Markets are settling down after a hectic session yesterday on forex as the USD strengthened significantly. However, this is more of a consolidation than a recovery. It seems that a period of trading ranges on major forex is now over. We wait for confirmation to see if this is now a new trending phase.
- Main drivers: Markets settling and looking to recover risk appetite today; Senate still unlikely to pass US Government funding bill; China PMIs mixed; US final Q2 GDP data due
- Markets settled today: looking settled again (although they also looked settled this time yesterday too, before huge USD gains). There is a sense of calm early today, with a slightly positive bias to sentiment. This means USD is easing back from its position of strength. Indices have found support and are looking to gain traction in recovery.
- USD plays catch up on bond yields: It took a couple of days to get a reaction to rising yields, but USD has broken massively higher. This has broken a series of trading ranges on major markets (such as EUR/USD, GBP/USD and USD/JPY).
- US debt ceiling: The House of Representatives has passed a bill to fund the US Government until 2022, but this now goes to the Senate which is unlikely to pass it.
- China PMIs mixed: The official Manufacturing PMI dropped below 50 to 49.6 and into contraction, but the Non-Manufacturing PMI bounced back above 50 into expansion to 53.2.
- Central bank speakers due: Fed chair Powell testifies (with Treasury Secretary Yellen) to Congress at 1400GMT. Other Fed speakers: Williams (permanent voter, mild dove), Bostic (2021 voter, hawk), Evans(2021 voter, dove)
- Data watch: US GDP (Q2 Final) at 1230GMT is expected to be unrevised at +6.6% (+6.6% Q2 Prelim). Weekly Jobless Claims at 1230GMT expected to fall to 333,000 (from 351,000 last week)
- Broad outlook: Big USD strengthening hitting across forex and commodities yesterday. There is a slight unwind of this today, but with huge levels broken this could be a move that has opened a new phase of trading.
- Forex: EUR/USD breaking below 1.1665 and then 1.1600 was key. We now look for any rebound to falter around 1.1665. We look to sell into the resistance for pressure on 1.1420/1.1490. GBP/USD breaking below 1.3570 is bearish for medium-term positions towards 1.31/1.33. We look to sell into a failing technical rally, with resistance 1.3570/1.3610 an initial “sell zone”.
- Commodities: Gold closing below $1737 for a second session sustains a negative outlook. We look to sell near term rallies. Resistance is mounting between $1737/$1760 and we favour selling for positions towards $1675/$1700. Silver has broken decisively the support $21.65/$22.00. This is now a near term “sell zone” of key resistance. Continued trading below $21.65 opens $18.80/$19.70. Brent Crude oil consolidating in recent sessions. This still has the potential to unwind towards $76.40/$77.10 support. We are neutral for now.
- Indices: Markets look increasingly choppy within medium-term trading ranges. A swing back higher in the past 24 hours is giving the bulls hope again. S&P 500 futures building off 4335 reaction low but needs to get above 4395/4420 to start looking more positive again. DAX is again tentatively higher but needs to get through initial resistance at 15,525 to continue the improvement. FTSE 100 is looking decent at a three week high. A close above 7130 would open the range highs again 7200/7240.