What we are looking for
- USD still suffering from Friday’s sell-off: The massive move against the USD on Friday has rocked the USD positive outlook. There is an attempt to regain some of the lost ground today, but it is a struggle.
- Indices consolidating Friday’s gains: After sharp gains into the close, US futures are consolidating this morning. This is also being seen on European indices.
- Commodities unwind: The big corrections are being seen on commodities, but even these are off their earlier lows.
- Data traders: It is a quiet day for data traders, with no major economic data due.
The USD has been hit hard. Friday’s massive sell-off came as traders picked falling wages and higher unemployment out of a mixed Nonfarm Payrolls report. There was also a round of dovish-leaning Fed speakers too. This dragged yields lower and increased the prospect of less aggressive Fed tightening. USD was smashed across major forex, with commodities rallying strongly and indices also decisively higher.
This morning we have seen a slight tempering of the move. China is set to continue with its current zero-COVID policy and with disappointing trade data, this is weighing on sentiment once more. With US Treasury yields tentatively moving back higher, there is still a feeling that a USD correction may be short-lived. For now, though the USD corrective move is in play.
It is a very quiet day on the economic calendar today. There is no major economic data due.
Market sentiment improvement is holding, for now: The positive sentiment on Friday has consolidated this morning but has held on, for now. But it will be interesting to see if the China stories (see below) begin to weigh later as the US starts to trade.
Treasury yields are a shade higher: After Friday’s sharp pullback from intraday highs to close lower, yields are back higher today.
China's trade surplus widens only slightly: The surplus has widened however both imports and exports unexpectedly fell in October. The surplus was expected to be much wider with exports expected to have increased strongly. This did not happen, with exports falling by -0.3% (+4.3% exp) and imports falling by -0.7% (+0.1% exp).
No change to zero COVID in China: According to Reuters, Chinese officials have said over the weekend that it will persevere with its “dynamic clearing” approach to COVID-19 cases
Cryptocurrencies fall back sharply: There is a decisive decline in cryptos this morning. Bitcoin is -2% at $20720, with Ethereum -4.5% at $1568.
- There is no major data due today
Major markets outlook
Broad outlook: There has been another swing towards more positive positioning on forex and indices, with USD weakness and positive equity markets. However, commodities and cryptocurrencies are less positive.
Forex: The USD has swung into the ascendency again, outperforming major forex. The JPY is holding up well as risk appetite slides. GBP is the big underperformer.
- EUR/USD a huge swing in sentiment has pulled the pair once more to test parity resistance. Closing above 1.0000 would be positive with a decisive break above 1.0093 is a key shift in sentiment. Given how volatile the moves are, this leaves the potential for false breaks though. Initial support is at 0.9900.
- GBP/USD has swung sharply higher and into the resistance band between 1.1380/1.1500 once more. The seven-month downtrend falls at 1.1565 today, with the key October reaction high at 1.1638. We still favour selling into strength for now, but the volatile swings leave the risks high. Initial support is at 1.1290.
- AUD/USD has massively swung back higher from 0.6271 and is now close to testing the three-month downtrend again. The resistance band around 0.6520/0.6545 remains key. Given the continued negative configuration on the technical outlook, we continue to favour selling into strength. There is initial support at 0.6370.
Commodities: Precious metals remain highly volatile with the latest swing higher. Oil has broken to multi-week highs.
- Gold has bounced sharply from the key support band $1615/$1617 and is now in the middle of a test of the key medium-term resistance that is stacked between $1670/$1690. A six-month downtrend is also being tested. For now, we still see this move as a bear rally, but a reaction in the coming days to this confluence of resistance will be important. Initial support is at $1657/$1666.
- Silver continues to trade with elevated volatility, with another massive swing higher. This now leaves a test of the medium-term trading range at $21.23 as a possibility. This remains a very volatile market and prone to big retracements, so we are cautious about what is a positive bias now. Initial support is around $20.00.
- Brent Crude oil has broken above $99.50 to close above $100 for the first time since late August. The uptrend and positive configuration on momentum are leaving a bias of buying into weakness now. There is good support now at around $96.00. The next important resistance is the $105.20 lower high.
Indices: Wall Street has rebounded following a deterioration. European markets continue to buy into weakness.
- S&P 500 futures have bounced well since Friday, however, the move needs to continue higher to suggest a sustainable improvement. The buyers need to respond by pulling the market above 3820 to re-engage the positive outlook. Support at 3705 is encouraging though and the RSI picking up around 50 is starting to form a more neutral medium-term outlook.
- German DAX has reacted strongly to weakness with a huge bull candle on Friday. Early unwinding losses have been bought into and the market has pushed above the 13560 resistance. Holding this breakout will now be key to sustaining the improvement. The next resistance is at 13970. The importance of support around 13000 is growing, with the low at 13017. Initial support is at 13370.
- FTSE 100 has had a huge run higher in the past couple of weeks. Breaking through 7228 and subsequently 7333 on Friday has continued the move. With the strength of momentum, we look to use near-term weakness as a chance to buy within a three-week uptrend. Initial support is 7228/7295.
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