What we are looking for

  • USD ticking higher again: The gains of recent days continue to build for the USD against major forex. Moves may be slightly muted with traditional slight caution ahead of the data.
  • Indices are cautious: Markets are traditionally cautious ahead of the US jobs data. Today is no exception. US futures are all but flat. European markets have fluctuated but are lacking direction.
  • Commodities are mixed to slightly higher: There is a mild risk positive bias, with silver outperforming a rebound in gold. Oil is again struggling to find any positive traction.
  • Data traders: It is a big day of tier-one data. EUR traders will initially be watching for how much Eurozone HICP inflation falls. Then the focus turns to Nonfarm Payrolls which will impact all major markets. CAD traders will also be watching Canadian inflation too. Later in the US session, the ISM Services will also drive volatility on USD positions.

Overview

This is a day when tier-one data will be crucial for markets. The USD has strengthened this week as data from the US has shown continued tightness in the labour market. The US JOLTs jobs openings, ADP Employment Change and the weekly jobless claims have all come in better than expected. This increases expectations of a solid, maybe strong US Employment Situation report today. Headline Nonfarm Payrolls remaining strong (decisively above 200,000) would put pressure on the Fed to remain restrictive in its monetary policy.

Ahead of the payrolls data the USD has been positive but there is a degree of traditional pre-payrolls caution. However, it is interesting to see that risk appetite has also been buoyed overnight (with the news of support for property developers in China. This has boosted metals prices (copper has jumped early today), with the AUD supported. European equity indices remain positive.

It is a huge day of data for both the Eurozone and the US on the economic calendar today. Eurozone flash inflation will be a key focus in the European session. Inflation has been falling in Eurozone countries, with Germany, Spain and France all lower than expected. This leaves an elevated potential for a negative surprise to the 9.7% headline forecast. Despite this, core inflation is expected to tick marginally higher to 5.1%. The headline decline will be expected, so any surprise to the core HICP could generate the big reaction. 

US data kicks off with the Employment Situation with the headline Nonfarm Payrolls expected to fall to 200,000. However, labour market data has been tight throughout the week (JOLTs, ADP and jobless claims all coming in higher than forecast). USD would be supported and higher-risk assets would be under selling pressure. Also, watch for wage growth and unemployment components too. A little later, the ISM Services PMI is expected to drop slightly.

Today’s news

Market sentiment is mixed: The recent strengthening of the USD is on pause this morning ahead of payrolls. However, there is also a sense of support for risk assets following the news out of China.

Treasury yields higher: The 2-year yield (seen as a view on short-term interest rates) has moved higher with the labour market data this week. This has helped to support the USD. Longer-dated yields (such as the 10-year) have been more subdued. The 2s/10s spread has turned sharply more negative as a result.

China eases rules on property developers: The “three red lines” rule has been seen as restrictive. Easing this rule frees up investment. The sharp decline in the Chinese property sector has been a drag on risk appetite in recent weeks. The easing of this rule is helping to support risk today.

Fed’s Bullard on inflation: Bullard, seen as one of the most hawkish members of the FOMC says that inflation will likely “moderate in 2023”. He also said that Fed policy will soon be into restrictive territory., but that inflation will ease slower than markets expect.

Still no Republican leader in the House: Republicans continue to deny the election of the majority “House Speaker” in the House of Representatives. However, apparently, a deal could be close on Friday.

Cryptocurrencies hover: Crypto has been steady in the past 48 hours as traders look towards the tier-one data ahead. Bitcoin is a shade lower by -0.3% at $16800, with Ethereum -0.3% at $1248.

Three Fed speakers to watch for: The FOMC’s Lisa Cook (permanent voter, centrist) is at 16:15 GMT along with Raphael Bostic (2024 voter, a shade hawkish) also at 16:15 GMT. Thomas Barkin (2024 voter, hawkish) is at 17:15 GMT. 

Economic Data:

  • Eurozone flash HICP inflation (at 10:00 GMT) Flash headline inflation for December is expected to fall to 9.7% (from 10.1% in November), with core HICP expected to increase slightly to 5.1% (5.0% in November).
  • Eurozone Sentiment (at 10:00 GMT) Consensus is expecting Economic Sentiment to improve to 94.7 in December (from 93.7), with Industrial Sentiment up to -1.2 (from -2.0) and Services Sentiment up to +3.5 (from +2.3)
  • US Employment Situation (at 13:30 GMT) The headline Nonfarm Payrolls are expected to drop to 200,000 in December (from 263,000 in November). Average Hourly Earnings are expected to fall slightly to 5.0% (from 5.1%) with the Unemployment rate steady at 3.7%. 
  • Canadian Unemployment (at 13:30 GMT) The jobless rate is expected to increase slightly to 5.2% (from 5.1%)
  • US ISM Services (at 15:00 GMT) The ISM is expected to have fallen to 55.0 in December (from 56.5 in November)
  • US Factory Orders (at 15:00 GMT) Monthly orders are expected to decline by -0.8% in November (following +1.0% growth in October)

Major markets outlook

Forex: The renewing USD strength has been a feature of recent sessions. Nonfarm Payrolls will be key as to whether this continues. Major forex is cautious ahead of the data, however, the USD rally against JPY is particularly stark.

  • EUR/USD has turned lower this week and is starting to form lower highs and lower lows. The reaction to the support band between 1.0440/1.0495 will be key in the wake of the payrolls data today. The technicals are turning more corrective, with the RSI under 50, a two-month uptrend broken and now falling under the 21-day moving average (c. 1.0602). Under 1.0445 opens 1.0290. Initial resistance is growing at 1.0635.
  • GBP/USD has been drifting lower in recent weeks and is now breaking below the 1.1900 support. A decisive closing breach opens a deeper correction towards 1.1645/1.1735. Resistance continues to build between 1.2085/1.2125 and as the 21-day moving average rolls over this is becoming a basis of resistance. The RSI is falling at a near 3-month low and rallies are increasingly a chance to sell.
  • USD/JPY outlook is on the brink of a dramatic change. A sharp rally has taken hold in recent days, breaking the downtrend since mid-October. The market is now testing the key resistance of the latest lower high at 134.50. With the RSI unwinding towards 50 and the 21-day moving average also being tested, this is a pivotal moment. Above 134.50 changes the corrective outlook and completes a near-term base pattern. Initial support is at 132.95.

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Commodities: Precious metals are at a near to medium-term crossroads. Oil is tentatively hanging on to recent support.

  • Gold has unwound some of the early 2023 gains, but has started to find support again around the $1824/$1833 breakout.  This holds on to the eight-week uptrend and the rising 21-day moving average (both c. $1808) which are strong gauges of support. With strong RSI momentum, we still look upon near-term corrections as a chance to buy. Initial resistance is now $1865 under the $187p bigger resistance.
  • Silver has been less positive than gold in the opening moves of 2023 and has broken a two-month uptrend. The reaction to this breakdown will be key as the rising 21-day moving average (a basis of support) has also been breached. A failure to reclaim this support would suggest a growing corrective outlook. Initial support is at $23.11 but the next important support is towards $22.00/$22.55. Watch for the RSI moving below 50, this would be an added warning signal. Initial resistance is $23.90 with $24.545 now a key high.
  • Brent Crude oil has started to find some degree of support around $77.50 but the market is struggling. Having breached the $78.25 support earlier this week, the risk is for a retreat to the recent low at $75.50. With the market struggling to recover, a bull failure under the $81.00/$81.55 resistance would be a selling opportunity. 

Indices: US markets continue to consolidate, whilst European indices are just starting to show signs of easing off in their rallies.

  • S&P 500 futures have struggled for upside traction early in 2023, with choppy moves day to day. S&P futures are stuck in a three-week range between 3788/3919. RSI momentum is hovering a shade under 50, suggesting a slight negative bias. The market has continued to reject moves higher with the pivot band of resistance between 3912/3945. The resistance will continue to define the outlook, although for now, the support around 3788/3805 sustains this as a neutral outlook.
  • German DAX moved decisively higher in early 2023, but the move has struggled in the last couple of sessions around 14500. This also comes just under a test of the highs between 14605/14680. Reaction now could determine whether the market is developing an ongoing consolidation rectangle range of around 1000 ticks between 13690/14680. There is a mid-range pivot between 14125/14195 that will now become a gauge of new support.
  • FTSE 100 has started 2023 strongly and continues to move higher (albeit cautiously) this morning. The market is within touching distance of the 7695/7738 crucial resistance that has seen so many rallies fail over the past few years. Breaking above 7635 is a new 9-month high. There is a positive bias with the RSI strengthening into the mid-60s and points towards mounting upside pressure on the resistance. Initial support at 7541/7635 is strengthening.

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