Espresso Morning Call: A risk recovery is taking hold

What we are looking for

• USD is falling hard today: The risk recovery is turning markets away from the safe haven of the USD. EUR and GBP are especially strong in major forex.
• Indices are building recovery traction: Downtrends and resistances on major indices are being tested and broken.
• Commodities moving higher: USD weakens helps commodities. Silver is outperforming gold in recovery, which reflects the risk-positive environment. 
• Data trading: There is nothing for data traders for the rest of the day.

Overview

The Ukrainian Army has made huge advances in recent days. Pushing back Russian forces and reclaiming lost territory is incredibly significant. It seriously questions the Russian capabilities and there are even questions over the stability of the position of Russian President Putin. The response of Putin is as yet unknown (and could be severe if backed into a corner) but for now, this wave of optimism is feeding into financial markets today.

A retracement of USD strength is being seen across major forex. In combination with a positive risk appetite, this is helping commodities and equity markets also higher. In forex too, the main beneficiaries of this come with the EUR and to a lesser extent, a GBP rally. EUR has especially been hampered by the war in Ukraine. A near-term rally is developing strongly. 

On the data front, UK economic growth data have been disappointing. Monthly GDP and industrial production for July have missed expectations. Elsewhere looking ahead, the economic calendar is fairly bare today. There are no major tier-one economic data announcements.

Today’s news

Market sentiment improves sharply: USD is lower, commodities are higher, European indices are decisively higher with US futures also positive.

Treasury yields are flat initially: Yields are fairly subdued initially this morning. The story seems to be elsewhere.

Ukrainian Army with a huge counter-offensive: Russian forces are in retreat in the northeast of Ukraine in a huge reclamation of lost land. There is much more than needs to be done, but this feels like a significant moment in the war.

UK data disappoints: Monthly GDP increased by just +0.2% in July (+0.4% forecast). Industrial Production also fell by -0.3% (+0.4% exp) dragging year-on-year production down to +1.1% (+2.4% in June).

FOMC moves into its blackout period: The Fed is now into its Blackout Period ahead of the FOMC meeting announcement on Wednesday 21st September. There will be no communication by Fed speakers until after the FOMC announcement. 

Cryptocurrencies rebound strongly on positive risk appetite: Crypto has also bounced over the weekend and is broadly positive today. Bitcoin is +4% this morning and is over $22,200. 

Economic Data:

• There is no major economic data of note.

Major markets outlook

Broad outlook: USD is increasingly corrective. The risk rally adds to recoveries on commodities and indices.

Forex: The USD corrective move is evident across major forex. EUR and GBP are outperforming.

• EUR/USD has rallied hugely in recent days and has come close to 1.0200 this morning. There is momentum building in this move and if it can close above 1.0200 it would be a significant step forward in the recovery. It would open the next key resistance around 1.0350/1.0370. The bulls also need to now build support above the 1.0100 pivot area to sustain the improving outlook.

• GBP/USD has moved above 1.1610 initial resistance and this has opened a rally into the resistance band 1.1715/1.1760. A small base pattern (on the four-hour chart) also implies a recovery towards 1.1760. Momentum is backing the near-term recovery. We will though know more about the sustainability of the move on the reaction around the overhead supply between 1.1715/1.1760. Initial support is at 1.6000/1.1610.   
• AUD/USD is driving back above the key medium-term resistance band between 0.6840/0.6870. If this can be seen on a closing basis then it would be a strong positive signal for continued recovery. The RSI moving back above 55 would also be a confirmation signal. Subsequent resistance would be at 0.6955/0.7010. Initial support is building between 0.6825/0.6855.  

Commodities: Silver is leading the near-term recovery in precious metals. Oil has swung back higher to test important resistance.

• Gold has again moved higher this morning to test the resistance band at $1720/$1729. Previous intraday attempts to break this resistance have failed, so we look for a closing break above $1730. This would open a test of the six-month downtrend and the $1754/$1765 resistance. There have been higher lows forming in recent days at $1711 and $1704.
• Silver is leading the near-term recovery in commodities and is powering back higher towards a test of the key medium-term pivot band of $19.42/$19.54. The RSI is back above 50 again to reflect the improvement but a move into the 60s would be a key signal of sustainable recovery.
• Brent Crude oil has rebounded from $88.25 and is again testing the resistance of the old lows between $93.25/$95.90. We remain wary of backing decisive recoveries whilst the RSI remains stuck under 50. A move above $98.30 would suggest a potential sustainable turnaround. Initial support is at $92.10.

Indices: A recovery is accelerating. 

• S&P 500 futures have posted three strong bull candles in a test of resistance at 4072/4110. A four-week downtrend has been broken by this rebound and the daily RSI is up through 50 to reflect the improvement. A close above 4110 would be the next strong signal of recovery. Initial support is between 4026/4062.
• German DAX has been choppy in the recovery but positive traction is taking hold today. A move above 12876 needs to now hold on a closing basis and this would then open a direct test of the 13330/13430 resistance band. The daily RSI holding above 50 would suggest the recovery is sustaining. Initial support is at 13025/13135. 
• FTSE 100 has moved decisively above the resistance at 7370 and will now look to use this as a basis of support. The daily RSI holding above 50 would also suggest the recovery momentum is holding. The next upside test is a band of overhead supply between 7455/7475.

This material is for general information purposes only and is not intended as (and should not be considered to be) financial, investment or other advice on which reliance should be placed. INFINOX is not authorised to provide investment advice. No opinion given in the material constitutes a recommendation by INFINOX or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.