200-day SMA

A new three-month high Can Brent break the 200-day SMA? Oil prices are trending higher again on Monday, building on the surge late last week and reaching their highest level in three months. There have been a number of factors that have contributed to the gains recently, starting with the Saudi extension to its million barrel cut alongside Russia’s export reduction followed by data that could enable a soft landing in countries that are aggressively raising rates.   Brent hits new three month high Not only has that taken Brent crude back above $80 a barrel, much to the relief of the Saudi’s, but it’s adding to those moves again. It will be interesting to see how Brent responds around roughly $82.50-$83.50 where it is already seeing some resistance today. It may not have traded at these levels in almost three months but it hasn’t significantly breached the 200-day simple moving average since last summer.      

Canadian Dollar Experiences Biggest Intra-day Gain Since End of July. The Canadian dollar has been experiencing a steady weakening against the US dollar since mid-July. The ongoing bullish uptrend of USD/CAD is meeting resistance as foreign exchange traders speculate on the possibility of the Fed and BOC being close to completing their tightening cycles with one more rate hike. Major resistance at the 1.36 level could hold, potentially leading to a pullback targeting the 1.3454 level, the current 200-day SMA. The upcoming week might bring a hawkish stance from Fed Chair Powell, which could revive the king dollar trade. Oil Market Rally Fizzles Amid Strong Dollar Trade and Rising Real Yields Crude oil prices initially rallied in the morning, driven by expectations of a tight oil market due to current backwardation trends. However, the surge in real yields and a potential strong dollar resurgence after Jackson Hole are contributing to the reversal of the oil price rally. While risks to crude demand are emerging, the oil market's tightness should provide some support.     Dollar supported as 10-year Treasury hits 4.34%, highest levels since financial crisis Oil market to remain tight, but so far offers little help for the loonie Loonie was having biggest intra-day gain since end of July   The Canadian dollar has been steadily weakening against the greenback since the middle of July.  The USD/CAD bullish uptrend appears to be facing some resistance as FX traders anticipate both the Fed and BOC are possibly one more rate hike away from being done with tightening. It appears that major resistance from the 1.36 level might hold, so if a pullback emerges, downside could target the 1.3454 level, which is currently the 200-day SMA.  If markets get a very hawkish Fed Chair Powell this week could see the return of the king dollar trade.   Oil The morning oil price rally is fizzling as the strong dollar trade might be back given the surge in real yields.  Crude prices were much higher in early trade on expectations that the oil market would remain tight given the current backwardation. Risks to the crude demand outlook are growing, especially after China disappointed with last night’s easing, but for now a tight market should keep oil supported. The biggest risk for energy traders is if we see a massive wave of dollar strength after Jackson Hole. Right now there are so many oil drivers and most support higher prices. Heating oil prices are elevated and that might continue.  Iran nuclear talks won’t be having any breakthroughs anytime soon. Gulf of Mexico oil production could be at risk as a few formations build on the Atlantic.     Gold Gold’s worst enemy is surging real yields.  It was supposed to be a quiet start to the week for gold with China coming to the rescue and some calm before Friday’s Jackson Hole speech by Fed Chair Powell.  There is a little bit of nervousness from the long-term bulls as gold futures are getting dangerously close to the $1900 level, which could trigger a wave of technical selling.  It seems gold needs some disorderly stress in financial markets for it to rally and that doesn’t seem like it is happening anytime soon. The outlook for the next few quarters is cloudy at best, but it seems that there is still too much strength in the economy that is dampening safe-haven flows for gold.  It doesn’t help that hedge funds are throwing in the towel for gold, which now has net-long positions at a five month low.        

All ears on Powell and Lagarde at Jackson Hole today   By Michael Hewson (Chief Market Analyst at CMC Markets UK)     After an initially positive start to the day yesterday, only the FTSE100 managed to eke out any sort of gains, after a rebound in yields and the fading of the Nvidia sugar rush saw European markets slip into negative territory.   US markets, having started very much in a positive vein with the Nasdaq 100 leading the way higher, also turned tail as bond yields pushed higher, along with the US dollar, finishing the day sharply lower. As we look towards today's European open, the rise in yields and weak finish in the US, as well as weakness in Asia this morning, is set to see European markets open lower this morning. Much of the narrative for this month was supposed to be centred around what Fed chair Jay Powell would likely say at Jackson Hole today with respect to the prospect of another pause in the rate hiking cycle when the FOMC meets next month.   This week's poor economic data out of Germany and France has shifted the spotlight a touch when it comes to central bank policy towards the European Central Bank and Christine Lagarde's speech, at 8pm tonight, after Powell who is due to speak at 3:05pm.   While this year's Symposium is titled "Structural Shifts in the Global Economy" it won't be just Jay Powell whose words will be closely scrutinised for clues about rate pauses next month it will also be the Bank of England and the Bank of Japan where markets will be looking for important insights into the risks facing central banks in terms of the risks in over tightening monetary policy at a time when the challenges facing the global economy are numerous.   This week's PMIs have highlighted the challenges quite clearly to the point that it appears the ECB may well also look at a rate pause next month, alongside the Federal Reserve, although the reasons for an ECB pause are less about inflation falling back to target, than they are about a tanking economy.   The latest German PMIs suggest the prospect of another quarter of contraction in Q3, while the Bank of England has a similar problem, although the bar for a pause next month is slightly higher given how much higher UK CPI is relative to its peers.   Before we hear from ECB President Christine Lagarde, Powell will set the scene just after US markets open, and his tone is likely to be slightly less hawkish than he was a year ago.  When Powell spoke last year, he made it plain that there was more pain ahead for US households and that this wouldn't deter the central bank in acting to bring down inflation, even if it meant pushing unemployment up. While Powell is unlikely to be anywhere near as hawkish, as he was last year, he won't want to declare victory either. As we already know from recent comments from various Fed officials it is clear the Fed believes the fight against inflation is far from over, and in that context it's unlikely he will deliver any dovish surprises.   This belief of a slightly hawkish Powell is likely to have been behind yesterday's sharp declines in US markets, which were driven by rising yields as investors continued to price in higher rates for longer. Not even a set of blow-out earnings from Nvidia was enough to keep markets in the black, with the shares opening at a new record high above $500, before sliding back to finish on the lows of the day, closing unchanged. The inability to hold onto any of the early gains suggests that the recent enthusiasm for this $1trn chipmaker may be due a pause. While investors will be focussing on Powell, the focus today returns to the German economy and in the wake of this week's poor PMIs we'll be getting the latest snapshot of the business sentiment in Europe's largest, but also sickest economy, as well as the final reading of Q2 GDP.   The most recent German IFO business climate survey showed sentiment falling to its lowest level since October last year in July at 87.3 and is expected to slow further to 86.8. Expectations also slipped back to 83.5 suggesting the economy could remain in recession in Q3.   Any thoughts that we might see an improvement in August are likely to have been dealt a blow by the sharp rise in oil prices seen in the last few weeks, as well as this week's PMIs. With recent economic data out of China also suggesting a struggling economy, German exporters are likely to continue to find life difficult.        EUR/USD – sinking below the 200-day SMA at 1.0800 with support just below that at trend line support from the March lows at 1.0750. Still feelsrange bound with resistance at the 1.1030 area.   GBP/USD – slipped below the 1.2600 area which could well open up a move towards 1.2400 and the 200-day SMA.  We still have resistance at the 1.2800 area and 50-day SMA.       EUR/GBP – the rebound off this week's 11-month low at 0.8490 looks set to retest the 0.8600 area. We also have resistance at the 0.8620/30 area.   USD/JPY – rebounded off the 144.50 area with resistance at the highs this week at the 146.50 area, with resistance also at 147.50.   FTSE100 is expected to open 5 points lower at 7,328   DAX is expected to open 39 points lower at 15,582   CAC40 is expected to open 16 points lower at 7,198    

US dollar weakness emerges on as inflation expectations fall to lowest levels in over two year; November Fed rate hike odds remain a coin flip Oil rallies for a third straight week on tightness concerns US oil rig count rises by 2 to 515 The one-way move with oil prices has finally started to provide some underlying support for the Canadian dollar.  The Canadian currency however is starting to show some signs of exhaustion as short-term risks to the outlook grow.  The short-term crude demand outlook might be poised to take a big hit but it won’t matter as the global market supply deficit will keep oil above the $90 level throughout the rest of the year.  Unless sentiment deteriorates significantly for the Canadian economy, loonie strength could persist. USD/CAD should have decent support from the 200-day SMA which resides at the 1.3465 level. Canadian Economic Data/News: Canadian house prices declined again as the impact from the BOC’s tightening cycle continues to weigh on the housing market.  Existing Canadian home sales dropped 4.% in August from July, much worse than the expected 0.2% dip.  Housing shortages however kept home prices supported, rising 0.4% to C$757,600. The Canadian economy will likely see greater efforts by the PM Trudeau to address affordability concerns.  On Thursday, the PM unveiled plans to cut federal sales tax on construction of new apartment buildings.  Canada’s economy is softening, but optimism still remains weakness will happen in an orderly fashion.       Oil After a third week of gains, crude prices are not seeing the typical profit-taking as the short-term crude demand outlook gets a boost from improving US and Chinese economic data.  Oil is surging but so far it really has been passed on to the consumer as gas prices are still below $3.90 a gallon. $100 oil is not that far away, but that might not be a one-way trade as short-term risks to the outlook could shift consumer views and attitudes. The oil market is going to stay tight a while longer, but we might need to see a fresh catalyst to send oil to triple digits.    

05:40BST Tuesday 26th September 2023 Asia weakness set to see lower European open By Michael Hewson (Chief Market Analyst at CMC Markets UK)   European markets got off to a poor start to the week yesterday as concerns around sticky inflation, and low growth (stagflation), or recession served to push yields higher, pushing the DAX to its lowest levels since late March, pushing both it and the CAC 40 below the important technical level of the 200-day SMA. Recent economic data is already flashing warning signs over possible stagnation, especially in Europe while US data is proving to be more resilient.   Worries over the property sector in China didn't help sentiment yesterday after it emerged Chinese property group Evergrande said it was struggling to organise a process to restructure its debt, prompting weakness in basic resources. The increase in yields manifested itself in German and French 10-year yields, both of which rose to their highest levels in 12 years, with the DAX feeling the pressure along with the CAC 40, while the FTSE100 slipped to a one week low.   US markets initially opened lower in the face of a similar rise in yields with the S&P500 opening at a 3-month low, as US 10-year yields continued to push to fresh 16-year highs above 4.5%. These initial losses didn't last as US stocks closed higher for the first time in 5 days. The US dollar also made new highs for the year, rising to its best level since 30th November last year as traders bet that the Federal Reserve will keep rates higher for much longer than its counterparts due to the greater resilience of the US economy. The focus this week is on the latest inflation figures from Australia, as well as the core PCE Deflator from the US, as well as the latest flash CPI numbers for September from France, Germany, Spain as well as the wider EU flash number which is due on Friday. This could show the ECB erred a couple of weeks ago when it tightened the rate hike screw further to a record high.   On the data front today the focus will be on US consumer confidence for September, after the sharp fall from July's 117.00 to August's 106.10. Expectations are for a more modest slowdown to 105.50 on the back of the continued rise in gasoline prices which has taken place since the June lows. The late rebound in US markets doesn't look set to translate into today's European open with Asia markets also sliding back on the same combination of stagflation concerns and reports that Chinese property company Evergrande missed a debt payment.   Another warning from ratings agency Moody's about the impact of another government shutdown on the US economy, and its credit rating, didn't help the overall mood, while Minneapolis Fed President Neel Kashkari said he expects another Fed rate rise before the end of the year helping to further boost the US dollar as well as yields.     EUR/USD – slid below the 1.0600 level yesterday potentially opening the prospect of further losses towards the March lows at 1.0515. Currently have resistance at 1.0740, which we need to get above to stabilise and minimise the risk of further weakness.      GBP/USD – slipped to the 1.2190 area, and has since rebounded, however the bias remains for a retest of the 1.2000 area. Only a move back above the 1.2430 area and 200-day SMA stabilises and argues for a return to the 1.2600 area.       EUR/GBP – currently have resistance at the 200-day SMA at 0.8720, which is capping the upside. A break here targets the 0.8800 area, however while below the bias remains for a pullback. If we slip below the 0.8660 area, we could see a move back to the 0.8620 area.     USD/JPY – has continued to climb higher towards the 150.00 area with support currently at the lows last week at 147.20/30. Major support currently at the 146.00 area.     FTSE100 is expected to open at 7,624     DAX is expected to open at 15,405     CAC40 is expected to open at 7,124  

Firmer yields continue to weigh on equity markets By Michael Hewson (Chief Market Analyst at CMC Markets UK)   European markets underwent another negative session yesterday, with the DAX and CAC 40 slipping to their lowest levels in 6-months, as firmer yields and stagflation concerns kept markets on the back foot. We could also be seeing the result of technical effects after both the French and German benchmarks fell below their respective 200-day SMA's earlier this week.     US markets also slipped back with the S&P500 and Nasdaq 100 closing at their lowest levels since early June, after US consumer confidence slowed more than expected in September, and new home sales slipped to a 5-month low.     This weakness looks set to continue this morning with another soft start for European markets, with Asia markets also on the back foot.  Yields on US treasuries have continued to push higher, with a $48bn 2-year treasury auction achieving its highest yield since 2006, while the US dollar index closed at its highest level since November last year.   The rise in the US dollar, along with yields appears to speak to an expectation that sticky inflation will be sustained, keeping rates higher for longer, particularly since oil and gasoline prices appear to be showing little sign of drifting back from their recent highs.    The rise in the US dollar is also causing problems for the Bank of Japan after Japanese finance minister Suzuki said that he viewed recent currency moves on the currency with a high sense of urgency. Suzuki went on to say that appropriate action would be taken against rapid FX moves. Unfortunately for the Japanese government momentum is in the US dollars favour while the Bank of Japan continues to argue the case for further easing.   The very prospect of stickier US inflation will mean that Fed will err more towards higher US rates for longer which means the line of least resistance is for USD/JPY to move through 150 and on to last year's peak at 152.00, unless the BoJ suddenly reverses course.   The Fed isn't being helped by concerns that the trickledown effect of the ironically named inflation reduction act fiscal stimulus is making the Federal Reserve's job much more difficult in pulling inflation back to target in the coming months.         EUR/USD – remains under pressure with the March lows at 1.0515 the next support, along with the lows this year at 1.0480. Currently have resistance at 1.0740, which we need to get above to stabilise and minimise the risk of further weakness.    GBP/USD – slipped below the 1.2190 area, with the bias remaining for a retest of the 1.2000 area. Only a move back above the 1.2430 area and 200-day SMA stabilises and argues for a return to the 1.2600 area.       EUR/GBP – continues to find resistance at the 200-day SMA at 0.8720, which is capping the upside. A break here targets the 0.8800 area, however while below the bias remains for a pullback. If we slip below the 0.8660 area, we could see a move back to the 0.8620 area.   USD/JPY – continues to creep towards the 150.00 area with support currently at the lows last week at 147.20/30. Major support currently at the 146.00 area.   FTSE100 is expected to open 9 points lower at 7,616   DAX is expected to open 26 points lower at 15,230   CAC40 is expected to open 4 points lower at 7,070

Weekly jobless claims set to tee up tomorrow's US payrolls report By Michael Hewson (Chief Market Analyst at CMC Markets UK)   European markets stabilised somewhat yesterday, although the FTSE100 slid for the third day in succession due to a sharp slide in commodity prices, which weighed on the big caps of basic resources and energy. There was a respite in the big surge we've seen in bond yields, which retreated from intraday and multiyear highs after the September ADP jobs report saw its weakest monthly job gain since January 2021, of 89k. This stabilisation in yields helped temper the downside for US markets, with the S&P500 rebounding from its 200-day SMA, which has acted as a key support area in the past couple of trading days. The retreat in yields also helped US markets rebound and close higher on the day, breaking a 3-day losing streak, with the biggest decline coming with a 10-point fall in the 2-year yield.     This rebound in US markets has translated into a rebound in Asia markets and looks set to translate into a positive start for European markets this morning as we look ahead to the latest German trade import and export data for August, as well as French industrial and manufacturing production data, all of which are forecast to show weak economic performance for both. German exports are forecast to decline by -0.6%, with imports expected to rise by 0.5%, while in France manufacturing output is expected to decline by 0.4%.     The US dollar fell victim to some modest profit taking, slipping back from 10-month highs as yields declined across the board. The US labour market is set to remain in the spotlight today, as well as tomorrow when we get the September non-farm payrolls report, which after yesterday's slowdown in the ADP numbers, could set the seal on another rate hike in November, or keep markets guessing ahead of next week's CPI report.     Before that, later today we get the latest weekly jobless claims numbers which are expected to show that claims increased slightly from 204k to 210k. Continuing claims are forecast to remain steady at 1.67m.       EUR/USD – the next support remains at the 1.0400 level which is 50% pullback of the 0.9535/1.1275 up move, followed by 1.0200. To stabilise we need to move through 1.0620 for a retest of the 1.0740 area.       GBP/USD – strong rebound yesterday from the 1.2030/40 area with support below that at the 1.1835 area which equates to a 50% retracement of the move from the record lows at 1.0330 to the recent peaks at 1.3145. We need to overcome the 1.2300 area to signal a move back the 1.2430 area and 200-day SMA.        EUR/GBP – still range bound with resistance at the 0.8700 area and resistance at the 200-day SMA at 0.8720, which is capping the upside. A break of 0.8720 targets the 0.8800 area, however while below the bias remains for a move back to the 0.8620 area.     USD/JPY – made a 12-month high of 150.16 earlier this week before plunging to 147.35 on the back of possible intervention from the Bank of Japan. With no confirmation that intervention took place, any further moves higher could be choppy. Below 147.30 signals the top is in.     FTSE100 is expected to open 32 points higher at 7,444     DAX is expected to open 62 points higher at 15,162     CAC40 is expected to open 30 points higher at 7,026  

Weak start for Europe ahead of German IFO - By Michael Hewson (Chief Market Analyst at CMC Markets UK)  After an unexpectedly dovish pivot from Fed chairman Jay Powell on Wednesday, European and US markets ended another positive week very much on a mixed note after New York Fed President John Williams pushed back on market expectations of a rate cut as early as March, saying it was premature to be even considering anything of that sort.   Williams was followed in his comments by Atlanta Fed President Raphael Bostic who delivered a similar line of thought, saying he expected rate cuts to begin in Q3 of 2024 if inflation falls as expected. With the Fed dots indicating that US policymakers saw rates back at 4.6% this appears to be more in line with the message the Fed had hoped to deliver on Wednesday, however markets decided to take Powell's press conference comments and run with them, getting out in front of their skis in doing so.   Given where the US economy is now it's surprising that the Fed are said to be to start to be thinking in terms of cutting rates simply because with the economy currently where it is, there is currently no need. With GDP at 5.2% in Q3, unemployment at 3.9%, and weekly jobless claims at just over 200k the risk of inflation reigniting is clearly still a concern for some policymakers.   That certainly doesn't appear to be the case in Europe where economic activity is stagnating at best and even now the ECB comes across as being reluctant to counter a rate cut, even though a reduction in borrowing costs is clearly needed, given that headline inflation is back within touching distance of its 2% target.   The same could be argued for the UK except wage growth is still trending well above 7%, while headline CPI is at 4.6%, though this could come down further in numbers due to be released on Wednesday.   As we look towards the final week before the Christmas break, trading activity is likely to be somewhat thin and choppy, and while we have seen record highs for the Dow, DAX and CAC 40 in the last week or so, we still remain some distance away from the 2021 record peaks of the Nasdaq 100 and S&P500.   As for the FTSE100 we're looking at yet another year of underperformance, after the record highs of mid-February, with the UK benchmark up by just over 1% year to date, with the FTSE250 not faring that much better.   Due to the relatively subdued nature of Friday's US finish, today's European market open looks set to be a slightly weaker one with the only data of note the latest German IFO Business survey for December. Given the weak nature of last week's PMI numbers it would be surprising to see a significant improvement on the November numbers when the current assessment improved slightly to 89.4.   The US dollar was one of the big losers last week driven lower by expectations that US rates have peaked and are on their way back down, with the Japanese yen one of the biggest gainers.   This shift in sentiment will no doubt be welcomed by the Bank of Japan and to some extent helps them out with respect to the weakness of the yen ahead of tomorrow's rate decision. There is now less incentive for them to think about altering their current policy settings, although they might hint at starting to execute some form of shift early next year.      EUR/USD – the rebound to 1.1010 last week didn't last long, unable to push through the November peaks at 1.1015/20. We still have support now back at the 200-day SMA at 1.0830. A break above 1.1030 has the potential to target the July peaks at 1.1275.   GBP/USD – broke briefly above the 1.2730 area, and the 61.8% retracement of the 1.3140/1.2035 down move, pushing up to 1.2795 before reversing. The bias remains for further gains while above the 200-day SMA at 1.2520. We also have support at the 1.2590 area.   EUR/GBP – slipped back from the 100-day SMA at 0.8640 last week, with support at the 0.8570/80 area. A move below 0.8580 targets 0.8520.   USD/JPY – slipped below the 200-day SMA at 142.50 last week, opening the prospect of a move towards 140.00. We now have resistance at 146.00 and while below that we could push towards 139.20.     FTSE100 is expected to open 7 points lower at 7,569   DAX is expected to open 15 points lower at 16,736   CAC40 is expected to open 3 points lower at 7,594