What we are looking for

  • USD strengthens again as risk appetite plunges: A goldilocks Nonfarm Payrolls keeps a 75bps Fed rate hike as likely. USD remains a dominant force in major forex. 
  • Indices fall early: Wall Street fell hard into the close on Friday and European markets are playing catch up today.
  • Commodities find a basis of support: Commodities were supported on Friday with oil solidly higher today ahead of the OPEC+ meeting.
  • US Labor Day: A public holiday in the US. We can expect lighter volumes, and lower liquidity across major markets.
  • Data trading: GBP traders might get some action out of the final UK Composite PMI today. After the final manufacturing PMI was revised higher, there will be an upside risk to the final Composite PMI. Eurozone retail sales will give some interest to EUR traders.

Overview

Market sentiment was hit hard into the close on Friday amid fears over the implications of Russia stopping gas supplies into Europe. A sharp sell-off on equities and flow back into the USD resulted, with bond yields falling on increased safe-haven flow. There have been reports that gas supplies resumed on Sunday but risk appetite remains very cautious. However, with the US on public holiday for Labor Day, there will be lower liquidity. This could mean some sharp moves in major markets. Already we have seen a sharp move lower on EUR swinging back higher. European indices could also be set for some swings today. 

There is a European focus on the economic calendar today. The final UK Composite PMI is not expected to show any revision from the flash reading. However, after there was an upward revision to the Manufacturing data, there is an upside risk to the forecast. Eurozone retail sales are expected to improve even if they are set to remain in negative growth year on year.

Today’s news

Market sentiment is still nervous: Sharp moves into safe havens are being retraced. 

Treasury yields closed after sharp falls: The lack of guidance from US Treasuries makes for a difficult day for traders. Yields fell sharply into the close on Friday with a safe haven flow.

China Caixin Composite PMI higher than expected: The unofficial Caixin PMIs were expected to drop close to 50, but held up well. The Composite PMI dropped only slightly to 53.0 (from 54.0).

Eurozone final Composite PMI revised down: The final Composite was revised slightly lower to 48.9 from the 49.2 flash reading.

Gas flow from Russia into Europe resumes: Supposedly the flows resumed on Sunday. Flows via Nord Stream 1 had been fully suspended. 

OPEC+ meeting today: A decision on production levels will be taken. Levels are expected to be kept steady, but could potentially be cut. The Saudis are reportedly pushing for cuts, although Russia is less keen. OPEC+ has missed output levels for several months.

US public holiday today: It is Labor Day in the US today (and in Canada). We expect lighter volumes and 

Cryptocurrencies fall early this week: With mixed moves over the weekend, Bitcoin has fallen early on Monday by around -1.5%. The price is back around $19700. 

Economic Data:

  • UK Composite PMI - final (08:30 GMT) Consensus is not expecting any revision to the Composite PMI from the flash reading of 50.9 (down from 52.1 in July)
  • Eurozone Retail Sales (09:00 GMT) With monthly growth of +0.4% in July, the year-on-year sales are expected to remain negative but improve to -0.7% (from -3.7% in June).

Major markets outlook

Broad outlook: The USD outperformance has eased slightly. European indices are sharply lower, with the DAX especially hit hard.

Forex: Strong USD outperformance has moderated slightly. Negative risk appetite is leaving AUD and NZD underperforming.

  • EUR/USD held up well following the Nonfarm Payrolls report on Friday but fell hard as EUR sold off on concerns over the gas supplies. This move continued early today to breach the 0.9900 support. This has been reclaimed (from 0.9877) and we wait to see the close. A close below 0.9900 would be negative and open the potential for 0.9700 on a downside projection. The initial resistance is 0.9940/0.9970.
  • GBP/USD continues to fall (I could just leave it there…). There is a low of a near four-month downtrend channel that comes in around 1.1400, all but coinciding with the COVID spike low of 1.1410. This is the only support of note before parity. The RSI is increasingly stretched below 30 but there is no sign of it reacting to oversold positioning.  The hourly chart shows the old low at 1.1500 is the initial resistance, with 1.1590 a further barrier now. 
  • AUD/USD has turned corrective following the breach of support at 0.6840/0.6870. Furthermore, the old support at 0.6840/0.6870 is now a basis of overhead supply and resistance. A close below initial support at 0.6770 opens the July low of 0.6680.  

Commodities: Tentative signs of a near-term recovery in precious metals are growing. This is also the case with oil ticking higher near term.

  • Gold has rebounded decisively and is holding the move this morning. However, the key near-term test will be the reaction to the resistance between $1720/$1726. This is an overhead supply. The outlook remains one to sell into strength and a bull failure could be an opportunity. We favour a retest of $1680 in due course. Initial support is at $1688.

  • Silver has rebounded from $17.55 and the market has continued to tick higher this morning. However, reaction around the old lows and overhead supply resistance between $18.14/$18.31 will be an important gauge. The rebound faltered at $18.28 on Friday, so if there is another failed rally today, this would suggest this is another chance to sell. Below $17.55 the next support is between $16.95/$17.35. The big resistance is $18.70/$19.35.
  • Brent Crude oil has held the support at $93.25 and has now rebounded well over the past couple of sessions. However, the configuration of daily RSI suggests that unwinding moves towards 50 remain a chance to sell. There is initial resistance between $96.00/$97.20 which is being tested, with more considerable resistance between $98.25/$100.60.

Indices: An attempted rebound on Wall Street fell over dramatically on Friday. This leaves European markets also under negative pressure.

  • S&P 500 futures looked to be recovering from 3903 following the “bull hammer” but Friday's failure rally has heaped pressure back on the 3903 support. Theoretically, the hammer pattern is still alive, but it is on life support. A breach, especially on a closing basis would be a considerable negative development. It would strengthen the corrective outlook. Subsequent support is at 3820 with 3723 key support. Initial resistance at 3953 and then 4018.
  • German DAX is aborting the recovery prospects of the “bull hammer” candle, after Friday’s massive bull failure late in the session. A close under 12593 once more directly opens a test of 12375/12425 support of the July lows. Rallies remain a chance to sell. Initial resistance is 12720/12775 with 13050 now key resistance. 
  • FTSE 100 has held up relatively well after other peer indices fell sharply back on Friday. However, there is still a negative bias to the configuration and the tentative support at 7127 could come under further pressure. The resistance at 7288 needs to be broken to re-engage recovery prospects. Below 7127 there is little real support until the June/July lows at 6969/7010.


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.