Espresso Morning Call: USD rally fades, commodities rebound

What we are looking for

• USD rebound falters: Some firming of the USD on major forex pairs in recent days has just eased back slightly overnight. The reaction to this move may be a gauge for how far the USD recovery can go near term.
• Indices remain steady: Wall Street closed lower last night, whilst US futures are a shade lower this morning. However, European indices continue to hold up well.
• Commodities rebound after recent weakness: Precious metals have been corrective in recent sessions, but have found some support this morning with the weaker USD. Oil spiked weaker only to close positively yesterday and is again positive today.
• Data traders: CAD traders will be watching for Canadian retail sales, with EUR traders hoping for an improvement in Eurozone Consumer Confidence. USD traders will be watching the Richmond Fed and three Fed speakers. 

Overview

A near-term USD recovery that has been seen in recent sessions has just eased back again this morning. There has been a slight dip back in Treasury yields today. With limited tier-one data this week, the Fed speakers will be key to driving market direction. This move seems to be reacting to the comments of Loretta Mester, who is a notable hawk on the FOMC and is scaling back her hawkish rhetoric. 

This has nipped the dollar rally in the bud, for now. Furthermore, it has allowed a rebound in metals prices, with gold and silver finding support after recent corrections. Oil has been sharply weakening recently but has rebounded overnight and is higher again today. The focus, for now, is on the outlook for OPEC+ production. Saudi and the UAE seem to be denying claims of discussions of increased production.

It is a quiet week but there are a few announcements to watch for on the economic calendar today. Canadian retail sales are expected to have deteriorated in September. The Eurozone Consumer Confidence is expected to show a marginal improvement but remains deeply negative. Also, watch for the Richmond Fed Manufacturing which is expected to join the New York Fed reading and return to positive territory. Also, watch for the three Fed speakers later: Mester, George and Bullard.

Today’s news

Market sentiment is mixed to slightly positive: The mild USD weakening has helped to produce a mixed (equities) to slightly positive (commodities) outlook.

Treasury yields are ticking lower: Yields have increased in recent days but are slightly lower today.

Fed hawk talks of slowing the pace of hikes: The FOMC’s Loretta Mester has said that they can slow from 75bps of hikes in December. Also that they can be more deliberate and need to let the economy tell them the pace of hikes. Mester is a voter in December and is seen as notably hawkish on the FOMC.

Saudi denies OPEC+ output increase: Saudi Arabia has said that the current cuts of 2 million bpd will stand until the end of 2023. The UAE also denied any discussion on changes to the last agreement (which lasts until the end of 2023). Oil rebounded into the close last night and is slightly higher today.

Three Fed speakers due: There are three FOMC members to watch for today. Loretta Mester (very hawkish, 2022 voter) is speaking at 16:00 GMT. Esther George (centrist, 2022 voter) is speaking at 19:15 GMT. And finally, James Bullard (extremely hawkish, 2022 voter) is at 19:45 GMT.

Another Crypto company warns of bankruptcy: Genesis has said that without new funding it is at risk of bankruptcy.

Cryptocurrencies try to find support: Another sharp day of selling pressure yesterday pulled cryptos lower with Bitcoin hitting two-year lows. However, Bitcoin is a shade higher today (+0.6%) at $15700. Ethereum is -0.5% at $1088.

Economic Data:

• Canadian Retail Sales (at 13:30 GMT). The consensus is expecting a monthly decline of -0.5% in September which would pull YoY growth down to 3.9% (from 4.7% in August)
• Eurozone Consumer Confidence (at 15:00 GMT). Confidence is expected to improve marginally to -26. In November (from -27.6 in October).
• Richmond Fed Manufacturing (at 15:00 GMT). Analysts are forecasting an improvement to +5 in November (from -10 in October).

Major markets outlook

Broad outlook: A marginally positive bias to risk appetite. 

Forex: USD is giving back recovery gains across major forex. The NZD is the main outperformer.

• EUR/USD has decisively pulled back from the resistance around 1.035/1.0370. This is unwinding the breakout above 1.0100/1.0200 and depending upon how support forms, this could be another chance to buy. Support forming from 1.0222 is positive and momentum is positively configured with the RSI around 60. There is initial resistance between 1.0270/1.0305 which needs to be breached to generate renewing positive momentum.
• GBP/USD fell yesterday after a recent consolidation, but the move has held on to the support between 1.1710/1.1760. This band prevents a deeper pullback towards the 1.1500/1.1645 key breakout support area. Reaction around there would then be crucial for the medium-term outlook. Resistance is mounting between 1.1950/1.2030.
• AUD/USD has turned corrective in recent sessions. We have been looking for an unwind towards the key breakout support band 0.6520/0.6550. However, the market has picked up overnight from 0.6585 and the RSI has held up well above 60. The formation of another lower high below 0.6730 would re-engage the correction.

Commodities: Precious metals have pulled back towards support. Oil is trying to reco+ver losses.

• Gold has posted four consecutive bear candles following the failure at $1786 This decisive correction has though found support initially in the $1730/$1735 old breakout support band. It comes with the RSI holding above 50. If this support can continue to hold it would be a strong positive signal. A move above the lower high of  $1767 would re-engage the bulls.

• Silver has been threatening below the old breakout resistance between $20.85/$21.23 but it is interesting to see the last four sessions (including today) where the buyers have used weakness as a chance to buy into the close. A close under $20.85 would open a move potentially back towards the support band around $20.00, but for now, the bulls are holding on. The RSI momentum remains above 50 and with the market ticking higher today, there is a basis of support now at $20.58/$20.85. A move above the initial resistance around $21.25/$21.35 would be positive.
• Brent Crude oil accelerated lower to breach the $83.55 September low yesterday. However, a sharp intraday rally into the close has formed a big bull hammer candle. If today’s candle was a solid positive move it would imply a near-term recovery. The old support around $89.20 is now a basis of resistance with $90.30/$91.40 a further barrier to recovery.

Indices: Wall Street continues to drift slightly lower. European markets have been holding up well and are even looking to move higher.

• S&P 500 futures have edged back from the high at 4050 and continue to drift lower. However, the move is still holding on to the support band of the previous breakout between 3883/3935. For now, this still looks to be an unwind of more positive medium-term momentum and within a five-week uptrend. However, reaction to this breakout support band will be key. Initial resistance is at 3993.
• German DAX continues to perform very well and is constantly threatening to move into multi-month highs. This is despite the RSI still hovering above 70. There seems to be a consistent appetite to support the DAX into intraday weakness. The support around 14125 (last week’s low) remains key near term and is protecting an unwind potentially back towards the 13970 breakout. The next important resistance is at the June high of 14708.
• FTSE 100 continues to be bought into weakness and a move above 7442 is breaking a mini range of 7304/7442. Holding on to the support of a five-week uptrend is a key aspect of a positive outlook. The move above 7442 has opened the September high of 7516 initially and possibly moves towards the July rally high of 7578. A close below 7304 would be corrective. 

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.

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