What we are looking for
- USD takes another leg lower: IN the wake of a disappointing set of flash PMIs and the FOMC minutes, the USD has declined against major forex. However, the move may be tempered by a Thanksgiving holiday trading lull.
- Indices continue to find support: Markets ticked higher in the wake of the Fed minutes. US futures closed solidly higher ahead of Thanksgiving. There is a muted feel to European markets this morning.
- Commodities build on support: The solid rebound into the close last night has held this morning on precious metals. Oil fell back again, as the recent corrective trend continues.
- Liquidity and volatility : With the US public holiday and many taking a long weekend, we can expect reduced liquidity for major markets. This may mean erratic but likely subdued trading volatility.
- Data traders : It is a quiet day on the calendar. However, EUR traders will be watching out for the ECB meeting minutes to generate some elevated volatility.
The corrective trend on the USD has been given further impetus. Initially hit by higher-than-expected weekly jobless claims and a very disappointing set of US Flash PMIs, the move was further fuelled by the minutes of the November FOMC meeting. Markets have been positioning for a less hawkish Fed in recent weeks (hence the USD correction and more positive risk appetite). With “a substantial majority” of Fed members believing that slowing the pace of rate hikes “would soon be appropriate”, markets are being emboldened in their view. This was the headline takeaway, but this is just regarding the speed of the hikes. There were still “various” members who see the peak in rates (the terminal rate) being higher than previously thought. For now, though, markets are content in the knowledge that the Fed is highly likely to be less aggressive (probably a 50bps hike) in December.
There is a slightly subdued feel to markets this morning, despite the edge of positive risk appetite from the Fed minutes. It is Thanksgiving today, so US markets are shut and with thin liquidity, we are likely to see reduced volatility. Many traders will be taking an extended break over the weekend, with US markets only open for a half day tomorrow. We can expect the thin liquidity to last until next week.
With the US on Thanksgiving, it is a quiet economic calendar today. The only announcement of note will be the ECB minutes for the October meeting. Traders will be watching for the strength of wording pointing to the size of the next hike.
Market sentiment is leaning risk positive, by slightly subdued: USD is lower again this morning, but moves seem to be relatively contained.
Treasury markets are shut: US markets are shut for Thanksgiving.
China COVID cases continue to rise: Cases in mainland China are reaching record highs, with lockdowns and violent protests.
Japanese flash PMIs disappoint: The flash PMIs have all come in weaker than expected in November and are broadly into contraction. The Composite PMI has fallen to 48.9 (from 51.8) missing the expected 51.7.
Fed ready to slow rate hikes “soon”: According to the minutes of the November Fed meeting, a “substantial majority” of the FOMC said that it would “likely soon be appropriate” to slow the pace of rate hikes.
German Ifo improves: A solid improvement in the Ifo has seen the Ifo Business Climate improve to 86.3 (from 84.5). This was driven by a sharp improvement in the Expectations component, although Current Conditions did deteriorate slightly.
Cryptocurrencies continue to recover: Crypto has rebounded in the past couple of days and tokens are higher again today. Bitcoin is +0.5% at $16550, with Ethereum +2.5% at $1198.
Economic Data :
- ECB Monetary Policy Meeting Accounts (at 12:30 GMT)
Major markets outlook
Broad outlook: A marginally positive bias to risk appetite, although nothing too decisive.
Forex : USD underperforming again on major forex. The JPY is the main outperformer.
- EUR/USD has pulled decisively higher again in the past couple of sessions. Crucially, the support has formed around 1.0220 which is above the 1.0100/1.0200 old key breakouts. This is leaving positively configured momentum with the RSI above 60 and a real sense that the weakness is a chance to buy. The market is now eyeing a test of the 1.0480 reaction high, with a breakout opening 1.0615 as the next test. Initial support is 1.0345/1.0390.
- GBP/USD has burst through resistance at 1.2028 to trade at three-month highs as the market pushes on in the recovery. Momentum is strongly positive now, with the RSI in the 60s and at its strongest since January. This continues to suggest near-term corrections remain a chance to buy. The support between 1.1710/1.1780 continues to strengthen with recent moves. The next important resistance is the August high of 1.2295.
- AUD/USD is now recovering strongly after two decisively positive candles in the past two sessions. With the rebound from 0.6585 which is above the key breakout support band 0.6520/0.6550, the bulls are again testing a big downtrend that dates back to April. With the RSI firming again in the 60s, it looks like the weakness is being seen as a chance to buy. A move above 0.6797 would be the next key breakout and would open 0.6915 as the next test.
Commodities : Precious metals are rebounding from key support. Oil is nursing renewed losses again.
- Gold has found support at the neckline of the base pattern around $1730/$1735 and has started to rally again. With the RSI holding above 50 and again improving, the outlook for the recovery remains positive. Moving back above $1750 is a little near-term break higher and suggests that the upside momentum is building again. The initial resistance is $1767 before $1786. The big base pattern implies $1844. The low at $1728 is growing in importance.
- Silver has held on to the support of the old breakout between $20.85/$21.23 and is building decisively higher now. The RSI momentum remains above 50 and with the market ticking higher again today, if the momentum continues to build, a retest of the $22.24 high could be on. Initial support is at $21.25/$21.35. A close under $20.85 would open a move potentially back towards the support band around $20.00
- Brent Crude oil has struggled to hold on to near-term gains recently. Once more in the past couple of sessions, we have seen a rebound being sold into. This continues the corrective phase of the past few weeks. The market is in an almost $20 multi-month trading range between $82.85/$101.20. There is a mid-range resistance now between $88.25/$90.40.
Indices: There is a positive bias to Wall Street, whilst European markets continue to find buyers into weakness.
- S&P 500 futures have ticked decisively higher in the past couple of sessions and are moving to test the resistance at 4050. Holding on to the support band of the previous breakout between 3883/3935 is an important positive development with the recovery looking for the next upside break. A close above 4050 opens 4145 as the next test. The primary downtrend of 2022 comes in at 4095. Thanksgiving will leave moves subdued for the coming days.
- German DAX continues to move higher. With near-term weakness still being bought into there is a succession of higher lows and higher highs as it moves to its highest level since early June. Initial support is at 14323 with 14125 still an important higher low. The RSI has been above 70 now for two weeks and despite the risk that the move runs out of steam, there are no momentum sell signals yet and there is still an appetite to buy. The next important resistance is at the June high of 14708.
- FTSE 100 remains strong (although it is lagging behind the DAX rally) and continues to push higher along the support of a six-week uptrend. A close above 7516 would open the key August high of 7578, the July rally high. There is good initial breakout support around 7380/7440. A close below 7304 would be corrective.
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