What we are looking for

  • USD fightback easing off again: There is a distinctly mixed feel to major forex. Yesterday’s attempted USD recovery has been fought back and leaves a shade of USD weakness this morning. The moves remain uncertain though.
  • Indices looking increasingly mixed: A consolidation on major indices continues. Wall Street is hinting at a pull lower though, with US futures marginally weaker. European indices continue to fight against corrective forces.
  • Commodities rebound after weakness: Corrective pressures yesterday have eased slightly this morning. However, there is still a risk of precious metals unwinding previous strong moves, whilst oil is looking corrective.
  • Data traders: The only data of note will concern USD traders with the US Existing Home Sales. A trend of continued deterioration is expected. 

Overview

There has been a lack of conviction this week. After the strong risk rally of recent weeks, markets have turned choppy this week. There has been a flood of Fed speakers to give their views on the lower-than-expected US CPI. Some have noted the easing of inflation pressures, and some have remained on the hawkish side “it’s just one month”. This has left uncertainty over the prospects of an earlier Fed pivot and resulted in choppy moves on major markets. 

An attempted USD rally along with a drag lower on Wall Street last night has been met with a mixed reception early in the European session. It would seem, more uncertainty over the direction and a lack of decisive position-taking. Taking a step back, there is still a sense that the risk rally has run out of steam and with overbought momentum, could see a near-term unwind. The key question is how far would that move go and is weakness in risk assets seen as a chance to buy?

It is a quiet end to the week for data on the economic calendar The only major announcement of note will be the US Existing Home Sales. With consensus expecting a decline of 7%, this would continue the trend of deterioration in the housing market.

Today’s news

Market sentiment lacks conviction: Mixed moves on forex, with equity markets lacking conviction.

Treasury yields are a shade higher: Yesterday’s rebound helped the USD to find a degree of support but the move is consolidating today. If yields continue to climb back higher this would be risk-negative and USD positive.

Fed’s Kashkari will not be “over-persuaded”: Neel Kashkari used to be the most dovish member on the committee until this year but is probably a decent gauge of where the Fed sits now. He said that “we cannot be over-persuaded by one month’s data”. He wants to “stay at it” until inflation has stopped climbing. 

UK Retail Sales hold up well in October: A rare positive for UK data. Retail Sales (ex-fuel) have increased by +0.3% in October (+0.6% forecast). However, despite this, YoY growth is still -6.9% (down from 6.1% in September).  

Japan’s core CPI is likely to slow in 2023: According to Reuters, the Bank of Japan’s Kuroda has said that core inflation will likely slow next year. This will maintain the easy monetary policy stance of the BoJ.

Cryptocurrencies build some stability: Crypto looked to build some support yesterday and this has continued this morning. Bitcoin is +0.2% at just a shade above $16700 with Ethereum +0.5% at $1210. 

Economic Data:

  • US Existing Home Sales (at 15:00 GMT) Existing sales are expected to decline by -7% in October to 4.38m (from 4.71m in September)

Major markets outlook

Broad outlook: There is a mixed to marginally risk positive bias this morning. 

Forex: USD is giving back some of yesterday’s recovery. NZD and to a lesser extent GBP and AUD are the outperformers.

  • EUR/USD has spent the past few days in choppy swings around the resistance at 1.035/1.0370 from the August highs. The last two days have been entirely within the high/low range of Tuesday’s session. Subsequently, the moves lack conviction and come with uncertainty. The RSI momentum is edging lower from 70 and the concern remains that the recovery is looking tired. Initial support is 1.0270/1.0305 and a breach would induce a retreat towards 1.0100/1.0200 support area. Above 1.0480 would open moves towards 1.0600 the June resistance. 
  • GBP/USD is consolidating still around the top of a six-week uptrend channel. However, the move is looking a little more tentative of late. Technically the move looks positive but an unwinding back towards the 1.1500/1.1645 support area cannot be ruled out. Reaction around there would then be crucial. Initial resistance is 1.1955/1.2030.
  • AUD/USD has been easing back slightly in the last couple of sessions. This has left resistance at 0.6797 which also has formed a big downtrend dating back to April. A close back under 0.6670 support would open for a retreat back towards the neckline of the base pattern at 0.6550. With the RSI still well above 50, weakness still looks to be a chance to buy.

Commodities: Precious metals are looking increasingly set up for a near-term pullback. Oil is looking increasingly corrective.

  • Gold has posted a rebound high at $1786 and is starting to look set for an unwind of the bull run. This comes as the RSI has started to unwind from 70. Reaction to initial support at $1753 will gauge whether a near-term correction sets in potentially back towards $1730/$1735 old breakout support. Above $1786 the next resistance is the $1808 August high. The big base pattern continues to imply a target of $1855 in the coming weeks. 
  • Silver is seriously testing the bottom of the band of support from the old resistance between $20.85/$21.23. A close under $20.85 would open a deeper correction potentially back towards the support band around $20.00. The RSI momentum has been strong but is now unwinding and could move back towards the 50 area. Initial resistance is $21.25/$21.35 with $22.24 now key.
  • Brent Crude oil has seen another intraday rally fall over and has started to form a new trend of lower highs and lower lows in the past two weeks. A decisive move below $93.00 has also arguably completed a small top pattern that implies c. $86.00. The next test is support at $89.20 but the RSI is already leading the move lower. Initial resistance is $93.00/$94.00.

Indices: Wall Street is drifting back towards a test of breakout support. European markets are still holding up well.

  • S&P 500 futures have left a rebound high at 4050 and have started to drift lower. Two mild negative closes have seen an unwind back into the support band between 3883/3935 which was the previous breakout. This looks to be an unwind of more positive medium-term momentum now and within a five-week uptrend. However, reaction to this breakout support band will be key.
  • German DAX continues to hold up very well in the recent consolidation. The recovery has stalled but the buyers continue to fight back against any near-term corrective forces. This is despite the RSI still hovering above 70. The support around 14125 (this week’s low) is key near term and is protecting an unwind potentially back towards the 13970 breakout. The recent resistance at 14447 is holding back a test of the June high of 14708.

  • FTSE 100 has been choppy too but is also holding up well. Pressure on the five-week uptrend has encouraged buyers back in again. However, the market is still in consolidation under 7442. Despite this, yesterday’s positive close and an early move higher today lean towards a test of the 7442 resistance. A breakout would open 7516 and possibly 7578.  A close below 7304 opens the next support at 7228/7250. 


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