What we are looking for

  • USD correction continues: However, having pulled back from yesterday’s highs, the USD corrective move against major forex is looking less assured today. This is coming with pairs such as EUR/USD and GBP/USD around important technical barriers.
  • Indices taking a pause: After sharp rallies in the past two sessions, markets are looking slightly more pensive today. European indices are marginally higher today along with US futures. 
  • Commodities are pausing around important resistance: The recoveries have been encouraging but need to continue. Gold is still struggling to overcome $1729 resistance and Brent Crude Oil is still trying to overcome resistance between $93.25/$95.90.
  • Data trading: There will be elevated EUR volatility from the German ZEW data, however, the key market moving event will be US CPI.

Overview

There has been a significant unwind of positions in recent days. The trigger has come from optimism surrounding the enormous counter-offensive moves from the Ukraine Army. Regaining lost ground and pushing Russian forces back over the border in some places is a truly remarkable achievement. Financial markets have responded with gas prices falling and a broad risk rally across major asset classes. These moves have driven USD profit-taking and a surge back into equities. Whilst the near-term move continues, there will be questions over how long it will last. It is too premature to call the end of the Ukraine war and it is too early to call the end of USD strength.

This morning there is a slightly more pensive feel to the moves. There is a less decisive USD correction, whilst equity markets are only mildly higher. That Wall Street rallied last night as the VIX Index also rallied (this happens when traders rush to buy put options) is something to keep an eye on. Some of the pause early today may be a result of the impending US CPI data later today. The reaction to any surprises may give more of a clue as to how sustainable the current moves are.  

US inflation is crucial on the economic calendar today. However, initially, traders will be watching out for the German ZEW Economic Sentiment which is expected to continue to deteriorate in August to levels not seen since 2008. The US CPI dominates the calendar today. Headline CPI is expected to drop as gasoline prices have fallen in the US. However, having drifted lower in the past few months, core CPI is expected to pick up. If so, it would cement the outlook for a 75basis point hike by the Fed next week. 

Today’s news

Market sentiment is mildly positive today: USD is still corrective and equities are higher again. But the moves are less decisive. 

Treasury yields are a shade lower: A mild tick lower on yields this morning, but the broad trends remain higher.

Zero-COVID in China continues: More cities have been locked down. Sanhe (near Beijing) and Shijiazhuang have been placed under lockdown measures to contain the virus.

UK unemployment falls, wages higher: Unemployment has dropped to 3.6% (from 3.8%), lower than the 3.8% expected. Wage growth has also increased more than expected in both including bonuses (to 5.5%) and excluding bonuses (to 5.2%)

Cryptocurrencies consolidate: After sharp rallies yesterday, crypto has paused the recovery. Prices are slightly lower today with Bitcoin down -0.3% at $22,320 and Ethereum -0.3% at $1719. 

Economic Data:

  • German ZEW Economic Sentiment (at 09:00 GMT) – Sentiment is expected to continue to deteriorate in September, falling to -60 (from -55.3 in August)
  • US CPI (at 12:30 GMT) Headline CPI is expected to fall to 8.1% in August (from 8.5% in July), with core CPI increasing to 6.1% (from 5.9%)

Major markets outlook

Broad outlook: USD correction continues, but less decisively. Indices are edging higher today. Commodities are less positive.

Forex: The USD corrective bias continues, but AUD and NZD are lagging slightly.

  • EUR/USD rallied sharply yesterday but pulled up just shy of 1.0200.  Closing almost 80 pips back lower, the market is ticking positively again this morning but is less decisive now. There is positive momentum still in this move and if the RSI can move above 60 it would be a strong indication. A close above 1.0200 would be a significant step forward in the recovery. It would open the next key resistance around 1.0350/1.0370. The bulls need to continue to build support above the 1.0100 pivot area to sustain the improving outlook.
  • GBP/USD has rallied impressively into the resistance band 1.1715/1.1760. This now becomes a key near to medium-term test for recovery. A close above 1.1760 would open the upper limits of the downtrend channel, with the next resistance at 1.1900. However, a bull failure around here, with the RSI still under 50, would be a negative signal. Initial support is between 1.1650/1.1675.  

  • AUD/USD has moved above the key medium-term resistance band between 0.6840/0.6870. If this can now be held consistently on a closing basis then it would be a strong positive signal for continued recovery. The RSI moving back above 55 would be a confirmation signal. Subsequent resistance would be at 0.6955/0.7010. Initial support is building between 0.6825/0.6860.  

Commodities: Silver remains a key signal for the near-term recovery in precious metals. Oil has swung back higher to test important resistance.

  • Gold is still looking to break clear of the resistance band at $1720/$1729. An intraday breach failed at $1735 and the market has slipped back into the resistance band. This is where it lies this morning in consolidation. Previous intraday attempts to break this resistance have failed, so we look for a closing break above $1730. This would open a test of the six-month downtrend and the $1754/$1765 resistance. There have been higher lows forming in recent days at $1711 and $1704.
  • Silver has accelerated higher, through the key medium-term pivot band of $19.42/$19.54. This band is now becoming a basis of support this morning. The RSI is towards 60 to reflect the improvement and if it can push sustainably above 60 it would be a strong signal for the continuation of the recovery. Holding the initial support between $19.42/$19.54 would be a positive signal now.
  • Brent Crude oil has rebounded well from $88.25 and continues to test the resistance of the old lows between $93.25/$95.90. A close above $95.90 would continue the improvement but whilst the RSI remains stuck under 50 we will remain cautious of backing a sustainable recovery. A move above $98.30 would open a test of the three-month downtrend (currently c. $101). Initial support is at $92.3.60 and then $92.10.

Indices: A recovery remains on track. 

  • S&P 500 futures have now posted four very strong positive candles in a row. Moving above the resistance at 4072/4110 is also a bullish move. A four-week downtrend has been broken by this rebound and the daily RSI is up through 50 to reflect the improvement. Given the strength of the move we back the further recovery. However, a reaction to a test of correction will be a key indication. Finding support between 4062/4110 will be important now.
  • German DAX has been impressive in the recovery. A move clear above the 13330/13430 resistance band on a closing basis would be a strong signal for further gains. Also, the daily RSI holding above 50 would suggest the recovery is sustaining. Initial support is at 13370. 
  • FTSE 100 has continued to move through resistance levels and looks to be on course for a test of the August highs again between 7535 and 7578. Momentum is strong on daily and intraday charts suggesting that near-term weakness is a chance to buy. Holding above 7435/7450 initial support sustains the improvement.


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.