Espresso morning call: Tuesday 19th October trading updates

Overview

Bulls will be pleasantly surprised with yesterday’s session. Initial weakness was bought into, whilst initial USD strength was sold. This seems to be a change from what markets have been used to in recent weeks. The question is now whether it can continue.

Today’s news

• Main drivers: Positive sentiment winning the near-term battle; USD correcting, 4 Fed speakers plus BoE Governor Bailey; US Building permits and Housing Starts later.
• Sentiment flips positive again: There were encouraging signs for the bulls yesterday as initial weakness was bought into, leading to a strong close to the US session for Wall Street. The Asian session was solidly positive although the European session has begun fairly quietly.
• USD turning corrective: There seems to have been a shift in the past week, USD is suddenly finding sellers into strength. This was not helped by weaker than expected US Industrial Production yesterday, whilst falling bond yields have also played a role. [Should be risk positive]
• Central bank speakers due today: Four from the Fed today. FOMC’s Daly (2021 voter, mild dove) at 1400GMT, FOMC’s Bowman (permanent voter, centrist) at 1615GMT, FOMC’s Bostic (2021 voter, hawk) at 1750GMT, FOMC’s Waller (permanent voter, mild hawk) at 1800GMT. Also, perhaps importantly we have a speech from Bank of England Governor Bailey at 1105GMT. After his hawkish comments at the weekend, GBP traders will be very interested in any clarification today.
• BoE’s Bailey speaking: Importantly we also have a speech from Bank of England Governor Bailey at 1105GMT. After his hawkish comments at the weekend, GBP traders will be very interested in any clarification today.
• Data watch: US Building Permits at 1230GMT expected to show a marginal drop to 1.67m (from 1.72m last month), Housing Starts at 1230GMT expected to slip marginally to 1.61m (from 1.62m last month).

Markets Outlook

• Broad outlook: The glass seems to be half full for a change. Equities being bought into weakness, yield yields coming off and USD also turning corrective. This is helping to build more of a positive risk appetite.
• Forex: Dollar Index breaking below 93.72 completes a near-term top and implies a test of 93.20. EUR/USD rally through 1.1625/1.1640 is near-term positive for continued recovery. The next resistance is 1.1665 with the 4-month downtrend at 1.1720. GBP/USD also moving higher this morning. Finding traction above 1.3730 and ready to test 1.3800. Improvement confirmed by RSI. The caveat is tomorrow’s UK CPI data. AUD/USD now testing key medium-term resistance at 0.7475. Looking strong for the recovery, with weakness in the uptrend a chance to buy.
• Commodities: Gold a very choppy period of trading has rebounded again and is now moving above $1780 resistance. Big uncertainty in the day-to-day direction. Above $1800 opens $1834, but for now, we are neural within a $1722/$1834 trading band. Silver holding on to $23.18 and pulling sharply higher today. This is a strong and positive technical development. Initial resistance $24.00 to be tested now, above opens $24.80. Brent Crude oil a second “bearish engulfing” candle in 2 weeks again questions the bull run. The bulls remain in control whilst the 8-week uptrend is intact. A test of key resistance from the 2018 high of $86.95 is still possible.
• Indices: Wall Street bulls have passed a significant test of recovery, but in Europe, the outlook is a little more cautious still. S&P 500 futures bouncing off 4436 and above 4470 now effectively opens the highs again at 4548. Support will look to form now around 4420/4470. DAX has eased back, leaving resistance growing at 15,600. The bulls need to build the floor of a higher low, ideally above 15,265. FTSE 100 consolidating under resistance at 7246 but the bulls still hold control for now. Support needs to form around 7150/7200 to sustain the improving outlook.