What we are looking for
- USD unwind continues: The near-term USD correction since last Friday continues this morning. EUR/USD holding above 1.0220 opens for a further recovery towards 1.0350.
- Indices also recovering well: Wall Street has continued to recover and is beginning to show signs of buying into weakness. Technical resistance signals are also being broken to further develop the recovery.
- Data trading: CAD traders will be watching how high headline Canadian inflation goes. EUR traders will be watching Eurozone Consumer Confidence, whilst the only specific US data to impact USD will be Existing Home Sales.
Overview
There has been a notable shift in sentiment in recent days. Whisper it quietly, but indices are now finding buyers into weakness. This is a key change in strategy, that is starting to develop into some sustainable recovery patterns on Wall Street. The question is whether these recoveries can continue. There has been a respite from hawkish Fed commentary, with the FOMC into its blackout period ahead of next week’s meeting.
There has also been an uptick in broad sentiment from a slightly more encouraging outlook for the Eurozone. Key fears over recessionary pressures have come amid suggestions that Russia shutting off the Nordstream 1 gas pipeline for maintenance, would never re-open. However, this has been downplayed by the Russians, leaving a more positive tone for European equities. However, in a conflict where subterfuge and deceit play a prominent role, how long this lasts is uncertain. For now, though, risk appetite is positive, leaving a USD correction and recovery for indices in play.
With UK inflation annoucned earlier this morning, there is not much on the economic calendar until the US session. However, Canadian inflation is expected to show headline levels continuing to rise, whilst core inflation remains steady. Eurozone Consumer Confidence is expected to show continued deterioration in July to further two-year lows. The only US data to be concerned with is on Existing Home Sales which are expected to decline for a fifth consecutive month in June.
Today’s news
Market sentiment continues to recover: European indices and US futures are moving higher. USD continues to correct. Silver is outperforming gold. Bitcoin continues to recover.
Treasury yields stable after steady moves higher yesterday: Yields were higher yesterday by around 6bps/7bps. They are steady this morning, showing little real direction.
Russian gas supplies into Europe: President Putin has said that Gazprom is ready to pump gas as much as needed into Europe. This is weighing on energy prices, with oil notably around -1.5%/-2% lower today.
People’s Bank of China holds rates steady: The 1-year Loan Prime Rate remained at 3.7% in July, with the 5-year rate unchanged at 4.45%.
UK Inflation continues to increase: Headline CPI inflation increased to 9.4% in June (from 9.1% in May) which was slightly higher than the 9.3% forecast. This is the highest since February 1982. However, the core inflation rate did fall slightly to 5.8% (from 5.9%) which was broadly in line with expectations. This leaves the Bank of England with a decision of whether to hike by 25bps or 50bps. Interest rate futures are pricing for a 50bps hike.
Cryptocurrencies continue to climb: Bitcoin jumped by over +8% yesterday and is another 1% higher today, holding around $23,500.
Economic Data:
- Canadian inflation (1330BST) – Headline inflation is expected to rise to 8.4% in June (from 7.7%) but core inflation is forecast to be steady at 6.1%.
- Eurozone Consumer Confidence (1500BST) – Confidence is expected to continue to deteriorate in July to -24.9 (from -23.6 in June)
- US Existing Home Sales (1500BST) – Sales are expected to decline by -1.8% to 5.30m in June (from 5.41m in May)
Major markets outlook
Broad outlook: Risk positive bias continues across major markets. USD remains near-term corrective, with indices moving higher.
Forex: USD is underperforming, with CAD struggling as the oil price has dropped. NZD, AUD and EUR are gaining.
- EUR/USD has moved through the resistance around 1.0190/1.0220 and this has opened the way for a more considerable rally towards 1.0350. Near-term recovery momentum is backing the move, which will now look to use 1.0190/1.0220 as a basis of support. We back the near-term recovery but are mindful that this is still likely to be just a near term move. Support at 1.0120 is a first higher low of the recovery.
- GBP/USD has been recovering in recent days but the resistance at 1.2055 has yet to be overcome. This is the first real lower high of the recent sell-off and will be the first gauge of how sustainable recovery can be. If the 1.2055 barrier can be overcome then it would open for a bigger rebound towards 1.2160. However, we remain mindful that this is still likely to be a near-term technical rally and we favour selling into strength once the rebound has played out. Initial support at 1.1925.
- AUD/USD has broken through resistance at 0.6895 and is developing the recovery which could move towards the three-month downtrend currently around 0.6965, which is also the next price resistance. However, we are cautious of the reaction to a bull failure and look for any signals that suggest the recovery running out of steam. A failure back under 0.6830 would suggest the bear trend resuming.
Commodities: Precious metals struggling for any recovery traction. Oil is faltering around resistance.
- Gold may have found support at $1697 above the key 2021 low of $1676, but the daily candlesticks in each of the past few sessions have been lacking conviction and have struggled to recover. Momentum has also failed to signal a recovery. Near-term overhead supply is building around $1723/$1732 under the main resistance at $1745/$1752. We continue to see near-term rallies as a chance to sell but are concerned that this struggle is a sign that there is further downside to test $1676.
- Silver has picked up from $18.14 but has struggled to generate any real recovery traction in recent days. The resistance between $18.90/$19.48 is the barrier to a continuation of a technical rally. There is a slight edge higher on the RSI which points hints at a positive near-term bias and a test of $19.48 could be seen. However, as yet recovery is a struggle. Initial support is at $18.58 above the low of $18.14.
- Brent Crude oil has rallied well in recent sessions and is testing the resistance band between $107.65/$109.65. The market reacted well to initial intraday selling yesterday, so the early move lower today will be watched. The concern remains that this is a near-term technical rally into resistance that generates another chance to sell. The RSI momentum is suggesting this as it turns lower just under 50. Support around $104.65 is an initial higher low.
Indices: Wall Street is recovering well and is looking to break clear of the crucial pivot area of resistance.
- S&P 500 futures posted a strong bullish candle yesterday to push through the important near to medium-term resistance band of 75 ticks between 3875/3950. This has also broken a four-month downtrend and the RSI moving above 55 is encouraging for the bulls. Futures have fluctuated this morning, but closing decisively above 3950 would be an important confirmation of the recovery and open a move towards the next band of resistance 4070/4200 considerable recovery. Initial support at 3875/3920 with 3820 as a higher low.
- German DAX has seen a strong recovery in the past few sessions. A move above 13,012 has completed a small base pattern that implies c. +650 ticks of rally towards 13,650. . A close above would complete a small double bottom reversal pattern and imply a recovery of c. +600 ticks. A test of the next resistance at 13,375/13,430 is underway. Improving momentum confirms the recent move and how the market reacts around 13,430 will be key. A move above would be a key signal of intent for further recovery. The bulls will look to now buy into weakness. Initial support is at 12,935/13,060.
- FTSE 100 has recovered well to test the resistance between 7300/7370 which marks the top of a one-month choppy trading range. The move has also significantly improved the momentum on the RSI, but a move above 60 would be needed to suggest significant recovery momentum. The bulls will be looking to use any weakness into 7230/7290 as a chance to buy.
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.
