Espresso Morning Call: 4th January 2022 trading updates

Today’s news

• Main drivers: Market sentiment is slightly positive; China Caixin Manufacturing PMI beats; OPEC+ meeting eyed; no Fed speakers scheduled; Economic calendar: UK Manufacturing PMI, US ISM Manufacturing
• Mild positive risk bias: Major equity markets are mildly higher. FTSE 100 playing catch up on yesterday’s gains on Wall Street and European markets. Bond yields remain elevated. Positive risk bias is also evident across major forex pairs. Commodities are however mixed.
• China Caixin Manufacturing PMI better than expected: The unofficial Caixin manufacturing survey edged back into expansion territory to 50.9. This was above the 50.1 expected, after last month’s 49.9. The survey also showed signs of easing pricing pressures. [Slightly risk positive] 
• Manufacturing PMIs eyed: Manufacturing PMIs kick off an important week of data (the first week of the month is always busy) which includes services PMIs, Eurozone inflation and ends with the US Nonfarm Payrolls. [GBP and USD volatility later]
• OPEC+ meeting today: The group is expected to continue with plans to increase production by an average of +400,000 barrels of oil per day across the month. This would continue with existing expectations, but any surprises will see elevated volatility. [Oil volatility] 
• Central bank speakers: there are no Fed speakers scheduled today 
• Economic Data:
• UK Manufacturing PMI at 0930GMT. The final December reading is expected to be unrevised from the flash of 57.6 (final November 58.1)
• US ISM Manufacturing PMI at 1500GMT. The ISM is expected to drop slightly to 60.1 (from 61.1 in November)

Markets Outlook

Broad outlook: Positive risk bias with indices slightly higher. This is also reflected across major forex pairs, but commodities are slightly mixed in early moves.  

• Forex: Higher risk majors (AUD, CAD & GBP) have been performing better recently, the safe-haven JPY is the main underperformer against the USD. 
• EUR/USD remains stuck in its trading range under resistance around 1.1385. Being unable to sustain positive traction suggests continuing to play the range, but with a lack of conviction. The big 7 month downtrend is getting closer (c. 1.1445 today). Key supports at 1.1185/1.1220.
• GBP/USD broke clear of 1.3350/1.3410 over Christmas and is looking to now use this as a base of support in its recovery within the seven-month downtrend (currently 1.3640). The bulls are responding well to yesterday’s decline, with 1.3410/1.3420 supportive. Initial resistance 1.3550/1.3570. 
• AUD/USD yesterday's unwind into 0.7170/0.7185 has found buyers this morning. The bulls will be keen to see this as a basis of another higher low in the recovery. How the market reacts around the initial resistance of 0.7200/0.7220 will be an important indication. Resistance at 0.7275.
• Commodities: recoveries on precious metals and oil have been stalling slightly in recent sessions.
• Gold a sharp retreat towards $1800 hit the recovery yesterday, but the support has just started to form once more this morning. Holding above $1800 would help to maintain the recovery for a retest of $1831. Support at $1789 is now an important higher low.
• Silver a choppy recovery was hit again with a decline yesterday. Support at $22.58 is important especially on a closing basis as a higher low in the recovery. However, resistance at $23.43 is growing. 
• Brent Crude oil consolidation in the past few sessions is coming above the support of the previous breakout at $77.20 which has become s key medium term pivot. Momentum is set up for buying into weakness and pressure on $80.19 resistance. Above opens $80.80.

Indices: pushing positively higher following breakouts over Christmas.    

• S&P 500 futures broke to all-time highs in late December and have been consolidating since. However, this is all taking hold above the support of the breakout at 4742. A strong session yesterday and early gains today are again testing higher. Momentum is strong and set up to buy into weakness. 

• DAX has rallied through the 15,800/15,870 previous resistance area and is now using this as a basis of support. The bulls will now be eyeing a test of the 16,300 all-time highs. A positive bias is continuing today. Holding above 15,800 initial support will sustain the recovery momentum.
• FTSE 100 is breaking higher once more for the highest level since February 2020 (pre-pandemic). Breaking clear of 7401 and holding above this old resistance is now important for continued gains. Support at 7365 is now an important higher low.