What we are looking for
- USD built support yesterday, today could be an important reaction: With the USD rebounding into the close last night there were signs of support forming. Could this be time for a technical rally for the USD on major forex? Today’s reaction could be an important gauge.
- Indices fall over but hold ground this morning: After a Wall Street sell-off into the close, US futures are a shade higher this morning. There is more of a mixed look to European indices which are playing catch-up to last night’s losses.
- Commodities tick back higher: After a sharp pull lower yesterday, precious metals and oil have found some support early today.
- Data traders: USD traders will be watching out for the US Trade Balance.
After trending in a recovery amid a USD correction over recent weeks, risk appetite has been jolted early this week. Following on from Friday’s positive Nonfarm Payrolls data, an upside surprise in the ISM Services PMI has driven a hawkish response on US bond markets. A move higher in yields has supported the dollar, but also hit risk appetite. It would seem that in front of the FOMC meeting, the good news is bad for trading sentiment once more.
There is a slight tempering of these moves this morning. Yields are a shade lower which has dragged the USD slightly weaker. US equity futures are higher with a positive slant to risk appetite. The Aussie is outperforming after the Reserve Bank of Australia rate hike. So it will be an important gauge in the coming days. Markets have responded initially to the positive US data. This has stalled the growing USD correction, for now. The next important data is the prelim Michigan Sentiment on Friday, but the US CPI early next week will be a key driver.
It is a quiet day for the economic calendar. The US Trade Balance is the only significant data of note. The trade deficit is expected to increase in October.
Market sentiment is looking shaky: After yields and the USD jumped yesterday, sentiment has looked shaky. This continues this morning.
Treasury yields are lower after yesterday’s gains: A strong rebound on yields yesterday has been tempered slightly as the 2s and 10s are around -2bps lower.
RBA hikes by +25bps as expected: The hike to 3.10% (from 2.85%) was expected. The RBA expects to increase rates further, with inflation in Australia still too high. There has been a positive reaction on AUD this morning.
China further eases COVID restrictions: According to Reuters, China has eased the requirement for negative COVID tests for people going into supermarkets, commercial buildings and airports.
Cryptocurrencies fail to hold on to recovery gains: Crypto fell back into the close last night and remains steady this morning. Bitcoin has dropped back from multi-week highs but is c. +0.1% higher today at $17000. Ethereum is flat at $1259.
- US Trade Balance (at 13:30 GMT). The consensus is expecting the trade deficit to increase to -$79bn in October (increasing from -$73bn in September).
Major markets outlook
Broad outlook: Markets are cautious after yesterday’s risk sell-off.
Forex: Major markets are cautious, with little real direction after the USD clawed back losses yesterday. The AUD is a mild outperformer after the RBA hike.
- EUR/USD following a negative candle yesterday the pair has pulled back into the initial support at 1.0430/1.0495. Reaction around here will be important and the initial basis of support forming is helping to calm the correction. Momentum remains strong with the RSI now around the mid-60s. We would prefer to use the weakness in EUR/USD as a chance to buy., with 1.0290 now a key higher low.
- GBP/USD has pulled back towards the initial support around 1.2150 which is also around a one-month uptrend. RSI momentum has unwound slightly but is still strong in the low 60s. The outlook remains positive and near-term supported weakness looks to be a chance to buy. A decisive move above 1.2295 and the reaction high at 1.2405 opens 1.2600/1.2665 as the next key resistance band. Below 1.1900 turns the market decisively corrective.
- AUD/USD has struggled for upside traction recently and has been a market hit hard by the recovering USD. A bearish engulfing candle is a corrective signal and suggests that the bulls need to work hard now to continue the recovery. The run of higher lows means that 0.6642 is an important initial support now. There is still a positive bias to momentum with the RSI oscillating between 50/65. And as long as 0.6642 holds, the outlook can still be positive. Resistance is now at 0.6850.
Commodities: Precious metals have formed near-term corrective signals. Oil has fallen to test key support again.
- Gold has fallen back sharply to complete a big bearish engulfing candlestick yesterday. This is a negative signal and comes after the RSI hit 70. Reaction today could be an important signal, with the initial reaction to build support. However, if there is another negative candle with a close below initial support at $1764 would be confirmation. If the RSI also falls below 50 this would be a decisive reversal signal corrective signal. Resistance is strengthening at $1808/$1810.
- Silver has also formed a big bearish engulfing candle, leaving a key high at $23.52. This is pulling back the RSI momentum from around 70. For now, this is just a near-term pullback (with the RSI in the low 60s), but a second negative close would be a growing warning sign. A close below $22.25 would open $21.67 initially.
- Brent Crude oil has once more failed decisively around the resistance band of $88.30/$90.40 and the four-week downtrend and has fallen sharply. The move lower (which is the third negative candle in a row) is now testing the support band of the multi-month lows at $81.40/$83.55. Momentum remains negatively configured and near-term rallies are being used as a chance to sell.
Indices: US futures have unwound to important levels, whilst the recovery trends of European indices are looking increasingly tired.
- S&P 500 futures have closed lower for three sessions in a row now, with yesterday’s move a decisive decline. This now means that the recovery trend from the early October low is now set to be tested (currently at 3970). The rising 21-day moving average is also a strong gauge. Resistance is growing at 4106 as the recovery has stalled just under the 4145 September high. There is still a positive configuration on momentum with the RSI above 50, near-term weakness remains a chance to buy.
- German DAX continues to fluctuate just shy of a test of the crucial resistance band between 14700/14800. However, the recovery uptrend has been broken and the RSI showing a bearish divergence is also a growing warning signal. This could be an early sign of a correction. Initial support is at 14322 with 14125 being key.
- FTSE 100 has pulled back from 7635 in recent days as the market has faltered just shy of a test of the key May highs at 7650. Although the daily RSI momentum indicator remains strong in the high 60s, the candles have been negative for three sessions in a row. This is a warning sign that the trend (which is already being broken) could be at risk of reversing. Reaction to the support band 7515/7520 will tell us more.
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