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Markets turn risk-on, commodity pairs and the pound rise against the dollar

The overnight session was dominated by news from Australia and North Korea but even though the headlines were negative the markets have shrugged these news items off and are pushing higher on good earnings.

Market Brief

The forex heatmap is showing the markets are geared up for a risk-on start to the London session. In the past, a ballistic missile launch from North Korea may have been a worry but these days they pass without too much thought. A report from the Reserve Bank of Australia (RBA) revealed that the economy will grow more slowly in the December quarter of 2021 and at the start of 2022 when compared to the same period last year.

The minutes from the RBA October 5th meeting covered international, domestic developments, and financials. The report stated “Wage and price pressures in Australia remain subdued. Members noted that while disruptions to global supply chains were affecting the prices of some goods, the effect of this on the overall rate of inflation in Australia was limited. Wages growth and underlying inflation were expected to pick up only gradually as the economy recovers.”

The members of the meeting agreed that the Delta variant of the COVID-19 outbreak had an impact on economic growth, but that the setback is expected to be temporary since rising vaccination rates and easing of restrictions will likely follow.

The AUDUSD is leading the commodity pairs higher and has now cleared the daily 200-ema and is on target to start testing previous swing highs up to the 0.7600 level.

Yesterday, the major stock indexes finished mixed with the Dow Jones Industrial Average just below its opening price and the Nasdaq 100 and S&P 500 both posting gains. In today’s Asia-Pac session the bullish momentum has carried through and the major indices bar the German DAX30 are green.

September's industrial production data missed market expectations, while confidence in newly-built single-family homes increased in October. While the US Transportation Secretary announced that supply chain concerns would continue into next year, Amazon has announced that it will hire 150,000 new employees for the holiday season. The Brent chart above is clearly in an uptrend, with momentum as seen by the moving averages pointing towards higher prices. The Stochastic indicator is showing a possible buy dip as the price has returned to the moving averages, but the price structure has been broken to the downside and these levels could act as more significant resistance without some bullish data coming through. This leads me to think the $80-$85 range could be traded for a while.

The GBPUSD appears to be on the verge of a large breakout to the upside as it tests the descending channel and is now trading above the moving averages. These current levels have been traded many times recently and could provide resistance again. However, Boris Johnson is meeting up with some movers and shakers from the world of industry and is promoting the good news story that there will be £9.7 billion of foreign investment arriving in the UK. The Prime Minister said,

"The world's top investors have seen the massive potential in the UK for growth and innovation in the industries of the future. The fantastic new investment we have secured today will power our economic recovery, creating thousands of jobs and helping to level up across the country."

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