Despite a mild unwind of USD strength today there is a sense that this is counter to the bigger trend and there is a negative bias still to equities. The focus will be on US inflation and Fed minutes.
- Main drivers: Mixed sentiment early today; Fed speakers still in taper talk;
- Mixed sentiment: Yields consolidating and USD slipping today (although both still trend positive). This is helping major forex rally against USD and commodities (gold, silver) also higher. Equities are still struggling, with rising inflation fears the focus.
- Big banks to turn focus on earnings season: JP Morgan kicks off a series of earnings announcements from the big banks in the coming days. [Could drive risk later]
- Fed speakers still talking up the taper: Three Fed speakers (Bostic, Clarida and Bullard) yesterday, all of them talking up the prospects of the taper. Clarida said the conditions to begin tapering have “all but been met” [Risk negative]
- Central bank speakers: A real mix of speakers today FOMC’s Brainard (permanent voter, dove) speaks at 2030GMT; FOMC’s George (2022 voter, hawk) speaks at 2030GMT and FOMC’s Bowman (permanent voter, centrist).
- Data watch: US CPI at 1230GMT is expected to show a plateauing with headline YoY at +5.3% and core at +4.0%. FOMC minutes for the September meeting are at 1800GMT. Watch for more clues on the taper.
- Broad outlook: Equities struggling again, USD unwinding gains, precious metals tick higher and oil still consolidating.
- Forex: US Dollar Index hit one-year highs yesterday but has unwound slightly early today. EUR/USD has bounced off 15-month lows yesterday, but any sustainable recovery is still a struggle. Initial resistance is at 1.1585/1.1600. We prefer selling into strength and medium-term short positions for further downside towards 1.13/1.14 in due course. GBP/USD with early gains trying to break through 1.3600/1.3625 resistance. However, with the lack of recovery traction, we prefer to sell into strength for medium-term short positions and a retest of 1.3520 initially. AUD/USD near term recovery just consolidating slightly. Reaction to 0.7290/0.7315 will be important now, needs to act as support. Near term base pattern implies 0.7460, with resistance around 0.7410/0.7475.
- Commodities: Gold could be set to test $1770/$1790 resistance, but positive traction has been limited and used as a selling opportunity in recent weeks. Near term support at $1745/$1750 is building now, but we still prefer using strength as a chance to sell. Silver is testing key resistance $22.75/$23.18 again, an area where attempted rallies have failed for the past three weeks. We look to sell within the four-month downtrend for a retest of $22.00 and $21.40. Brent Crude oil is just beginning to consolidate, but the trend higher remains intact for now. We are beginning to eye a potential “bearish divergence” so are cautious again.
- Indices: Mild technical rally today, but negative trends remain intact. S&P 500 futures have picked up from 4317 but trading under resistance around 4365/4388 leaves a negative bias. Near term, rallies are being used as a chance to sell for a test of the key support band 4223/4295. DAX has tried to build from support around 14,810/15,000 again but needs to move above 15,265 to have any sense of sustaining recovery. FTSE 100 has fallen over again around resistance at 7120/7160. The buyers are struggling to hold upside traction. Lacking direction.