Espresso morning call: 6th December 2021 trading updates

Overview

Markets are tentatively higher on Monday morning. However, given the sharp decline in risk assets into the close on Friday, this may still just be a near-term move that is counter to the more established trends. There is little on the economic calendar today, with the Fed also now having moved into its “blackout” period.

Today’s news

• Main drivers: Sentiment tentatively rebounding; Fed into the “Blackout”; Oil ticking higher again; Economic calendar: Eurozone investor confidence
• Sentiment mixed ahead of payrolls: European indices rebounding, risk positive bias on forex majors; precious slipping back, oil rebounding
• Rumours of PBoC rate cut: There have been suggestions that the Peoples Bank of China may be about to cut the Reserve Requirement Ratio. This would be risk positive if true [Potentially risk supportive]
• Crypto fallout: there was a massive sell-off across the crypto space over the weekend, with Bitcoin around -20% at one stage, before rebounding. [Broad market volatility still elevated]
• Oil higher: Oil is higher today with the risk rebound. There are continued signs that support may now be forming after the sharp sell-off. [Oil higher
• Central bank speakers: the FOMC moved into its Blackout Period on Saturday. There will now be no FOMC speakers until after the next FOMC meeting on Wednesday 15^th December. Bank of England’s Ben Broadbent (centrist) speaks at 1130GMT.
• Economic Data:
• Eurozone Sentix Investor Confidence at 0930GMT expected to drop to 15.9 in December (from 18.3 in November)

Markets Outlook

Broad outlook: tentative risk positive move, but with little to be driving the move, it could simply be a technical (oversold) rally and be short-lived.

Forex: Higher risk (AUD, NZD, CAD) all positive this morning, with the safe havens (JPY, EUR, CHF) all underperforming.

• EUR/USD has formed three sessions of lower highs now as a drift lower has taken hold. Support 1.1235/1.1260 protects the 1.1185 key low. Initial resistance 1.1333.
• GBP/USD is ticking higher from just above the 1.3195 key reaction low. However, rallies continue to fail and there is a resistance band 1.3265/1.3300.
• AUD/USD a rebound from deeply oversold and key support at 0.6990. Initial resistance 0.7045/0.7065, but with little recovery prospects rallies remain a chance to sell. The Reserve Bank of Australia meeting is the main caveat to this.

Commodities: precious metals falling over again after a rebound on Friday. Oil is showing signs of support formation.

• Gold Friday’s positive session was the first decisively positive candle for three weeks. However, rallies continue to falter around $1790/$1800 and we favor pressure on $1758 key support.
• Silver Despite a brief breach of the downtrend on Friday, a continued run of bull failures around old support points to selling into strength. Resistance $22.60/$23.00. Below $22.03 opens $21.40.
• Brent Crude oil with a sense that selling pressure has eased, at least for now. Resistance is now at $73.20/$73.53 and if the market can move above here sustainably then it would be a decisive improvement in outlook. Initial support at $69.83 will be important as a potential higher low.

Indices: Volatility remains elevated as another session of sharp intraday swings was seen on Friday. With a thin economic calendar and the FOMC blackout, maybe volatility will begin to ease today. 

• S&P 500 futures showed once more on Friday that the market is not yet ready to sustain a recovery. Resistance at 4606 is now important, whilst 4491 will be a gauge of support.
• DAX remains very uncertain, despite ticking higher today. Resistance is mounting between 15,370/15,510. The bulls will now be looking for 15,085 to be a higher low in a recovery formation.
• FTSE 100 is again testing the resistance band 7180/7200. Previously attempted breakouts have been false in the past few sessions, so we are cautious until there is confirmation. Support at 7095 is growing in importance as a potential higher low.