With even the dovish FOMC speakers (such as Mary Daly) still intent on reducing inflation, US CPI will be the primary focus for traders this week. Beyond that, the outlook for the US consumer will also be a theme, with retail sales and the Michigan Sentiment survey. 

Elsewhere there is an array of UK tier-one economic activity data including August GDP. Chinese inflation and trade balance will also impact broad risk appetite on Friday.

Watch for: 

  • North America – US CPI, Retail Sales and Michigan Sentiment
  • Europe – UK employment data, August GDP and industrial production. 
  • Asia – Chinese CPI and trade balance
  • LatAm – Chilean interest rates along with Mexican and Colombian industrial production

North America

N.B. Forecasts are the latest available consensus 

US dollar (USD)

We continue to see significantly elevated volatility in bond and major forex markets. High volatility in both tends to mean that risk appetite is the main driver of forex, rather than interest rate differentials. Subsequently, we find deteriorations in broad sentiment being supportive for USD. We expect this to continue this week. 

All eyes will be on US CPI inflation. The upside surprise to the CPI last month, drive a massive USD bull run. With the recent risk rally unwinding an overbought USD position, any upside surprises in the CPI this week will likely drive a similar reaction. 

Canadian dollar (CAD)

There is little Canadian data to drive CAD this week, but it might be worth keeping an eye on the path of the oil price. Being a net energy exporter, CAD tends to be supported by higher oil prices. Fluctuations in risk appetite also tend to mean that positive sentiment supports the CAD too. Subsequently, if the USD moves into the ascendancy once more, CAD may suffer.

  • USD/CAD – After the sharp move higher hit resistance around 1.3835, the mini-correction has simply been seen as another chance to buy. Support of a higher low is now in at 1.3500 and with strong momentum, the USD bulls remain in control. Any weakness into 1.3560/1.3660 will likely find buyers and a test of 1.3835 is likely.

Commodities

Precious metals recovered sharply as the mini-USD correction played out last week. However, there are already signs that the USD is ready to trend higher once more. With US “real” yields picking up again this will likely weigh on precious metals, especially gold. We continue to note the elevated volatility of silver.

There had been suggestions in recent weeks that OPEC+ would make a sizeable cut to its output limit. It has decided to cut output by 2 million barrels per day. The move is to balance the declining demand expectations (slowdown in China and Europe especially). Although in reality, the cut is probably closer to 1 million (OPEC+ has not been hitting its targets), this is a significant cut that is at the top end of expectations and has helped to generate near-term positive momentum in the oil price. However, going forward, if OPEC+ is worried about deteriorating demand, this upside move in oil may prove to be short-lived.

  • Brent Crude Oil – the outlook is improving. A decisive move clear above $96.60 would signal a decisive shift in sentiment. It would mean the long-held strategy of selling into near-term strength would need to be revised. With strengthening momentum suggesting upside potential then above $100 the next resistance at $105.20 would be open.
  • Gold – The recovery has stalled at the key resistance at $1735. This is a key test this week. If support can hold above $1700 and the price then breakout above $1735 the move would be bullish. It would complete a base pattern and point to further recovery.
  • Silver – With the broken five-month downtrend and strengthening momentum, the outlook is improving. The key test is for a confirmed breakout above $20.85, with a breakout opening $22.50. Holding on to support at $20.00 remains important 

Wall Street

Analysts are getting ready for a tough set of results in the Q3 earnings season. According to FactSet, S&P 500 company earnings growth is expected to be +2.9%, which is the lowest since Q3 2020. However, with continued negative trends for economic growth over recent weeks, analysts have been busy cutting their earnings estimates. From 30th June to 29th September estimates were cut by -6.6%, the largest since Q2 2020 (when the COVID impact was at its peak). 

  • S&P 500 futures – The recovery has stalled at 3820 and technicals suggest that rallies are just a chance to sell. Continued failure under 3820 will only ramp up the potential for renewed downside. On a medium-term basis, there could still be some near-term recovery to play out, but in a bear market, the rallies tend to undershoot recovery potential.
  • NASDAQ 100 futures – The rally has faltered at 11730 which is under the bigger resistance at 11930/12250. With continued negative configuration on the daily RSI, if this resistance remains intact then renewed selling pressure is likely to decisively take hold. 
  • Dow futures – With the rally falling over at 30510 and negative configuration on RSI momentum (failing under 50) the negative pressure for a resumed sell-off is growing. Trading under initial support at 29540 this week would open the downside again.

Europe: 

N.B. Forecasts are the latest available consensus 

Euro (EUR)

The EUR rebounded with GBP last week on the improvement in risk appetite. However, we believe this will be a near-term move before attention once more re-focuses on the negative outlook for the Eurozone economy. As such we still favour selling into strength, especially versus the continued trend of USD strength. 

  • EUR/USD – With the technical rally failing at 1.0000 this is an ominous sign for renewed selling. If there are any rebounds, the old resistance band 0.9865/0.9950 will be seen as a prime area for a lower high this week. Daily RSI remains stuck under 50 and suggests that rallies remain a chance to sell. 

British pound (GBP)

UK Government bond markets (Gilts) have settled down in the wake of the Bank of England stepping in, allowing the GBP to recover. However, as the dust settles, the UK economy remains worrying. Growth data for August is forecast to be tepid but any negative surprise could restrict how much the Bank of England can hike in November. Ultimately, we see GBP continuing to struggle under not only economic but also political risk. The trend lower could take hold once more this week.  

  • GBP/USD – The sharp rebound has tailed off at 1.1495 to leave a band of resistance between 1.1400/1.1495. There needs to be a reaction from the buyers now. Otherwise, with the daily RSI again faltering around 50/60, the outlook of sell into strength will remain the near to medium-term strategy. A decisive move back below 1.1000 would put the sellers decisively back in control.

Indices

With major bond yields rising again, European indices will struggle to continue the near-term recovery. We continue to see near-term rallies as a chance to sell.

  • DAX – The rebound has faltered at 12692, posting a bearish engulfing candle. All the medium to longer-term signals and trends continue to suggest selling into strength. Moving averages are moving lower, with lower highs on the rallies and the RSI again failing around 50/60. We favour a retest of the 11796 low in due course. 
  • FTSE 100 – The rebound failure (and bearish key one-day reversal) has left a significant high at 7106 (just under resistance at 7127). With the RSI faltering under 50, this suggests that near-term rallies continue to be seen as a chance to sell. 

Asia:

N.B. Forecasts are the latest available consensus 

Japanese yen (JPY)

The outlook for broad risk appetite remains a key driver of JPY performance. With forex volatility elevated, the Japanese yen continues to trade as a haven play. Since the currency intervention in Japan, the outlook for USD/JPY has significantly calmed, leaving JPY tied closely to USD moves. Positive risk appetite is JPY negative.

  • USD/JPY – the USD fluctuations have been barely noticeable on USD/JPY. The pair continues to drift gently back higher and a retest of the high at 145.90 (just before the intervention) looks likely now. 143.50 is support this week. 
  • AUD/JPY – The weakness of the AUD is once more pulling the pair lower to a test of the 92.10 September low. Momentum is negatively configured and near-term rallies are increasingly seen as a chance to sell. Resistance at 94.70 is key this week.

Australian dollar (AUD)

There is not much on the economic calendar to change the narrative this week. However, traders will keep an eye on the housing data which was cited as a reason for a more cautious RBA last week. Coupled with any USD strengthening, this could leave the AUD under selling pressure once more.

  • AUD/USD – Resistance at 0.6525/0.6550 continues to strengthen. With such a negative configuration on daily RSI momentum, near-term rallies continue to be seen as a chance to sell. A decisive move below 0.6363 opens 0.6250 as the next support.

New Zealand dollar (NZD)

The Kiwi took some positive momentum from the RBNZ decision last week. The discussion on raising rates by 75bps leaned towards the hawkish side. However, the NZD remains at the mercy of fluctuations in risk appetite that are driving higher beta currencies right now. A strengthening USD leaves the NZD vulnerable again.

  • NZD/USD – The inability to sustain a recovery despite the hawkish RBNZ decision points to continued downside pressure. Negative configuration on the daily RSI suggests that rallies remain a chance to sell. Any rebound into 0.5730/0.5815 is being used as an opportunity.

LatAm:

N.B. Forecasts are the latest available consensus 

Brazilian real (BRL)

Inflation is falling in Brazil. This has relieved some of the pressure on the central bank with a subsequent pause in the rate hikes. A forecast for further inflation reduction strengthens the expectation that this pause will continue. The outlook for the BRL has fluctuated in recent weeks, improving again as risk appetite improves. The medium-term performance has held up well amidst the trend of USD strength.  

  • USD/BRL – The improvement in risk appetite last week has pulled the pair back to test the bottom of the uptrend channel. Support at 5.1200/5.1400 will be an important gauge now. However, we favour continues USD strength in due course, which should see weakness being bought. Back above 5.3100/5.3600 resistance would be positive again.

Mexican peso (MXN)

The peso continues to be a currency of stability in the LatAm basket. Although fluctuations have been seen, the relative stability is generating outperformance versus other Lat Am currencies that are more vulnerable to USD strengthening (and higher USD rates). A slight decline in year-on-year industrial production should not impact the MXN too greatly. 

  • USD/MXN –the near-term USD weakening appears to have eased and the pair has settled back around the middle of the old trading range. We subsequently retain a neutral outlook. Support at 19.750/19.850 remains key whilst back above 20.200/20.300 lends a more positive bias.


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.