With the Thanksgiving public holiday for the US on Thursday, it will be very much a front-loaded week for major markets. Furthermore, much of the action in the calendar comes on Wednesday with the flash PMIs for major economies. After months of economic deterioration, if consensus expectations are anything to go by, there are a few signs of stability forming. Traders will also be watching for the Reserve Bank of New Zealand (RBNZ). With another aggressive hike expected, will there be a dovish surprise in store?

Watch for: 

  • North America – US Flash PMIs, Durable Goods and FOMC minutes
  • Europe – Eurozone Consumer Confidence and flash PMIs for the Eurozone and the UK
  • Asia – Flash PMIs for Australia and Japan in addition to the RBNZ
  • LatAm – Mid-month inflation for Brazil and Mexico

North America

N.B. Forecasts are the latest available consensus 

US dollar (USD)

If the economic calendar is anything to go by, it is likely to be a relatively quiet week for the USD and this could translate across major forex pairs. The Thanksgiving public holiday means a lot of the data is being shunted forward. However, the lack of tier-one data may mean that many traders will be reluctant to take a view for positions over Thanksgiving.

From a market perspective, the direction of US Treasury yields remains a key driver for market sentiment and USD performance. As yields picked up towards the end of last week, the selling pressure abated on the USD. This may give rise to a near-term retracement and a chance for the USD to claw back some losses. However, with the Thanksgiving holiday looming, these moves may be short-lived.

Canadian dollar (CAD)

The CAD continues to be the most subdued of the major currencies as the Bank of Canada has turned more cautious recently. The CAD underperforms during recovery phases but holds ground relatively well during the corrective moves. As such, with major currencies setting up for potential near-term corrective moves against the USD in the coming days, there could be a relatively stable outlook for the CAD. A solid set of retail sales would help too.

  • USD/CAD – A 1.3020 implied correction from the head and shoulders top is yet to be achieved. Support has started to build again as the USD selling has eased and the market is consolidating around 1.3225. Reaction around here will be important to the next move. The neckline resistance from the top is at 1.3500.

Commodities

As the risk rally has just eased back over the past week, we have seen the rally in commodities start to unwind. A move higher in Treasury yields plays into this near-term pullback on precious metals such as gold and silver. The move is likely to run out of steam with US bond markets shut for Thanksgiving though. 

The recovery on oil has turned into reverse as Iraqi officials have been arguing for higher output levels to drive increased revenues. Their preference for Brent Crude oil holding under $100 has also weighed. However, we see more of a ranging outlook developing as central banks look to ease back from aggressive monetary policy positions. 

  • Brent Crude Oil – the near-term outlook has soured as a break below $93.00 has been seen. However, this looks to be firming what seems to be a medium-term range on oil broadly between $83.50/$101.00. Mid-range support between $88.25/$89.30 looks to be tested in the coming days.
  • Gold – A strong recovery has changed the medium-term outlook. However, the move has tailed off around the key resistance band of $1786/$1808. With momentum still stretched the prospect is still for a near-term pullback, potentially towards the breakout support around $1735.
  • Silver – The market has turned back from key medium-term resistance around $22.25/$22.50 to test the key breakout support band at $20.85/$21.25. We favour buying into weakness but reaction around here will be important in the coming days. Below $20.85 opens a bigger retreat towards support around $20.00 again. 

Wall Street

With earnings seasons all but done, Wall Street will increasingly be taking its cues from moves in US bond yields. However, with Thanksgiving at the end of the week, any potential near-term unwinding moves (on higher US yields) could begin to run out of steam. The focus will then begin to turn to the performance of the retail sector and Black Friday. 

  • S&P 500 futures – The near to medium-term recovery is on track but could be subject to near-term corrective pressure. Reaction around the breakout support band between 3883/3935 will be key. Hold this and the recovery to test the primary downtrend will be on.
  • NASDAQ 100 futures – The tech index remains the laggard of the broad market recovery. However, a base pattern completed above resistance at 11730 implies a recovery towards 12800. Holding the neckline breakout support band 11620/11730 would help to keep this on track.
  • Dow futures – The strong uptrend has been consolidating under the resistance band 34000/34250. The move has broken the recovery uptrend but remains solidly above the 33100 latest breakout support. We favour buying into supported weakness.

Europe: 

N.B. Forecasts are the latest available consensus 

Euro (EUR)

At the back end of last week, there were suggestions that the ECB may be more comfortable looking at a 50bps rate hike in December. This coincided with a corrective on EUR. However, the EUR has a lower beta than other major currencies (such as AUD, NZD, GBP) the relative performance has held up fairly favourably. If a corrective move continues for major currencies in the coming days, we expect EUR to continue to perform well and EURXXX crosses to move higher.  

  • EUR/USD – Consolidation has taken hold as the market has eased back from 1.0480. With the RSI stretched towards 70, the failure to decisively clear resistance around 1.0370 leaves the potential for a near-term pullback. Reaction to a pullback will be key, with breakout support around 1.0100/1.0200.   

British pound (GBP)

It is very difficult to build a bullish case for GBP right now. The economic outlook remains starkly weak, with the Bank of England hiking into a seemingly worsening recession. The short-covering rally of October into November is looking increasingly precarious and this may once more put pressure on renewed selling for GBP positions. Continued deterioration in the flash PMIs would play into this view. 

  • GBP/USD – A gradual uptrend channel of the past six weeks remains in play, but the momentum of the move is still looking tentative. Reaction to a pullback towards support between 1.1500/1.1645 will be a key gauge for the prospects of continued recovery. Resistance around 1.1950/1.2000 is restricting a move towards 1.2250/1.2290.

Indices

With Wall Street still laden by the drag of the tech stocks, the performance of European indices remains positive. The DAX has ridden out the prospect of elevated geopolitical risk (from the missile falling in Poland) and is still looking to break higher. FTSE 100 remains more steady but is also holding up well.

  • DAX – The outlook remains impressively strong as even the consolidation of last week failed to tempt the profit-takers. Momentum remains strong but stretched and if this continues, a test of the crucial long-term resistance at 14700/14800 cannot be ruled out. Support at 14125 is an important near-term gauge.
  • FTSE 100 – The recovery uptrend remains supportive and near-term weakness is still being seen as a chance to buy. With momentum solidly positive, the prospect of further recovery is strong. Testing 7515 and 7578 should not be ruled out, with support at 7304 an important gauge.

Asia:

N.B. Forecasts are the latest available consensus 

Japanese yen (JPY)

The JPY has been performing well as major bond yields have been pulling lower in the past few weeks. Performance may begin to wane if US Treasury yields pull higher in the coming days. However, with US bond markets shut on Thursday the move may be limited.

  • USD/JPY – The correction has started to consolidate support around the medium key band between 139.40/140.40. However, the USD bulls will be looking to move above the resistance between 141.50/142.50 to engage in recovery. 
  • AUD/JPY – Aside from the early September spike higher, essentially the pair has been in a multi-month trading range since June. Rallies kick in around support starting at 91.40 with resistance strengthening above 95.00. There is an even tighter multi-week range now between 92.60/95.00. Subsequently, the medium-term outlook is neutral. 

Australian dollar (AUD)

With the risk rally across major markets threatening to reverse, this is leaving AUD at risk of corrective pressure near-term. An expected deterioration in Australian flash PMIs further into contraction (below 50) would add to this pressure.

  • AUD/USD – A strong rally has begun to falter at 0.6795 to leave a downtrend since April. Near-term momentum remains positive and supported weakness is a chance to buy. A six-week base pattern above 0.6550 implies a target of 0.6830, with the neckline an important basis of support.

New Zealand dollar (NZD)

With inflation of 7.2% (well above the 1%-3% target range) the consensus is looking for the RBNZ aggressively hike by 75 basis points this week. However, even if it does hike by this much, given the less aggressive rhetoric increasingly coming from other major central banks, a less hawkish bias to forward guidance may give rise to a “dovish hike”. This could leave NZD open to a near-term corrective move. 

  • NZD/USD – The impressive recovery remains on track. A five-week recovery trend is strong and a closing breakout above 0.6160 would be the next bullish development. Momentum is strong but is starting to look slightly stretched (RSI above 70). We look to buy into supported weakness, with support between 0.6000/0.6065.

LatAm:

N.B. Forecasts are the latest available consensus 

Brazilian real (BRL)

The BRL has fallen sharply in recent weeks. This is coming as Brazilian Government Bond yields have risen sharply. Markets initially greeted the Lula victory fairly positively, but the outlook seems to be deteriorating sharply now. The yield on the 10-year has increased from around 12% to around 13.5% in around two weeks. This comes as bond yields of LatAm peers have broadly fallen. If Brazilian yields continue to rise then the outlook for BRL will continue to deteriorate. 

  • USD/BRL –with the weakening of the BRL the USD/BRL pair has broken the September high around 5.4650, hitting a nearly four-month high. Sustaining the breakout would open the next test of resistance at 5.5600. Initial support this week is between 5.4000/5.4650.

Mexican peso (MXN)

The slow grind of strong performance from the MXN is threatening to unwind this week. However, given the strength of corrective pressure already building through LatAm peers, any corrective pressure is likely to only play out versus USD. Elsewhere we continue to favour the strength and stability of the MXN.

  • USD/MXN – Having tracked decisively lower over recent weeks, the prospect of a technical rally is growing. A positive divergence in momentum points towards a near-term recovery. A technical rally towards initial resistance at 19.630 and potentially back towards 19.750/19.810 could be seen. The low at 19.250 could become a key support. 


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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