Espresso Morning Call: USD bull run resuming once more

What we are looking for

• USD bulls back in control: After the payrolls report, Treasury yields have tracked higher again and the USD is strengthening. There may be an element of pause today given it is Columbus Day in the US, but the trend of USD seems to be back on track. 
• Indices under pressure in Europe: With negative risk appetite, indices are again selling off
• Commodities reflect the risk aversion: Silver fell sharply on Friday and is down once more today. Gold is less weak but is also lower.
• US public holiday today: This will mean thinner markets, and could dampen the negative bias, for now. 
• Data trading: There is no major data due today. The two Fed speakers may move USD positions though.

Overview

Market sentiment has soured once more. Friday’s US payrolls reflected the ongoing tightness in the labour market and keeps the Fed firmly on track towards a +75bps hike in November. Attention will now turn towards Thursday’s US CPI data for the next significant risk event. In the meantime though, US Treasury yields are tracking higher (although US bond markets are shut today for Colombus Day), and the USD is strengthening. With negative market sentiment once more in play, this is also driving commodities back lower and equity markets are also selling off.

For today, the lack of guidance from US bond markets and thinner markets could make market moves a little subdued. However, unless there is something that changes the mood once more, the trend of risk aversion and USD strength seems to be back on track. At least until US CPI on Thursday.

The economic calendar is completely bare today. There are a couple of Fed speakers to watch out for. Charles Evans is one of the most dovish members of the FOMC but is due to retire in early 2023. Also, Lael Brainard is a permanent voter and is now considered probably the most dovish on the FOMC.

Today’s news

Market sentiment turns negative: USD strength and negative risk appetite hitting equity markets and commodities.

Treasury markets are closed: There is no guidance from US bond markets today, which are shut for Columbus Day.

China Caixin Services PMI disappoints: Saturday’s Caixin services fell to 49.3 in September. This was well down from the 55.0 in August and a big miss of the 54.5 forecast. The composite PMI fell to 48.5 from 53.0 previously. This is adding to the risk negative bias today.

US markets shut: It is Columbus Day in the US. This will mean reduced liquidity and likely quiet/subdued markets.

Cryptocurrencies falling: Crypto has started the week on the back foot. Bitcoin is -0.6% at $19425 with Ethereum -1.0% at $1318.

Two Fed doves speak today: Charles Evans (2023 voter, dovish) speaks at 13:00 GMT. Also, Lael Brainard (permanent voter, dovish) is due to speak at 17:00.

Economic Data:

• There is no major economic data due today. 

Major markets outlook

Broad outlook: Market sentiment has soured since US payrolls. 

Forex: USD is the main outperformer. AUD is the big underperformer, with EUR and NZD also lower. 

• EUR/USD peaked at parity (1.0000), posted three consecutive decisive bearish candles and looks set for a fourth today. With the support at 0.9735 being breached, the market has turned decisively lower and a retest of the September low at 0.9535 is increasingly likely. A breach of support at 0.9635 would open the way. Initial resistance is at 0.9815/35.
• GBP/USD has seen the recovery turning lower with three consecutive bear candles. There is an early consolidation this morning, but a move below support at 1.1025 would signal a deeper correction (confirmed below 1.1000). Intraday rallies still look to be a chance to sell. Initial resistance is at 1.1225.
• AUD/USD has decisively broken the near-term key support at 0.6363 and is moving sharply lower. The move to a new two-and-a-half-year low leaves the next support at 0.6250. The daily RSI is confirming the breakdown with a move below 30. We favour using rallies as a chance to sell, but this is a move that is strongly negative on momentum. 

Commodities: Friday’s sharp sell-offs on precious metals are continuing. The rally on oil has slipped but remains on track.

• Gold has turned sharply lower in the wake of the US payrolls data. A move back under $1700 is now testing the old pivot around $1680. If there is a decisive break below $1680 it would be a key negative signal (back under the 21-day moving average too). It would open $1659 as the next test. The bull failure of the past couple of days has significantly strengthened the resistance at $1735. Initial resistance is now $1700/$1715. 
• Silver continues to trade with elevated volatility. With the latest deterioration in risk appetite, there is a sharp swing lower. The move this morning to break the key pivot support at $19.90/$20.00 would be a big negative signal if confirmed on a closing basis. This would then be seen as a basis of resistance. The next support is $19.00/$19.25.

• Brent Crude oil continues on the recovery path. The decisive break higher through the resistance between $93.25/$96.60 has been a key move that shifts the medium-term outlook. As the market drifts back slightly lower this morning, the reaction to support in the band $96.60/$98.30 will be an initial gauge. If this holds on a mini pullback, then there are likely to be further moves, above $100 and towards the next resistance of the August high of $105.20.

Indices: Wall Street has deteriorated sharply since US payrolls, with soured sentiment also hitting European markets too.

• S&P 500 futures have plummeted back under the support of 3735/3750 since the US payrolls. With the negative configuration on momentum suggesting that rallies remain a chance to sell, a retest of the 3571 support is increasingly likely. The old band 3735/3750 is now a band of resistance for rallies too.
• German DAX has fallen sharply since the bearish engulfing candlestick on Thursday. Ths market has fluctuated this morning (with the lack of guidance from US markets) but given the negative configuration on daily momentum indicators, rallies are a chance to sell. Initial resistance is 12395/12485. 
• FTSE 100 has not fallen as hard as other major markets in the past couple of trading days, but the outlook is still negative following Thursday’s bearish engulfing candle. Lower highs are forming again and a retest of the October low of 6781 is increasingly likely. Initial resistance is 6978/7025.

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.