What we are looking for

  • USD easing back again: After yesterday’s gains on major forex pairs, the USD is easing back slightly once more.
  • Indices looking more stable: After a strong decline yesterday across major indices, US futures are all but flat and European indices are consolidating.
  • Commodities steady after the decline: Yesterday’s sharp pullback on precious metals has stabilised today.
  • Data traders: There is plenty of US data on the final trading day before Christmas. USD traders will be focusing on the US Core PCE and looking for any surprise revisions to Michigan Sentiment. CAD traders will be watching the October Canadian GDP data.

Overview

Into the final trading session before Christmas, the European session comes with stabilisation on major markets. Yesterday’s strong data in the US (including an upward revision to Q3 GDP and positive weekly jobless claims) had driven a move on likely liquidity-reduced markets. Indices and commodities fell decisively and whilst there was some USD positive bias on major forex, the moves were relatively contained and are also broadly being given back today. The pullback on indices especially has significantly added to already sizable overhead supply that could now prevent a Santa Claus rally from taking hold over the Christmas and New Year period. 

Despite it being the final trading day before Christmas it is a busy day on the economic calendar. The Fed’s preferred inflation gauge, the US Core PCE is expected to track the CPI lower with a drop from 5.0% to 4.7%. Core Durable Goods Orders are expected to be flat on the month. Canadian GDP is expected to show minimal growth in October. US New Home Sales are expected to show a continued decline in November. Analysts are expecting the final Michigan Sentiment to be unrevised.

Today’s news

Market sentiment has settled after souring yesterday: Into the final trading day before Christmas, there is a more settled feel to sentiment.

Treasury yields are a shade higher: The 10-year yield is slightly higher but essentially in consolidation this morning.

Japanese core inflation surprises higher: Core inflation has increased to 3.7% in November (from 3.6% in October). This was as forecast by the consensus. JPY has weakened slightly since.

Cryptocurrencies are steady: Crypto has some intraday volatility yesterday but is broadly still consolidating. Bitcoin is +0.2% at $16825 with Ethereum +0.2% at $1217.

Economic Data:

  • US Core PCE (at 13:30 GMT) Consensus is expecting a decline in core PCE to 4.7% in November (from 5.0% in October).
  • US Durable Goods – core ex-transport (at 13:30 GMT) Core durables are expected to have zero growth in November (+0.5% in October).
  • Canadian GDP - MoM (at 13:30 GMT) October GDP is expected to have grown by +0.1% (+0.1% in September).
  • US New Home Sales (at 15:00 GMT) Analysts are expecting sales to decline by -5% in November to 600,000 (from 632,000)
  • Michigan Sentiment - final (at 13:30 GMT) Consensus is expecting final sentiment to be unrevised at 59.1 in December (final November 56.8)

Major markets outlook

Broad outlook: Markets are steady ahead of the US data. There may be some late volatility if there are any significant surprises.

Forex: USD giving back yesterday’s gains.

  • EUR/USD continues to consolidate in a tight range between 1.0575/1.0660 in the run-up to Christmas. The bottom support around 1.0575/1.0595 has been tested but has held up well. 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. A breakout above 1.0660 would open the recent high of 1.0735 which is a barrier to the key May highs of 1.0785. The importance of the support band 1.0450/1.0500 is growing.
  • GBP/USD has broken the six-week uptrend and with a negative session, yesterday breaching the 1.2100 support. There is a slight trend of lower highs in recent days that hints at a mild corrective bias. Resistance is building between 1.2100/1.2150 with a drift towards a test of 1.1900, the next key support increasingly favoured. Resistance at 1.2240 protects the reaction high at 1.2446 which is now a key high. 
  • USD/JPY has managed to find a low at 130.57 and is gradually building an element of support following the massive sell-off on Tuesday. The move has held onto the key support of the August low at 130.40 and a push above 132.90 would be the next step forward in recovery. However, given the negative momentum configuration, we still favour selling into near-term strength. The previous supports between 133.60/134.50 are now a basis of overhead supply and resistance for any attempted technical rally. A close below 130.40 opens the next key support around 126.50.

Commodities: Precious metals continue to use uptrend support into near-term weakness. Oil is consolidating under important resistance.

  • Gold continues to post higher lows and higher highs but has once more pulled back from the $1824 resistance. The support formed yesterday at $1785 around a six-week uptrend and the rising 21-day moving average (c. $1786). For now, we see near-term weakness into support as a chance to buy. However, we are mindful of a growing, albeit mild, negative divergence in the daily RSI momentum. 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.

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  • Silver broke above $24.12 resistance earlier in the week but has eased back again from $24.29. With the daily RSI consistently strong, and the support of a seven-week uptrend intact, we are still bullish. There is the slightest hint of a negative divergence with the latest high that we need to just watch. However, for now, we are happy to back supported weakness as a chance to buy, with initial support around $23.30/$23.50. Above $24.29 the initial resistance is around $25.00 but the next key reaction high is not until $26.20.
  • Brent Crude oil outlook has improved as a strong rebound on Wednesday has broken the six-week downtrend. However, the key test remains the resistance of the old support band of $81.40/$83.55. A bull failure around the falling 21-day moving average would suggest that a potential recovery still has some work to do. Despite this, support is growing between $78.30/$80.90.

Indices: Equity markets continue to struggle under breakdown resistance. However, the Christmas period is a time of reduced liquidity and possibly elevated volatility.

  • S&P 500 futures have turned sharply lower following the rebound earlier in the week. This has significantly strengthened the resistance barrier between 3912/3945 from the last key breakdown. With the RSI failing around 50 again, this looks to be an important pivotal moment that the bears are winning. With the resistance so strong, we favour pressure on 3788 and potentially moves to test 3704/3750. Holding above 3945 is needed for sustaining a bullish reversal.
  • German DAX has seen a rebound fail in the resistance of the old neckline support between 14125/14195. With the daily RSI failing under 50, this is a growing concern for a negative bias. This would favour a retest of the 13691 reaction low. A decisive close above 14195 would be a positive signal. 
  • FTSE 100 has rallied sharply this week but the move has faltered under the lower high at 7565. There is a more positive configuration for FTSE than other major indices, with the daily RSI above 50 and a recent corrective downtrend broken. The key would be to hold up above support now between 7430/7440. A failure under here would turn the market corrective again and bring 7305 back into play.

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