There is a mild sense of consolidation on major forex this morning, but broad sentiment has begun to improve as US bond yields have stalled in the past couple of days. The testimony from Fed chair Powell failed to add fuel to the fire of recent rises to yields and the US dollar has come under growing negative pressure as a result. Furthermore, equity markets are finding support and commodities are also taking on an improving outlook. Inflation will be once more in focus today with the US CPI on the economic calendar. This could be the next big push for US bond markets, so any surprises, either way, in the data could be crucial.
Today’s news
Main drivers: Market sentiment improvement holds; direction of bond yields remains key; Chinese inflation lower than forecast; UK PM Johnson under pressure; Economic calendar: US CPI inflation in focus
Sentiment on an improving track: As the sharp rise in US bond yields has stalled, broad sentiment has picked up. The USD is stable this morning but has been under mounting pressure in recent days. Indices are recovering.
Chinese inflation falls more than forecast: CPI fell back to 1.5% from 2.3% in November and lower than the 1.7% forecast. The PPI also fell to 10.3% from 12.9%.
UK Prime Minister Johnson under growing pressure: Johnson is facing serious questions and mounting criticism from all sides over his conduct during the social restrictions of the pandemic. GBP does not seem to be reacting too much for now, but any move towards a resignation would certainly increase volatility. [GBP stable for now]
Fed Chair Powell fairly non-committal on rates: Powell did not give much that markets did not already know in his Congressional testimony. [Risk neutral]
Central Bank speak: There are no speakers due today
Economic Data:
- Eurozone Industrial Production (1000GMT) is expected to be +0.5% MoM but this would mean the YoY falling to +0.6% (from +3.3% in October)
- US CPI (1330GMT) is expected to show headline monthly CPI increasing by +0.4% in December, with YoY increasing to 7.0% (from 6.8% in November); core CPI is expected to be +0.5% MoM in December, with the YoY increasing to 5.4% (from 4.9% in November)
- Fed Beige Book (1900GMT) expands on the Fed’s current outlook for the economy
Markets Outlook
Broad outlook: US bond yields are consolidating this morning. After recent declines, there is a shade of USD rebound, but with little conviction yet. Commodities are giving back some recent gains but indices continue to show signs of recovery.
Forex: USD with a slight outperformance, EUR holding up well. NZD is a slight underperformer.
- EUR/USD is increasingly positively biased towards pressure on the 1.1385 resistance. A close above would be a key breakout. Initial support is now 1.1312 with support at 1.1270 increasingly important. The big 7-month downtrend is falling at c. 1.1418 today.
- GBP/USD continues to strengthen despite a mild stalling this morning. A strong bull candle and close above 1.3600 is a sign of positive intent, as is a breach of the key 7-month downtrend at 1.3622 today. Subsequent resistance is 1.3698. Initial support 1.3560 with 1.3490 a key higher low.
- AUD/USD has moved clear above the old 0.7170/0.7185 pivot to improve the outlook. We look to use intraday weakness to buy for a test of 0.7275. The pivot turns supportive now with further support c. 0.7130/50.
Commodities: precious metals easing back from recovery, oil move higher looking decisive.
- Gold is looking more positive after three consecutive bullish daily candlesticks. However, traction has been hard to sustain and there will be caution as the market begins to slip ba k this morning. Reaction to support around $1800/$1810 will be key. Resistance around $1830/$1832 remains in place.
- Silver recovery is not decisive yet and is just easing back slightly this morning. Reaction to the pivot band at $22.50/$22.70 will be seen as key for the near term recovery The concern is that this is just a continuation of a growing medium-term trading band of $21.40/$23.45, with the pivot band in the middle.
- Brent Crude oil closing above $83.45 has opened the $86/$87 key resistance. Momentum is strongly positive and intraday weakness is a chance to buy. There is good near term support of $82.60/$83.40.
Indices: recovery is just stalling slightly on Wall Street this morning, which is weighing on the DAX. FTSE is holding up well.
- S&P 500 futures just moved above 4715 resistance but has pulled back in the past few hours. This is a key moment for the bulls to see if they continue to buy into intraday weakness. Support around 4670/4685 will be a key gauge today. Back above 4718 re-opens the recovery.
- DAX recovery is stating to post higher lows, but the bulls need to react well to an early slip back this morning. Holding on to support at 15,950 and posting another higher low above 15,883 will sustain the improvement. Resistance at 16,075 needs to be overcome to continue to test resistance at 16,155 and the all-time high of 16,300
- FTSE 100 moving above 7540 continued the move higher and this is being sustained this morning. Weakness continues to be supported, with 7516 a near term gauge for this leg higher.
