What we are looking for
- USD is just edging higher: With GBP and NZD weakening, there is a mild USD positive bias on major forex.
- Indices have found support near-term: Selling pressure has settled and there is a shade of positive bias. US futures are around +0.5% higher with mild gains on European indices.
- Commodities pull back: Gold and silver were strongly higher yesterday but are easing back this morning. Once more we see oil is also drifting lower.
- Data traders: CAD traders will be watching for any downside surprises to Canadian inflation, especially in the core. USD traders will be primarily watching for how much Consumer Confidence picks up.
Overview
The dust is settling following the shock move from the Bank of Japan yesterday. Huge JPY strengthening across major forex has started to settle this morning. Whilst the BoJ move opens the door to the potential for further tightening in 2023, this morning, the momentum of the buying pressure on JPY has eased back. It will be interesting to see how far an unwinding of yesterday’s gains can go because the move from the BoJ is a key shift in policy that could drive JPY strengthening in the months to come.
Elsewhere, with markets settling, there is a mild rebound in equities. There is still key resistance overhead from the old key levels of the recent breakdowns. However, for now, there is a retracement underway. We are also looking at a pullback on gold and silver after strong gains yesterday. Once more, the strength of the technical outlook is such that this is a minor retracement that could be seen as an opportunity.
It is one of the busier days in a relatively quiet week on the economic calendar. Canadian inflation is expected to fall slightly on the headline, but remain steady on core inflation. US Existing Home Sales are expected to follow the trends of other housing measurements and continue to track lower. The big focus for traders will be on US Consumer Confidence which is expected to improve slightly.
Today’s news
Market sentiment looks more steady: Risk appetite has settled after another volatile day yesterday. Indices are supported and major forex is also more settled.
Treasury yields have eased back slightly: Early moves higher threatened to continue yesterday’s move, but this has been settled as yields have been dragged back.
Cryptocurrencies drift lower: Crypto had a decent recovery yesterday but the gains are easing back this morning. Bitcoin is -0.5% at $16800, with Ethereum -0.6% at $1208.
Economic Data:
- Canadian Inflation (at 13:30 GMT) Headline inflation is expected to be flat on the month in November which would pull YoY inflation down to 6.7% (6.9% in October). Core inflation is expected to remain steady at 5.8%.
- US Existing Home Sales (at 15:00 GMT) Existing sales are expected to fall by 5.4% in November to 4.200m (from 4.430m in October).
- US Consumer Confidence (at 15:00 GMT) Confidence is forecast to improve slightly to 101.0 in December (from 100.2 in November).
Major markets outlook
Broad outlook: Markets are looking more settled. This could be the beginning of the quiet Christmas trading.
Forex: There is a shade of USD outperformance, with NZD and GBP weakening.
- EUR/USD has breached a five-week uptrend, but the support of the previous breakout is still holding around 1.0575/1.0595 as consolidation has begun to set in. Momentum remains positively configured with the daily RSI holding above the high-50s. Given the strength of momentum and the uptrend, until otherwise, we still look to use near-term weakness as a chance to buy. The importance of the support band 1.0450/1.0500 is growing. Resistance is at 1.0735 ahead of the key May highs of 1.0785.
- GBP/USD has broken the six-week uptrend with a sharp move lower following the FOMC and Bank of England decisions. However, the support around the first higher low of the recovery (at 1.2100) is holding for now, despite a brief intraday breach. A decisive closing breakdown would turn the market decisively corrective, opening 1.1900 as the next key support. Recent days have seen small-bodied on the daily candles reflecting a consolidation. Initial resistance is 1.2240 under 1.2300. The reaction high at 1.2446 is now a key high.
- USD/JPY is just consolidating this morning following a massive sell-off. The move has held onto the key support of the August low at 130.40. Often, after such a sharp move there can be a retracement. This means that the previous supports between 133.60/134.50 are now a basis of overhead supply and resistance for any attempted technical rally. Given the strength of a two-month downtrend, the falling 21-day moving average and the negative momentum configuration, we favour selling into near-term strength. A close below 130.40 opens the next key support around 126.50.
Commodities: Precious metals are just easing back after another strong run higher. Oil still looks vulnerable to renewing selling pressure.
- Gold has pulled strongly higher again, driving the market towards a test of the $1824 resistance. There is a six-week uptrend and the rising 21-day moving average (c. $1782) as the basis of support. We are mindful of a mild negative divergence in momentum, but for now, we look to use near-term weakness as a chance to buy. Above $1824 opens $1840/$1856 as the next resistance. Initial support is $1777/$1784, but $1765 is the first key higher low of the recovery.
- Silver has rebounded strongly from the support of the old breakout band c. $22.00/$22.50 to breakout again above $24.12 resistance. With the daily RSI positively configured above 50, weakness remains a chance to buy. The initial resistance is around $25.00 but the next key reaction high is not until $26.20. Initial support is around $23.30/$23.50.
- Brent Crude oil remains correctively configured within the six-week downtrend. With the bull failure faltering around the resistance of the old support band of $81.40/$83.55, along with the resistance of the falling 21-day moving average and the downtrend, we continue to see near-term gains as a chance to sell. There is an element of near-term consolidation, but a move below initial support at $78.25/$78.50 could see the market re-opening the lows again at $75.50.
Indices: Equity markets have picked up slightly but remain under the key resistance of the breakdown of old support. We still favour seeing rallies as a chance to sell.
- S&P 500 futures turned corrective on the decisive move below the key support at 3912. This breakdown completed a top which implies a move towards 3720. However, an intraday rebound yesterday from 3803 could give rise to a rally back towards the neckline resistance of the top. The initial resistance is 3855/3899 and then a more considerable resistance barrier between 3912/3945. Below 3803 the next support is at 3750.
- German DAX could be an interesting gauge for indices now. The implied target of 13700 from the top pattern on the decisive close below 14125 has been achieved. The market has now rebounded from 13692 to form a “bull hammer” candle. This is a positive signal, but the market is still under the resistance of the neckline (at 14125). Reaction to this rebound will be key, with resistance initially 13999/14040 before the bigger resistance around 14125/14195. A break below 13600 would be a decisive bearish signal.
- FTSE 100 completed a top pattern with a decisive break below 7437 to imply a move towards 7240. However, there has been a rebound from 7305 (support from November) and the move is pulling back towards the neckline resistance from the top. Reaction to this neckline will be key now. The RSI is corrective and is unwinding back towards 50. With a band of resistance 7395/7440, a bull failure would continue the corrective trend of the past few weeks.
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