Overview

There are tentative signs of support for risk assets today, with indices ticking higher. However, with the markets seeing the glass half empty, there is a broader negative bias still in play. USD recovering again will not help this.

Today’s news

  • Main drivers: Risk appetite looking to rebound today but USD regaining strength already; Reserve Bank of Australia holds policy steady as expected; Oil breaks out as OPEC+ maintains production limits; Final services PMIs and ISM data due.
  • Tentative risk rebound: with bond yields stabilizing, equity markets are looking to make a recovery after yesterday’s selling pressure. However, this is also coming with USD finding support too. USD gains are impacting across major forex pairs and pulling commodities lower. The one exception is a sharp breakout on oil to multi-year highs.
  • RBA holds steady: the Reserve Bank of Australia held rates at +0.1% as expected. The RBA is grappling with rising borrowing and a hot property market, at a time where major Australian cities are in lockdown from COVID. The RBA does not expect to raise rates until 2024. It leaves the tightening of lending rules as the only way to get control of the property market.
  • Oil: Oil prices have soared to three-year highs after OPEC+ chose not to maintain the gradual increase in supplies. This comes despite a spike in oil demand as a substitute for natural gas which is in short supply. According to Saudi Aramco, oil demand has increased by 500,000 barrels per day as a result of the gas shortage.
  • Central bank speakers: ECB President Lagarde speaks at 1500GMT; FOMC’s Randall Quarles (permanent voter, a shade hawkish) speaks at 1715GMT. BoJ’s Kuroda also speaks today.
  • Data watch: Final Eurozone PMIs at 0800GMT with Services PMI expected to be unrevised at 56.3 and Composite PMI unrevised at 56.1. Final UK PMIs at 0830GMT with Services PMI is expected to be unrevised at 54.6 and Composite PMI at 54.1. US ISM Services at 1400GMT are expected to slip slightly to 59.9 for September (down from 61.7 in August).

Markets Outlook

  • Broad outlook: Equity markets looking for a tentative recovery. USD gains hitting across major forex pairs. Commodities are lower again, although oil is breaking out.
  • Forex: EUR/USD the technical rally has just faltered at 1.1640. under the key resistance band 1.1665/1.1700. We are sellers into the strength. Downside conviction grows below 1.1580. GBP/USD has held a technical rally so far despite the USD regaining strength. We are still looking for renewed sell signals but consolidation is forming around 1.3600/1.3640. We, therefore, wait for the next signal. USD/JPY looking to now build from support around 110.60/110.80. We look to buy into supported weakness.  
  • Commodities: Gold is still trading around the old resistance of $1760 but is testing above. Breaking a one-month downtrend opens the potential for a further recovery towards $1790. We still prefer short positions but for now, there is uncertainty about the near term outlook. A drift back below $1745/$1750 would suggest renewing downside for $1721 and $1675/$1700. Above $1770 opens $1790. Silver has rebounded into resistance around $22.75 but is showing signs of the move stalling. We prefer to use this as a chance to sell but are now looking for renewing sell signals for a retest of $21.40. Brent Crude oil has broken to new three year highs and continues to look strong. Near term momentum is bullish. The next key resistance is at $86.95.
  • Indices: There is still a negative bias, with the bulls fighting to hold on to key medium-term support areas now. S&P 500 futures are dipping into 4223/4295 key support area, but for now, the buffer is holding. Momentum is negative and rallies are being sold into. A move above 4365 improves, with a recovery through 4388 needed for sustainable recovery. DAX seriously testing a key medium-term support band of 14,800/15,000 with negative momentum and intraday rallies being sold into. FTSE 100 maintains its fairly neutral technical outlook. Seems to still attract buyers around 7000 for now.