What we are looking for

  • USD is consolidating: After strength following Powell’s hawkish speech at Jackson Hole, a sense of consolidation has formed. This consolidation is turning near-term corrective versus major forex this morning. Despite this the strong trend still holds.
  • Indices are looking for support: After a big sell-off on Friday and further downside yesterday, US futures are ticking higher today. This is helping European markets also higher. These moves are still very much counter to bear trends.
  • Commodities slipping back: Precious metals have had downtrends re-asserted in recent sessions. The prices of gold and silver are lower again today. 
  • Data trading: EUR traders may see a choppy reaction if the Eurozone sentiment gauges are mixed as expected. German inflation will get more attention and a higher than expected number would be EUR supportive. For US data the highlight is Consumer Confidence which is forecast to improve. 

Overview

There has been a risk-negative reaction on major markets since the hawkish speech from Fed Chair Powell at Jackson Hole. The theme was very much that the Fed is extremely serious about tackling inflation. That means front-loading rate hikes and that rates will remain elevated for longer. Equity markets have fallen hard, whilst Treasury yields continue to trend higher and the USD has strengthened. The existing trends have been re-affirmed.

However, over the past 12 to 24 hours there has been a sense of consolidation that has set in. USD strength is taking a pause, whilst equity markets are rebounding. There is nothing explicit that seems to be driving this move, so this needs to be taken with caution. However, there is also a slight edge of EUR strength developing after several ECB Governing Council members have been making hawkish comments. Potential EUR outperformance in the coming days might be something to keep an eye out for.

It is a mix of European and US data on the economic calendar today. For the Eurozone, the economic sentiment gauges for August will be watched initially. However, the key focus will be on the German inflation and the steer for tomorrow’s prelim Eurozone inflation. For the US following the house prices data and the JOLTS openings & quit rate, the focus will be on US Consumer Confidence. An improvement is expected in August. 

Today’s news

Market sentiment cautiously improves: Equity markets are positive as US futures rebound and European markets are also helped higher.

Treasury yields edge higher in uptrends: There has been little impact to the recent uptrends on US yields. The uptrends remain intact, whilst there is minimal direction this morning.

Fed’s Kashkari supports Powell’s speech: Powell was hawkish on Friday in his message that the Fed was serious about tackling inflation. Kashkari (now a centrist on the FOMC, a voter in 2023) backs this view and that the selling on equity markets shows that investors have got the message.

ECB members leaning more hawkish: Board member Schnabel is worried about high inflation expectations becoming entrenched. Villeroy (France) wants neutral rates by year-end (between 1.00% and 2.00%). Rehn (Finland) is worried about the weak EUR and it needs a significant hike in September (N.B. Rehn is considered a centrist). Kazakhs (Latvia) believe 50 or 75bps should be discussed in September.   

Cryptocurrencies trying to recover: After falling over the weekend, cryptocurrencies are looking to recover. Bitcoin fell below $20000 but ticked higher yesterday and is higher again today by just over +1% to $20400. 

Two Fed speakers are due: Thomas Barkin (hawk, not a voter until 2024) speaks at 12:00 GMT. John Williams (permanent voter, leans hawkish) speaks at 15:00 GMT. 

Economic Data:

  • Eurozone Economic Sentiment (09:00 GMT) Sentiment is expected to decline to 97.5 in August (from 99.0)
  • Eurozone Industrial Sentiment (09:00 GMT) Consensus is expecting a fall to +1.9 in August (from +3.5 in July)
  • Eurozone Services Sentiment (09:00 GMT) Sentiment is forecast to improve to +13.5 in August (from 10.7)
  • German inflation – prelim (12:00 GMT) HICP inflation is expected to increase to 8.7% in August (from 8.5% in July).
  • US Consumer Confidence (14:00 GMT) Confidence is expected to improve to 98.2 in August (from 95.7 in July)

Major markets outlook

Broad outlook: Sentiment is trying to recover. USD is giving back some gains, whilst indices are rebounding. Precious metals are still a struggle.

Forex: USD is weaker against most major forex (aside from CHF). EUR and AUD are the outperformers.

  • EUR/USD has been choppy above 0.9900 and is often now finding buyers around 0.9950. A positive candle yesterday and early gains today are hinting at a potential near-term recovery. The RSI moving higher also reflects this near-term improvement. Holding a move above the old resistance around 1.0020/1.0030 would add to recovery momentum for a move towards 1.0095 and the resistance around 1.0200.

  • GBP/USD has suffered since Powell’s speech but a rebound from an intraday low of 1.1648 yesterday is trying to recover lost ground. However, there is plenty of near-term overhead supply resistance starting around 1.1750 up towards 1.1895. This may mean that near-term recoveries struggle. We continue to see strength as a chance to sell. Below 1.1648 there is little real support until the COVID breakout spike low of 1.1410.
  • AUD/USD fell sharply on Friday but has essentially maintained the support around 0.6855/0.6870 with a low at 0.6840. Ticking higher yesterday and higher again today leaves the market with a mixed outlook but at least not corrective. Resistance is building at 0.7010/0.7040.  

Commodities: Precious metals are struggling to ignite a recovery. Oil will look to hold above $103

  • Gold failed in recovery at $1765 in the middle of the resistance between $1754/$1772. The RSI also failed at 50 and there is a continued corrective bias in the price. The market has been choppy in recent days with little conviction in the candlestick yesterday. This theme continues this morning. Momentum signals on the four-hour chart show a market selling into strength. Initial resistance is at $1745 but we look for further pressure on the $1720 low.
  • Silver has been struggling in recent days, whilst a minor rebound today is so far failing to ignite a recovery. There is plenty of resistance between $18.70/$19.10 and it would need a move above $19.45 for recovery to take off. Subdued momentum indicators suggest near-term rebounds are a chance to sell. Below $18.51 opens $18.14.
  • Brent Crude oil needs to hold on to the price support at $102.95/$103.50 if a near-term improvement is to be confirmed. Momentum is more positive with the RSI above 50 too. This suggests that holding above $103.50 takes on a more positive outlook for testing $106.540 and resistance above $109.00.

Indices: US futures are trying to settle after the big sell-off and build from support. European markets are looking to follow this lead.

  • S&P 500 futures sold off sharply from 4216 to establish a new near to medium term downtrend (currently up at 4190). There has been an element of calm forming in the past 24 hours and US futures are looking to rebound today. The reaction around the old lows between 4080/4110 (which are now overhead supply resistance) will be key. Initial support is at 4026 above the 4006 low.
  • German DAX sold off hard from 13372 to form another key lower high. The market ticked higher yesterday and is higher again today. However, the reaction to this recovery will be key. Overhead supply between 13075/13200 will be a gauge now. Momentum has already looked to unwind (on the four-hour chart the RSI is back up to 50) so can this move continue? We still favour selling into strength. We favour a retest of 12700 in due course. 
  • FTSE 100 fell back to rebound from just above the 7370 support this morning. The market has been choppy but there is a new downtrend of lower highs and lower lows forming. Subsequently, 7535 is key resistance now as the four-hour RSI again unwinds toward 50/55. This could now be another chance to sell. 


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