What we are looking for
- USD falling back: The USD has fallen across major forex pairs, with pro-cyclical currencies especially strong.
- Indices continue to rally: After falling into the close last night, US futures are trading higher today, helping European indices to a risk-positive open.
- Commodities are mixed: Metals are moving decisively higher, however, oil is being weighed down again.
- Data traders: The focus for USD traders will be on the ISM data. The JOLTs labour data is announced at the same time. The FOMC minutes will also be watched at 19:00 GMT.
There has been a mixed start to the year, especially for the USD. A decisive strengthening move developed yesterday as traders reacted to the much lower-than-expected German inflation (this significantly weighed on the EUR and played out across major forex). However, there is a risk positive bias that is taking hold in markets early in 2023. Traders are positioning for the China re-opening story, driving pro-cyclical currencies such as the AUD and NZD higher this morning. Furthermore, there has been a reaction to the significant decline in European energy costs (natural gas), driving the recovery in European indices.
There is a key US focus on the economic calendar. The US JOLTs data is expected to show Job Openings falling slightly to 10m, whilst the Quits are expected to only reduce slightly to a shade above 4m. The ISM Services data is the key focus for traders, with an expectation that a further slide into contraction. Keen-eyed traders may also like to watch for movements in the ISM New Orders and ISM Employment components (which remain in mild contraction), in addition to the sharp deceleration in the Prices Paid. Later in the session, the FOMC minutes of the December meeting will be released.
Market sentiment is positive: USD is falling, with pro-cyclical major currencies outperforming. Metals are higher and equities are rallying.
Treasury yields are falling again: There has been a sharp move lower in Treasury yields (especially at the longer end) as US bond markets have returned following the new year. The 10yr yield is another -12bps lower from yesterday’s close, with the 2yr yield -8bps.
US Congress fails to vote in a leader: The US House of Representatives has failed to vote in a leader as divisions amongst the Republicans have surfaced early. This is the first time this has happened in almost a century. The House will reconvene today to try again.
Eurozone final Composite PMI revised higher: The final Composite was 49.3 (up from the 48.8 flash).
Swiss inflation falls: The headline CPI rate has fallen to 2.8% in December (from 3.0% in November). This was lower than the 2.9% consensus.
Cryptocurrencies rebound strongly: The early signs in 2023 are that crypto will continue to move with risk appetite. Bitcoin has rallied by +1% to $16840 with Ethereum +3.2% at
- US JOLTs Job Openings - (at 15:00 GMT) Job openings are expected to fall to 10.0m in November (from 10.334m in October).
- ISM Manufacturing (at 15:00 GMT) The ISM is expected to fall slightly to 48.5 in December (from 49.0 in November)
- FOMC meeting minutes (at 19:00 GMT)
Major markets outlook
Forex: In a complete reversal from yesterday, the USD is sharply weakening. AUD and NZD are the big outperformers.
- EUR/USD bulls have had a warning shot across the bows. Yesterday’s sharp downside move broke a mini one-month uptrend and initial support at 1.0570. The move has rebounded off 1.0520 (to form a new two-month uptrend) but the reaction to this rebound will be important now. If the move can sustain back above 1.0570 then the bigger support band between 1.0440/1.0495 would be protected. The RSI has dropped sharply and is at a two-month low (although still just above 50). This is a big moment as the recovery momentum is being questioned. A break back above the initial resistance at 1.0610/1.0650 is needed to continue the move higher.
- GBP/USD has been drifting lower in recent weeks but yesterday’s downside held on to the initial important higher low at 1.1900. As the 21-day moving average rolls over this is a deteriorating outlook, with resistance building between 1.2085/1.2125. Another bull failure here would again increase pressure on 1.1900, below which also completes a top pattern.
- USD/JPY continues to trend decisively lower and is finding resistance around old key supports. The initial break of support at 130.40 yesterday could not hold, but the market is lower again this morning. With near and medium-term trends lower, along with moving averages and momentum negatively configured, rallies still look to be a chance to sell. Initial resistance is building at 131.40/131.50 with strong resistance at 133.60/134.50. A close below 129.50 opens 126.35 as the next support.
Commodities: Precious metals continue to move higher. A recovery in oil has turned sharply lower.
- Gold is accelerating higher as it continues to post higher lows and higher highs. A closing breakout above $1824/$1833 resistance opens a test of $1879 the next resistance. However, the market is beginning to look a little stretched again (especially on the four-hour chart). This may result in a near-term pullback into support, with weakness being a chance to buy. The breakout support is $1824/$1833 with an eight-week uptrend and the rising 21-day moving average (c. $1802) being a good basis of support.
- Silver is a little more constrained than gold but is still looking positively configured. The strength of the uptrend suggests that near-term weakness remains a chance to buy. A close above $24.29 would confirm the breakout to an 8-month high Support at $23.37/$23.51 is growing. The next important resistance is $26.20.
- Brent Crude oil has had a sharp downturn as a “bearish engulfing” candle has scuppered the recovery. The move has broken the recovery uptrend and a close below support at $81.40 turns the market corrective again. A move below $78.25 would re-open the recent low at $75.50. Resistance at $86.75 is now key.
Indices: US markets are lagging a considerable European rally.
- S&P 500 futures have failed to ignite higher early in 2023. Another rejection of the resistance at 3912 leaves the market with a neutral configuration. A tick higher this morning is a minor improvement, but the reaction to the resistance at 3912/3945 will continue to define the outlook. Holding the support at 3788/3805 means this is a neutral outlook.
- German DAX has decisively ended a period of choppy consolidation over Christmas to break decisively back above the resistance band 14125/14195. With the RSI momentum confirming the improvement with a move above 50, there is a positive bias once more. This now suggests a move towards a test of the highs between 14605/14680 could now be seen. Furthermore, the 14125/14195 old resistance will now become a gauge of new support.
- FTSE 100 has started 2023 on the front foot. A strong positive session yesterday leaves a positive bias within what is now a trading range between 7305/7635. However, the rejection at 7635 yesterday has added to the importance of this resistance. The RSI holding above 60 would point towards mounting upside pressure. Support at 7421 is growing in importance.
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