The handover from Asia-Pac to London has continued with equities generally softer with flows moving into the Swiss franc, US dollar, and pound. The world’s central banks are keeping the liquidity flowing in the system with their repo/reverse repo auctions, but the market sentiment could be enough to bring the markets down today.
Market brief
The forex heatmap is a great way to visually see what sort of trading session we’re currently in. The sentiment can change on a piece of news, or it can be sustained by underlying factors. Currently, the markets are coming off the back of central bank week where most kept policy unchanged, sighted the coronavirus as being a leading indicator on when normality would resume and that they would tighten asset purchases as soon as they could but leave interest rates alone.
Today is a risk-off day, with the antipodeans and Canadian dollar on the back foot, though the yen is not fully onboard. The pound has started off strong and although the EURGBP tile is green the price chart is showing some resistance above.
By placing a simple horizontal through the previous swing lows that had acted as support and the same with the swing highs that had previously acted as resistance, I am anticipating a bit of a selloff in the EURGBP due to the overall relative strength in the pound crosses. The German Ifo business climate survey came in weaker than expected this morning adding to a bearish theme for the euro.
A lot has been made of the structural change in the S&P500 which broke through the dynamic support of the daily 50 ema but more importantly took out a significant low. Today the equities markets in the Asia-Pac session have generally fallen except for the Nikkei225 which for the first time in a few days is positive. Japan's consumer prices came in lower for August and their factory activity expanded at a softer rate for September.
Evergrande remains in the minds of traders as we approach the weekend so I am assuming there will be a more defensive stance with no one wanting to go into the weekend with risk. It has been reported that at the end of Thursday bondholders had not received their payments. The 30-day grace period countdown has now begun. Once again, the People's Bank of China (PBoC) has felt it necessary to inject a total of CNY 120 billion of 14-day reverse repose into the market to maintain liquidity in the banking system.
In the mainstream media, the lack of lorry drivers to deliver fuel across the UK is pushing the narrative that there will be a fuel crisis this winter.
Brent crude oil has risen to the top of the 2021 highs and could be on the verge of a breakout. It is a tight oil market with disruptions from the Gulf of Mexico and OPEC+ maintaining a disciplined approach. There will no doubt be calls from the USA for an increase in production as inflation is being driven higher by supply chain bottlenecks and high energy costs.
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