What we are looking for
- USD finds a degree of support: The hawkish lean from the FOMC’s Bostic and Daly has helped the USD to rein in the selling pressure in major forex. Can this continue after comments from Fed Chair Powell later today?
- Indices rally has pulled back: The strong rally of Friday and Monday has eased off overnight. US futures have slipped back overnight and this is weighing on European indices in early moves. The risk of profit-taking will grow if Fed Chair Powell follows the lead of his FOMC colleagues.
- Commodities mixed to lower: With risk appetite faltering, silver is falling over along with oil. It is interesting to see that gold continues to perform relatively well.
- Data traders: There is no data, but traders will certainly need to be on the lookout for what Fed Chair Powell says today.
The strong market moves in the wake of Friday’s Nonfarm Payrolls and ISM Services data have begun to ease back slightly. Markets took a view late last week that the data was pointing to a US economy on a contractionary track towards likely recession. That is a path that should lead to a less aggressive Fed and potentially early rate cuts. The USD was sold and risk appetite was boosted, with equity markets strong. However, markets are now having second thoughts, after the comments of two Fed members overnight.
The FOMC’s Raphael Bostic and Mary Daly do not have voting rights on the committee in 2023. However, they sit around the centrist to slightly hawkish consensus and their views are notable. They said that rates are likely to move above 5% and remain there for some time. This is a fly in the ointment for markets that were looking for Fed members to start leaning less hawkish. The USD has found some support and equity markets are easing back today. The comments of Fed Chair Powell today will be keenly watched. If they back up Bostic and Daly, then we can expect some further profit taking on risk and the USD to build on support.
Once more there is very little on the economic calendar. However, all eyes will be on Fed Chair Powell later.
Market sentiment looks more cautious: Positive sentiment has eased back and is looking a little cautious now ahead of Fed Chair Powell’s speech later today.
Treasury yields in a mild rebound: Having fallen sharply in the past couple of sessions (the 10-year yield dropped -20bps in two sessions), yields are ticking back higher today. This is supporting USD and weighs on risk appetite. -
Fed officials stay on a hawkish path: The turnaround late in the US session came as FOMC members Bostic (2024 voter, centrist) and Daly (2024 voter, leans hawkish) suggested that rates would likely move above 5% and stay there for some time. US equities fell back and the USD rebounded.
Cryptocurrencies build on yesterday’s gains: Crypto was boosted yesterday and continues to maintain support today. Bitcoin is +0.3% at $17240, with Ethereum +0.5% at $1325.
Fed Chair Powell speaking: The views of Fed Chair Powell could be an important driving factor for markets towards Thursday’s US CPI. Powell speaks at 14:00 GMT.
- There are no major economic announcements due.
Major markets outlook
Forex: Having fallen sharply since Friday, the USD is finding some support today. However, performance remains mixed as the EUR is performing well.
- EUR/USD has rebounded decisively from a key low at 1.0480 to now move above the December high of 1.0735. The market will now look for a solid close above the resistance to then look towards a test of the key May 2022 highs of 1.0785. This has strengthened the importance of the 1.0440/1.0495 breakout support band. Momentum is positive once more with the RSI climbing into the 60s again, suggesting that weakness is a chance to buy.
- GBP/USD has been positive since Friday’s bullish engulfing candle. Yesterday’s gains have eased off slightly early today, but the bulls will remain confident whilst the market trades above the 1.2075/1.2125 breakout support. However, despite the improvement, the RSI needs to hold above 50 otherwise more of a neutral outlook will develop. Above 1.2242 opens a test of the December high at 1.2445.
- USD/JPY The downtrend that was tested rigorously last week remains under threat. Yesterday’s “spinning top” candle was only marginally negative and there is a similar feel to the early moves today. We still retain a negative view of the outlook, for now, preferring to sell into strength. However, we are watching the initial resistance at 132.65 as a rebound through here would be encouraging and bring the resistance now overhead at 133.60/134.75 back into play. Initial support is 131.30.
Commodities: Gold remains strong whilst silver is struggling for upside traction. Oil is struggling to make recovery gains.
- Gold continues to climb as it tests the key resistance of the June 2022 high at $1789. An intraday move higher was pared back into the close, but the price is once more edging higher this morning. RSI momentum remains strong and also encouraging is the gold outperformance as the USD has found some support today. A decisive close above $1880 opens $1910 as the next resistance. We look to use near-term weakness as a chance to buy with initial support at $1859/$1865.
- Silver once more looks to be struggling. The jump on Friday faltered yesterday (when other markets continued higher) and silver is lower again today. This bull failure at $24.10 comes with faltering momentum as the RSI drifts back towards 50 again. There is a tired feel to the move and reaction to the support of the low at $23.11 is now key. A decisive break lower would bring $22.55 back into view.
- Brent Crude oil has been building a run of higher lows in recent sessions, but the bull moves continue to falter. Long upper shadows on the candlesticks point to intraday bull failure moves and a lack of buying intent. The market is back lower this morning. With the RSI stuck in the low 40s, and resistance between $81.00/$81.55 it looks increasingly as though near-term rallies remain a chance to sell for pressure on $77.50 and the December low at $75.50.
Indices: Equities have eased back in their rallies. The potential for profit-taking, especially in European indices is high.
- S&P 500 futures could not sustain the rally through the top of a three-week range between 3788/3919 and the subsequent “shooting star” candle is a bull failure. The old pivot band 3912/3945 has been a key chart feature for the past two months and this is still a bank of resistance. RSI momentum is a shade above 50, but nothing that would give conviction towards a break higher. With the futures dropping back early today the range between 3788/3912 could not reassert.
- German DAX has sustained a move through the resistance of the old highs between 14605/14680. However, there is massive resistance of an old long-term pivot band between 14700/14800 that also needs to be cleared. A close above 14830 opens 15000. There is good support now at 14380. Momentum is positively configured with upside potential and we would still look to buy into supported weakness. There is initial support at 14632 with 14382/14532 being further support.
- FTSE 100 has pulled back from the intraday five-year high of 7747 that was hit yesterday. This comes with the RSI having unwound from 70. The concern is that the resistance band 7695/7729 has been an area where so many rallies fail over the past few years have failed. Initial support for a pullback is 7635/7671.
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