The bulls fought back yesterday as a broadly positive tone to risk appetite trumped concerns markets are having over how the US Presidential Election could pan out. How sustainable this improvement is could hinge on the talks between the Democrats and the White House over a fiscal support package. The Democrats propose around $2.2trillion of funding, whilst Treasury Secretary Mnuchin and the White House propose around $1.6trillion. Although a vote was postponed last night, there is still a chance that fiscal support could be agreed upon as talks continue. This is helping to prop up markets today. You can also add in some broadly positive US data read through, with a better than expected ADP number boding well for Nonfarm Payrolls tomorrow. This has pulled Treasury yields higher and the dollar is coming back under pressure once more (USD is a safe haven play primarily right now). Subsequently, we see forex majors edging risk positive once more and equities gaining. Watch also the precious metals ticking higher on the renewed dollar weakness. Once more we see major markets trading around dollar moves. Manufacturing PMIs are in focus now today.
Wall Street closed solidly higher last night with a rebound of +0.8% on S&P 500 to 3363, whilst futures are continuing this move today (E-mini S&Ps +0.7%). Asian markets were more cautious with the Nikkei all but flat and the Shanghai Composite -0.2%. In Europe there is an early tick higher, with FTSE futures +0.5% and DAX futures +0.2%. Forex majors show a risk positive bias, with USD and JPY underperforming, whilst AUD and NZD rebound strongly. Commodities are benefitting from the dollar weakness, with gold +0.7% and silver +2.4%. Oil has also ticked higher early today by just under half a percent.
The first trading day of the month is a day of the September manufacturing PMIs on the economic calendar. The Eurozone final Manufacturing PMI is at 0900BST and is expected to be confirmed at 53.7 (53.7 flash September, 51.7 final August). The UK final Manufacturing PMI is also expected to be unrevised at 54.3 (54.3 flash, 55.2 final August). The Eurozone Unemployment rate for August is expected to have increased to 8.1% (from 7.9% in July). The Fed’s preferred inflation measure, US core Personal Consumption Expenditure is at 1330BST and is expected to pick up by +0.3% in August, which would increase the year on year rate to +1.4% (from +1.3% in July). The US ISM Manufacturing is at 1500BST and is expected to tick slightly higher to 56.3 in September (from 56.0 in August).
There are another couple of Fed speakers scheduled for today. The FOMC’s John Williams (voter, centrist) speaks at 1600BST, whilst the FOMC’s Michelle Bowman (voter, leans hawkish) speaks again at 2000BST.
Chart of the Day – NZD/USD
When the Kiwi broke both its six month uptrend and the multi-month pivot support at 0.6600, the risk was that bear pressure would grow to break the first really key support at 0.6490. However, support at 0.6490 has since held firm as risk appetite has picked up again. This has enabled the formation of what is now a three month consolidation range of around 300 pips between 0.6490/0.6795. It was interesting to see that the old 0.6600 pivot was initially acting as resistance after the rebound from 0.6510. However, a decisive positive candle with a rally back above 0.6600 has helped to strengthen the support of the range and now lends a near term positive bias. Although it means the near term outlook is improving, the medium term outlook is solidly neutral still. This comes with momentum indicators swinging back higher, with Stochastics and MACD lines looking to bottom. The RSI between 38/62 over the past few weeks does though reflect a neutral outlook. Continuing to close above 0.6600 implies a move towards the next pivot at 0.6715 which is initial resistance.
After a rebound over the past few days, the pair continues to trade around a crucial crossroads. Is this move a rebound into resistance and another chance to sell? Or is the dollar strengthening over and EUR/USD ready to resume a run higher? In assessing the outlook, we continue to focus on the resistance band 1.1695/1.1750 and how the market responds to this and the resistance of the four week downtrend (falling today around 1.1785). If the bulls can breach these two then the rebound will be seen as more sustainable. The RSI has ticked higher but towards 50, whilst MACD lines are around neutral. Yesterday’s intraday reaction to moving back below was encouraging, with near term higher low support at 1.1685 now. Continuing to close above 1.1695 will hold the crossroads. We still see a renewed corrective move back towards 1.1610 and below as likely, but the bulls are seriously questioning this outlook now.
Although intraday moves reflect a degree of uncertainty with choppy trading on Cable, the direction of travel continues higher near term. The big question is whether the bulls can overcome key medium term pivot/resistance at 1.3000. As a run of positive closes builds, with the market pulling above 1.2860 (a September pivot) we see a positive bias within what is still a three week consolidation between 1.2670/1.3000. The bulls will though take encouragement from momentum, with RSI and Stochastics moving sharply higher and a bull cross now on MACD. This is setting up for pressure on 1.3000. Intraday weakness is seemingly now a chance to buy. Initially we see support around 1.2900 but any supported weakness towards 1.2860 looks to be a near term chance to buy for pressure