Markets have taken on a more positive attitude to risk as President Trump has been allowed to leave hospital to return to the White House. Whilst it is still too early to declare the President clear of COVID, for now, the immediate risk to government has been reduced. It means that focus can also be on the US fiscal stimulus talks. House Speaker Pelosi and Treasury Secretary Mnuchin are still deep in discussions and there is hope that something may be agreed, although this would still need to be voted upon by the Republican controlled Senate. Broad risk took a leap yesterday, pulling equities sharply higher and out of safe havens such as the dollar and the yen. This morning is a little more cautious though. As we come into the European session, major markets are all but flat. Fed chair Powell and ECB President Lagarde both speak today and this may be adding to the caution. Overnight, the Reserve Bank of Australia opted to sit on its hands with its monetary policy decision, holding rates and the 3yr yield target at +0.25%. However, this does not remove the easing bias that seems to be set up for the meetings ahead, and the Aussie has just lagged this morning as a result.
Wall Street closed decisively higher last night with the S&P 500 +1.8% at 3408, however, US futures are cautious today with the E-mini S&Ps flat coming into the European session. Asian markets were a little tentative overnight, with the Nikkei +0.5% and Shanghai Composite -0.2%. European markets look set to follow this tone, with FTSE futures -0.1% and DAX futures flat. In forex, there is almost no direction on G4 forex in a cautious open, whilst AUD is the main underperformer, followed closely by NZD. In commodities, a slight slip in early moves with both gold and silver -0.1%. Oil has managed to hold on to yesterday’s sharp rebound and is another half a percent higher today.
Today is arguably more about central banks than the data on the economic calendar. However, UK Construction PMI is at 0930BST and is expected to slip slightly to 54.0 (from 54.6 in August). The US Trade Balance is at 1330BST and is expected to show a deterioration in the deficit to -$66.1bn in August (from -$63.6bn in July). US JOLTS jobs openings are at 1500BST and are expected to increase slightly in August to 6.69m (from 6.62m in July).
The central bank speakers continue with the ECB’s Christine Lagarde who speaks at 0935BST. Then later in the session, there is the main event, with the Fed chair Jerome Powell at 1540BST. Furthermore, there is the FOMC’s Patrick Harker (voter, centrist leans hawkish) at 1645BST and the FOMC’s Robert Kaplan (voter who dissented at the last meeting) speaking at 2300BST.
Chart of the Day – S&P 500
With a strong start to the week, the bulls appear to be gaining confidence once more. Are they about to make a key upside break? Yesterday’s decisive positive candlestick with a move to a two and a half week high, now means that key near term resistance at 3430 is within range. A breakout would be a key signal for renewed positive outlook. If the key lower high of the month long correction can be overcome, then the bulls are back in control. The move would need to be confirmed with a close above 3430, however, momentum indicators are already leading the market higher. A bull cross on MACD lines, in addition to RSI at a one month high. Leaving last week’s low at 3324 is encouraging too, with 3320/3330 developing into a medium term pivot band and important support now. A close above 3430 would re-open the all-time high of 3588, with very little resistance in between.
After a few sessions of consideration we have seen UER/USD pulling higher early this week. A decisive bullish candle comes with technical significance. Closing decisively above 1.1750 and at two week highs, the move has also broken a near five week corrective downtrend. We are also able to draw in a tentative uptrend of the past week now as the market begins to form higher lows and higher highs (coming in around 1.1720 today). We see momentum indicators liking to confirm the positive move, with Stochastics regain upside impetus at one month highs, a first MACD bull cross in three months and RSI above 50. It now means that leaving a low at last Friday’s reaction low at 1.1695 (again the old key support) means that the formation of support is strengthening. The bulls now need to continue to build on this in the coming days. The next resistance starts around 1.1870 and then builds further around 1.1900/1.1920. This all puts a pin in the previous corrective outlook on EUR/USD. Holding above 1.695/1.1750 will sustain this new improvement in outlook.
We have seen EUR/USD taking on an improving technical outlook, and Cable is also on the brink too. The barrier of 1.3000 was key resistance in mid-September and once more is under pressure. The run of predominantly positive candlesticks over the past couple of weeks has pulled Cable to test 1.3000 already this morning. However, momentum indicators are leading the market for a breakout, with the RSI at a four week high, Stochastics accelerating into bullish configuration and a recent MACD bull cross. We are looking for a closing breakout above 1.3050 to be confirmation of a more positive outlook taking hold once more. We see a tentative uptrend of the past 8 sessions supportive around 1.2895 today, but also note that near term trending moves have not tended to last that long over the past month. Initial support of yesterday’s low is around 1.2900.