What we are looking for

  • USD strengthening once more: The initial reaction to the Fed was for USD strength. There was some questioning of this yesterday as Japan intervened to support the yen. However, the USD strength is back on track this morning. 
  • Indices fall again: With the fear of more aggressive and ever tighter monetary policy from major central banks, major indices remain under selling pressure. Important support levels are approaching.
  • Commodities are slipping lower: With USD strength and a negative risk appetite, commodities are drifting lower. However, we note a lack of conviction in the selling of precious metals. This may be something to keep an eye on.
  • Data trading: GBP traders will be watching the flash UK PMIs. USD traders will watch both the flash US PMIs and a speech by Fed chair Powell later.     

Overview

Major markets have navigated their way through a slew of monetary policy updates from major central banks. We have also seen intervention from Japan to restrict the sell-off in the yen. However, as the dust settles towards the end of the week, existing trends are re-establishing once more. The USD remains a dominant force across major assets. There is also an ongoing bias of negative market sentiment that is weighing on any assets deemed to be higher risk.

This is all driving EUR/USD and GBP/USD once more to multi-decade lows. Equity markets are falling again, with US futures around -0.5% lower again. Commodities are also lower. There is a slight anomaly with support for cryptocurrencies such as Bitcoin and Ethereum. However, if risk appetite continues to deteriorate, crypto is likely to follow other higher-risk assets in a decline.   

The flash PMIs dominate the economic calendar today. The Composite UK PMI is expected to deteriorate further into contraction (below 50), driven by a move to stagnation in the dominant services sector. In the US, both manufacturing and services are expected to improve slightly and help an improvement in the US Composite PMI, even if it is set to remain below 50 and in contraction. It is also worth keeping an eye out for a speech by Fed chair Powell who speaks later in the US session. 

Today’s news

Market sentiment deteriorates again: The usual trends of this are in place. USD is strengthening whilst indices and commodities are falling.

Treasury yields are steady after recent sharp rises: The US 10-year jumped +19bps yesterday (after Japan sold US Treasuries to intervene in the JPY sell-off). This move is consolidating this morning.

Australian flash PMIs picked up: The Composite PMI improved to 50.8 from 50.2 in August. This was slightly better than the 50.5 expected.

Eurozone flash PMIs deteriorate broadly as expected: The flash Composite PMI has dropped to 48.2 (from 48.9). This was as markets had forecast.

OPEC+ reduction possible: With the oil price falling, this may force OPEC+ into cutting production. This is according to the Nigerian oil minister.

UK Chancellor to announce a “mini-budget”: The new Chancellor of the Exchequer Kwasi Kwarteng is set to announce a series of tax-cutting measures today in an attempt to help with the energy crisis and boost the UK economy.

Fed chair Powell speaks today: Powell is pencilled in to speak at 18:00 GMT. It will have only been just under 48 hours since the FOMC press conference, so there may not be anything we do not already know.

Cryptocurrencies hold up well, for now: Despite the risk-negative bias of major markets, crypto rebounded into the close last night and has held up relatively well this morning. Bitcoin is flat at $19250, whilst Ethereum is +1.0% at $1335.

Economic Data:

  • UK flash PMIs (at 08:30 GMT) Consensus is expecting the flash Composite PMI to show a slight deterioration in September to 49.0 (from 49.6 final August). Manufacturing is expected to improve slightly to 47.5 (from 47.3) but Services are expected to drop to 50.0(from 50.9).
  • US flash PMIs (at 13:45 GMT) Analysts are looking for the flash Composite PMI to improve in September to 48.0 (from 44.6 final August). Manufacturing is expected to improve slightly to 52 (from 51.5) whilst Services are expected to improve to 47.0 (from 43.7).

Major markets outlook

Broad outlook: Negative risk appetite is the dominant theme again across major markets. 

Forex: USD is a key outperformer, with JPY holding ground now. GBP and EUR are the main underperformers. 

  • EUR/USD has consolidated the breakdown of the old August/September lows between 0.9864/0.9900. With further downside this morning, these are new 20-year lows and there is no support of note other than round number psychological levels. A conservative downside projection of a range breakdown implies a decline towards 0.9650. The overhead supply is building between 0.9864/0.9900.
  • GBP/USD is accelerating lower below the six-month downtrend channel. There is no meaningful support now, with 1.10 and then arguably parity the next levels of note. With 1.1350 acting as resistance, the market has again taken another leg lower this morning. There is a possibility of becoming oversold now, with the daily RSI into the mid-20s, around where previous sell-offs have fizzled out. However, any strength is still a chance to sell. 
  • AUD/USD has confirmed the breach of the 0.6670 support with an attempted rally that found resistance at the old support. The Aussie is falling away again this morning. Recent moves have left plenty of overhead supply with resistance between 0.6670/0.6760. Momentum remains correctively configured with further downside potential on the RSI (daily RSI is in the high 30s). We continue to look to sell into near-term strength. Yesterday’s low at 0.6575 is initial support.

Commodities: Gold is choppy but remains stuck under resistance, whilst the outlook for silver is arguably improving. Oil continues to struggle with the resistance of overhead supply.

  • Gold has been consolidating in a choppy range from support at $1653 up towards the overhead supply now between $1680/$1691. However, with the resistance around the old key July/August lows, there is still a negative bias to the outlook. Momentum remains correctively configured and we favour selling strength for further downside. Below $1653/$1654 the next support comes in between $1550/$1610. The caveat to this is that gold is in this mini range whilst other major assets are being sold. This could be a sign of support building, but for now, we have to favour further weakness.
  • Silver continues to fluctuate over the past week and is holding up well relatively well. It is still holding on to an uptrend of the past 13 days, posting higher daily lows throughout much of this week. However, the five-month downtrend is capping the upside and resistance between $19.60/$20.00 is holding back a recovery. We watch for a close above $19.70 to be an initial sign of a potential upside break. For now, though this is a consolidation. Initial support is now yesterday’s low at $19.24 and then at $19.05 above the key near-term low at $18.77.
  • Brent Crude oil continues to fail around the resistance band between $93.25/$96.60. This is a growing near to medium-term barrier, with the falling 21-day moving average (currently around $93.90) also a basis of resistance for smaller technical rallies. With all trends and moving averages falling, we favour selling into strength to a retest of the $88.25 low once more. Initial support is at $89.00.

Indices: The bears remain in control as markets continue to sell into near-term strength.

  • S&P 500 futures are consistently seeing intraday rallies being sold. The market is now falling back to test the July low at 3723. With momentum, correctively configured rallies remain a chance to sell. There is resistance initially now between 3832/3852. A rebound would need to get above 3935 for any sustainable traction in recovery. Below 3723 a retest of the June low at 3639 would be on.
  • German DAX is seeing intraday rebounds falter at lower levels as the market once more falls back towards a test of the long-term key lows at 12375/12425. There is continued corrective configuration on momentum indicators and near-term rallies are a chance to sell. There is resistance initially between 12625/12775 with a move above 12930 needed to engage a sustainable recovery.
  • FTSE 100 has fallen in each of the past seven sessions and has now this morning broken the support band between 7127/7164 from the September lows. This now opens a test of the key June/July lows between 6969/7010. Momentum continues to deteriorate, with further downside potential. There is a caveat today, with the UK mini-budget. However, there is still a negative bias and near-term rallies remain a chance to sell. There is resistance between 7172/7285. 


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.