What we are looking for
- USD under selling pressure: A move lower as markets once more price for a less aggressive Fed decision in September. EUR/USD is trading at once more highs as a recovery looks to take hold.
- Indices breaking out: An important breakout on Wall Street. S&P 500 futures breaking above 4200 is a key medium-term outlook-changing move.
- Commodities with an uncertain move: Precious metals have lacked conviction despite the USD weakening. Oil has also been fluctuating.
- Data trading: US PPI (factory gate inflation) will be the focus for traders today. Yesterday’s CPI showed that inflationary pressures continue to ease in the US, and the PPI is expected to confirm this. This would add corrective pressure to the USD that kicked back in yesterday.
Overview
Market sentiment has been boosted again in the wake of the lower-than-expected US CPI inflation. With month-on-month CPI flat (the lowest since June 2020), year-on-year inflation fell sharply. Core CPI also did not increase. This eases some of the pressure on the Fed to go once more aggressive with its monetary policy decision in mid-September. There is another CPI before the FOMC decision but unless there is a pick back up in inflation, this may persuade for a 50bps hike. At least this is what interest rate futures markets are starting to price for.
The USD has been hit hard by this data surprise. A sharp move lower in USD across major forex is having a decisive impact on major pairs. There has been some fluctuation overnight, but once more this morning, we are seeing the USD weakening. Wall Street is also liking the prospect of a less aggressive Fed. NASDAQ and S&P 500 are breaking to three-month highs in what looks to be a decisive medium-term change in outlook. US futures are positive again this morning, although European markets are less certain.
The economic calendar is once more focusing on US inflation today. This time it is for factory-gate inflation and with the US PPI. After the front-end consumer prices came in lower than expected yesterday, today’s factory output prices are also expected to decline. Both core and headline PPI are expected to reduce. We will also be tracking the continued increase in weekly jobless claims. Claims have increased steadily from just above 200,000 in early June and are expected to have risen for nine consecutive weeks to over 260,000. This would be the highest level since mid-January.
Today’s news
Market sentiment remains positive: The USD is corrective again, whilst indices are positive. Crypto is also moving higher.
Treasury yields tracking lower: An initial spike lower was retraced into the close last night, but yields are tracking lower once more this morning. This is playing into the USD correction.
Fed speakers “too early to declare victory on inflation”: Neel Kashkari is normally the most dovish Fed speaker. However, he is not declaring victory on inflation yet. There is more to do and recent data does not change his rate path of 4% by the year-end. Daly (who also tends to be dovish) also sees there is more to do with inflation. She sees rates at 3.5% by year-end.
Cryptocurrencies positive after US CPI: Cryptos jumped in the wake of the lower US CPI. This move is continuing today. Bitcoin jumped by 3% yesterday and is another +2.5% at $24,500.
Economic Data:
- US PPI (at 12:30 GMT) – Headline PPI is expected to fall back to 10.4% in July (from 11.2% in June). However, Core CPI is also forecast to reduce to 7.6% (from 8.2%)
- US Weekly Jobless Claims (at 12:30 GMT) – Claims are expected to increase once more, to 263000 (from 260000 in the previous week)
Major markets outlook
Broad outlook: Risk appetite is positive in the wake of the US CPI. USD is weakening and indices are positive.
Forex: USD is underperforming across major forex, aside from against a weakening GBP.
- EUR/USD has broken above the 200 pip trading range between 1.0095 and 1.0293. This implies a move towards 1.0495 in the coming weeks. However, the multiple resistance of the overhead supply at 1.0350, the six-month downtrend and the 55-day moving average all need to be overcome now. Encouragingly, the RSI has moved above 50 for a two-month high and the outlook is improving. We look for a decisive close above 1.0350 to be a positive signal now. The breakout around 1.0270/1.0295 is now a basis of support.
- GBP/USD picked up sharply yesterday but has failed to overcome the resistance at 1.2293 and the market is hovering this morning. Despite the lack of traction, there are hints of a more positive outlook, with the RSI above 50. However, there needs to be a close above 1.2293 (and preferably above 1.2330) to suggest a sustainable recovery. Initial support is at 1.2180.
- AUD/USD has driven sharply higher, through resistance at 0.7045/0.7070 and is now looking increasingly positive. Holding this breakout area (which is now a basis of support) will be key. It would open for a more considerable medium-term recovery towards 0.7265/0.7280. Daily RSI into the mid-60s is increasingly positive.
Commodities: Consolidation on precious metals, whilst an oil recovery continues to be held back by resistance.
- Gold is losing traction in its recovery and the three-week uptrend is being threatened. This comes as gold failed around the resistance at $1805, posting a high at $1807 yesterday before pulling back. For now, this is a consolidation, but moving consistently below $1783 would be a warning. Momentum remains positive without being especially strong. This positive outlook for the recovery will remain intact whilst support between $1754/$1765 holds. A close above $1805 opens $1840/$1858 as the next test.
- Silver has been hovering around the $20.45/$20.60 for the past few sessions. The lack of traction in the breakout is a worry, but for now, the bulls remain in control. Dropping back below $20.30 would be a disappointment, but the key support is the higher low at $19.54. Initial resistance is now $20.73.
- Brent Crude oil has fluctuated in recent sessions (see yesterday’s intraday swings to reflect this). However, the resistance between 99.50/$101.35 is still holding back attempted recoveries. If the market continues to fail around here, given the negative configuration of momentum and the bearish implications of the medium-term range breakdown, we see downside as likely. We favour using rallies as a chance to sell for a test of the support at $95/$96.
Indices: Wall Street has broken decisively higher. Europe is struggling to follow the move.
- S&P 500 futures have decisively ended a period of consolidation and broken higher. The move above 4201 is a three-month high, but more importantly, it is the first break above a lower high of the 2022 sell-off. This suggests a new trend formation (not just a rally within a bearish downtrend). It confirms a shift in the medium-term outlook to buying into weakness. Above 4201 opens 4305 as the next test of resistance. Initial support is between 4170/4200 with 4080 now key support.
- German DAX rebounded strongly from just above the breakout support at 13440 with a strong move higher yesterday. However the bulls have been unable to hold a breakout above 13786 and have left resistance between 13786/13796. Reaction to this weakness will now be an important indication. With RSI momentum solidly positive in the 50s, we still look to use weakness as a chance to buy. Another higher low that uses support at or above 13550/13600 would be a positive signal.
- FTSE 100 is holding the breakout above 7370 and is slowly building higher along a near three-week uptrend. Yesterday’s strong and positive candlestick reflects good progress for a move higher. We still look to use intraday weakness as a chance to buy along the uptrend. Having broken above 7513 the next resistance of significance comes in a move towards 7650. Momentum remains positive with the RSI into the 60s. This suggests weakness is a chance to buy. There is good support in the band 7370/7415.
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.
