.
- Silver has broken out above the $22.51 key resistance to continue the rally. The next resistance is $23.25 and then $23.95. However, with the RSI momentum around 70, it is looking slightly stretched. We would look to use any unwinding move as a chance to buy. There is initial support now at $22.25/$22.50.
- Brent Crude oil has continued to rally in recent sessions however a failure at $89.95 has come in the resistance band of $88.30/$90.40 and the four-week downtrend. The RSI has unwound into the 40s and this faltering rally could be another chance to sell. This is an important test now. Initial support is at $84.25.
Indices: The recovery is just beginning to stall slightly.
- S&P 500 futures rallied strongly bursting through the resistance at 4050 and testing the primary downtrend. However, it is stalling just under the 4145 September high. 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 eyeing 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. However, there is a warning signal growing, 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 pulled back from 7635 just shy of a test of the key May highs at 7650. Momentum has pulled back with the RSI under 70. This unwind is testing the recovery uptrend but breakout support around 7513 is intact, for now.
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