What we are looking for

  • USD slide has stalled, for now: There has been volatility post the Fed, but the USD has looked to be building support on major forex near term.
  • Indices show signs of a drag lower: The hawkish bias from the Fed is starting to weigh on equity markets again. US futures had been flat overnight but are now around -0.35% lower. This is dragging on European indices.
  • Commodities are feeling selling pressure: With USD gaining ground and risk appetite souring, we see metals prices falling and oil also rolling over again.
  • Data traders: There are lots of announcements to watch for just before the US session and early in it. The Bank of England will be key for GBP positions, with the ECB driving the EUR. US Retail Sales will be the primary driver of USD but also then a little later watch for US Industrial Production.

Overview

The Federal Reserve has tried hard to push back on the narrative of a “Fed pivot”. Hiking by 50 bps as expected, a hawkish lean was reflected in the dot plots of the interest rate forecasts (increasing the median level for 2023 from 4.60% to 5.10%). Also despite inflation falling in recent months, Fed chair Powell was still cautious. In his press conference, he said, “Historical experience cautions strongly against prematurely loosening policy. I wouldn’t see us considering rate cuts until the committee is confident that inflation is moving down to 2% in a sustained way”. This has all halted a decline in Treasury yields and the USD. It has also soured risk appetite on commodities and equities. Today the focus switches to more central banks, the Bank of England (BoE) and the European Central Bank (ECB). Two more hikes of 50bps are fully expected. 

It is a densely packed economic calendar today with central banks and a raft of US data. The Bank of England is expected to hike by +50bps but watch out for how divided the MPC votes are. The European Central Bank is also expected to hike by 50bps across the rates corridor. On to the US data (mostly at 13:30GMT), the main focus is US Retail Sales which is expected to show only marginal MoM growth in November. There are regional Fed surveys on manufacturing from the New York Fed (a deterioration into negative) and the Philly Fed (slight improvement but still negative). Weekly Jobless Claims are expected to be flat. Finally, markets will be watching US Industrial Production which is expected to have negligible monthly growth.

Today’s news

Market sentiment sours: The Fed trying to push back on the narrative of a “Fed pivot” has hit sentiment this morning.

Treasury yields were choppy on the Fed, but are stable this morning: Despite the volatility yesterday, yields closed almost flat yesterday and are stable this morning.

Australian unemployment stays at 3.4%: The jobless rate for November stayed at 3.4% which was in line with the consensus.

Chinese data disappoints: Industrial Production fell to 2.2% in November (from 5.0% in October), with the consensus looking to 3.6%. Retail Sales also deteriorated sharply to -5.9% (from -0.5%) which was a big miss on the -3.7% forecast.

Cryptocurrencies fall back: With risk appetite souring, we have also seen cryptos falling again. Bitcoin is down -0.8% at $17680, with Ethereum -1.8% at $1288.

Economic Data:

  • Bank of England monetary policy (at 12:00 GMT) The consensus is looking for another +50bps of rate hikes to 3.50% (from 3.00% in November).
  • ECB monetary policy (at 13:15 GMT) The consensus is looking for 50bps rate hikes on the deposit rate to 2.00% (from 1.50%) and the main refinancing rate to 2.50% (from 2.00%).
  • US Retail Sales (at 13:30 GMT) Analysts are looking for core sales (ex-autos) to increase by +0.2% MoM (+1.3% in October)
  • US New York Fed Manufacturing (at 13:30 GMT) The expectation is for a deterioration to -1.0 in December (from +4.5 in November)
  • US Philly Fed Manufacturing (at 13:30 GMT) Analysts are looking for an improvement to -10.0 in December (from -19.4 in November).
  • US Weekly Jobless Claims (at 13:30 GMT) Analysts are expecting claims to remain steady at 230,000 in the most recent week.
  • US Industrial Production (at 13:30 GMT) The consensus is expecting MoM growth of +0.1% in November which would slightly reduce YoY growth to 2.2% (from 2.4% in October).

Major markets outlook

Broad outlook: Risk appetite has soured. USD is strengthening, with commodities and equities falling.

Forex: USD is outperforming strongly, with the risk-sensitive currencies such as the AUD and NZD the big underperformers.

  • EUR/USD closed decisively through the resistance band 1.0595/1.0615 but the move has been moderated this morning as USD has strengthened on major forex. The ECB meeting will be a key risk today. Technically, the RSI has pulled back from around 70 and the market is unwinding this morning, with the five-week uptrend at 1.0570 today. Given the strength of momentum and the uptrend, we still look to use near-term weakness as a chance to buy. There is good initial support between 1.0500/1.0595. 
  • GBP/USD has also broken out above resistance, moving through 1.2345 and moving through 1.2400 opens the next resistance starting around 1.2600. However, with momentum hitting 70 on the RSI turning lower, the reaction to this unwind needs to be watched. The six-week uptrend is being immediately tested now, with the breakout support around 1.2310/1.2345. A move below 1.2200 would suggest a deeper unwind. The Bank of England is a key risk today. 
  • AUD/USD has eased back from a test of 0.6915 resistance and is now moving lower initially today. The run of higher lows means that initial support is at 0.6730. Momentum is positively configured but without being decisively bullish. Weakness is still a chance to buy with the rising 21-day moving average (c. 0.6738) being a basis of support.

Commodities: Precious metals are starting to correct. Oil is stalling its technical rally.

  • Gold has reversed from $1824 and has now been hit by the Fed announcement. A small negative close yesterday has accelerated lower this morning. The move has now broken the five-week uptrend and breached the higher low at $1777. A close below this previous support would be a corrective signal. Below 50 on the daily RSI would confirm whilst a breach of $1765 would complete a top pattern. Initial resistance is now at $1795.
  • Silver has pulled sharply lower from $24.12 and has now broken the initial support at $23.10. This comes with the daily RSI unwinding from 70. However, for now, this is an unwind with the recovery. Reaction to the breakout support at $22.00/$22.50 will be key for how far the move now goes. Staying above 50 on the RSI would be encouraging and suggest that weakness is still a chance to buy. Initial resistance is at $23.35.
  • Brent Crude oil has decisively engaged a technical rally into the resistance of the old support band of $81.40/$83.55. This is now an area of overhead supply. It is also around the five-week downtrend and the falling 21-day moving average which are barriers to further recovery around $84/$84.50. Initial support is now $81.15/$81.60.

Indices: Equity markets have been volatile recently, but are mostly holding their ranges.

  • S&P 500 futures have shown a bull failure around resistance at 4050/4140 in the past few sessions. Whilst the key support at 3912 provides a floor, essentially this is a growing range play now. Momentum gravitating towards 50 on the daily RSI reflects this. Initial resistance is at 4070, with a negative bias today that could see a drop back towards a test of the key support.
  • German DAX failed to hang on to strong gains earlier in the week and more importantly, backed away from the crucial long-term resistance band between 14700/14800. Although the market is still ranging above 14125 (with resistance at 14605/14680), there is a negative bias now forming. The RSI is falling away (although still above 50) and the support band 14125/14193 could come under threat. A closing breach completes a top pattern.
  • FTSE 100 has been edging lower once more in the past couple of sessions and this is putting added pressure on the support around 7437. A decisive closing breach would complete a top pattern and imply c. -200 ticks of downside target. Initial resistance is 7520 with 7565 a key lower high.


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