Overview
Forex
Equity markets
Commodities
Alejandro Zambrano
Currency markets are range-bound, the same is true for commodity markets. Equity markets are slightly higher. The bullish momentum in equity markets is a continuation of the trend on Friday. Stock markets are higher despite NFP printing 142K vs. 200K estimated. This morning U.K. Markit PMI printed 53.3 vs. 56 estimated. This is causing the GBP to underperform. The next big data item on tap is U.S. ISM Services which is expected to print 57.5. A good outcome is needed to keep equity markets trending higher.
Upcoming Risk Events (BST)
- 14:45: Markit U.S. Services (final estimate), est. 55.6
- 15:00: ISM Services, est. 57.5
Forex
- GBPUSD is back to levels seen on Friday evening as U.K. Markit PMI printed 53.3 vs. 56. A break of 1.5165 may trigger further weakness. However, for now we doubt GBPUSD will trade below the September low of 1.5150 as traders are ruling out a FED rate hike.
- The Yen is slightly higher in line with stock markets. However, the daily chart is clearly trading sideways and is expected to maintain this pattern. ISM Services could be a trigger for a breakout.
- The Canadian Dollar is one of the biggest winners today. Gaining vs. the Dollar, GBP and Euro. Interest rate differentials is favoring a stronger CAD in the days ahead.
- The Australian Dollar is also higher against the Euro and U.S. Dollar on the same theme.
- AUDUSD is bullish above 0.6985 and looks to be targeting 0.7100. EURAUD is bearish below 1.6080.
Equity markets
- U.S. ISM Services is at elevated levels and economists are expecting a decline to 57.5 from 59. Given that the Citi Economic Surprise Index is drifting lower, we think it’s fair for the ISM Services to undershoot the estimate. If this happens we can expect stock markets to give back some of their gains. The opposite is also the case.
- While most stock markets are short-term bullish they are at elevated levels, hence, the risk/reward ratio for bullish positions are unfavourable at current levels. We also don’t trust the current rally as it’s on the back of the very negative NFP outcome.
- Out of the main indices we like FTSE 100 above 6047 if expecting higher prices.
Commodities
- Gold bounced on the soft NFP, this makes sense as traders flock to gold in bad times and on a softer Dollar. However, the price is stuck between the September low of $1097.70 and September high of $1156.70. Therefore it’s too early to know if the current boost in price will result in a new trend. We await a break of this range.
- U.S. oil declined on the NFP outcome and then bounced back in line with stock markets. Oil will likely remain low on soft jobs figures and ISM Manufacturing published earlier last week. However, price is firmly trapped in the $43.30 – $47.70 range and we do not expect a breakout at this stage.
Alejandro Zambrano
Market Analyst
DailyFX, The Research Arm of FXCM Inc. (NYSE: FXCM)
London, UK
E-mail: azambrano@dailyfx.com
Twitter: @AlexFX00