What are we looking at today:
- USD tailing off: After a huge run to 20-year highs, there is a pullback on the USD today. There are signs on technical analysis charts that suggest a near-term shift in sentiment is developing.
- Indices are looking for a shift in outlook: With rallies consistently used as a chance to sell in recent weeks, the past two days have seen a shift in sentiment, where weakness is being bought into. Reaction around key overhead resistance will be key.
- Data trading: Eurozone inflation and growth data will drive EUR later in the morning. Core PCE tends to do little to move USD unless there is a significant surprise (as it is two weeks after the CPI data). Michigan Sentiment is the revised data.
There has been a switch in sentiment in the past day or so. Indices have been consistently seeing rallies falter over recent weeks, but for the time being a risk recovery is taking hold. This is seeing weakness bought into. European indices are playing catch up on a Wall Street rally into the close last night. However, the reaction to weaker than expected results from Amazon and Apple could be a key factor today, with NASDAQ futures lower and underperforming. If this weakness is again used as a chance to buy, then the ground for a sustainable near to medium term recovery will be more solid.
This improvement is playing into forex markets too, as we are also seeing a near-term unwind of huge US dollar (USD) strength. The Dollar Index hit near 20-year highs yesterday but is showing signs of an unwinding move from hugely overbought this morning.
It is a day of inflation and growth on the economic calendar today. For the Eurozone, April flash inflation and the first look at Q1 growth are due. Inflation is expected to increase slightly on both core and headline, whilst Q1 GDP is expected to be similar to Q4 2021. The Fed’s preferred inflation gauge, the core PCE is also due, with a range of opinions lending the potential for a slight decline in March. However, unless there is a significant downside surprise, this may not make too much headway for traders as the FOMC decision is pretty nailed on for a 50 bps hike next week.
Market sentiment is improving: European indices are higher and the USD is unwinding. However, US futures have pulled back overnight and will need to find buyers into weakness to support a continuation of this recent improvement
Treasury yields are looking fairly settled today: Yields moved around on the US GDP disappointment but closed all but flat. This fairly steady positioning continues this morning. With yields no longer moving decisively higher, this may induce some profit-taking on an overbought USD.
US tech giants decline: Results from Apple and Amazon have disappointed the market and fell in after-hours trading overnight. Even though Apple's results topped estimates, the shares fell by -2%. Amazon missed on earnings and reduced sales guidance for Q2, and the shares fell by -9%. How NASDAQ reacts to this decline today will be an interesting gauge for sentiment.
Germany removes block to Russian oil embargo: It appears that a ban on Russian oil in the EU could be approaching after German stopped opposing it. Although the timing of an embargo is uncertain, the move has supported the oil price.
Cryptocurrency slightly lower: Bitcoin is trading around -0.8% lower, still just under $40,000.
- Eurozone inflation (at 1000BST). Headline HICP is expected to increase slightly to 7.5% in April (from 7.4%) whilst core HICP is expected to increase to 3.2% (from 2.9% in March).
- Eurozone Q1 GDP (at 1000BST). The consensus is expected +0.3% QoQ growth in Q1 which would be the same as in Q4 2021. This would increase YoY growth to +5.0% (from +4.6% last quarter)
- US core PCE (at 1330BST). Consensus expects a slight decline to +5.3% in March (from +5.4% in February).
- Michigan Sentiment - final (at 1500BST). Consensus is looking for no change to the prelim reading of 65.7.
Major markets outlook
Broad outlook: Market sentiment has improved, with the USD lower and indices higher. However, a key test to this could be the Wall Street reaction to an overnight pullback to gains. Will weakness now be seen as a chance to buy?
Forex: USD is significantly underperforming today. AUD, GBP, and EUR are all leading the recovery.
- EUR/USD is starting to recover today. This is leaving a low at 1.0470 and a decisive move above 1.0570 initial resistance will be the first gauge. The recent selling pressure has been significant but therefore there is plenty of room for an unwind. Resistance at 1.0635 is old and a more significant barrier is around 1.0750/1.0800.
- GBP/USD has rebounded from 1.2410 overnight and is looking to engage in a near-term recovery now. Reaction around 1.2570/1.2600 resistance will be the initial gauge today. Moving through this would engage more considerable recovery momentum and open 1.2700/1.2770 as the next test, but there is plenty of room for an unwind with little real resistance until 1.2850/1.3000. Initial support is now at 1.2490/1.2500.
- AUD/USD has been set up for potential recovery in the past couple of days as a positive divergence has formed on the 4-hour chart RSI. A move above 0.7190/0.7230 resistance would open for a bigger recovery potential. . Holding higher lows within the recovery will be important now, with 0.7110 the initial support.
Commodities: Precious metals have swung into recovery mode, with oil also eyeing another resistance in recovery.
- Gold rebounded off $1872 yesterday to close with a strong positive candle, and the rally has continued decisively today. A breach of the sharp two-week downtrend has come and how the market reacts around the $1910/$1915 initial resistance will be key. Already the early morning rally is above this level and holding this move into the close will be an important signal of intent for sustaining recovery. Initial support $1896/$1905.
- Silver is building near-term recovery momentum this morning as the market has picked up from the reaction low at $22.89 overnight. With the daily RSI rebounding off 30 there is scope for a technical rally towards the $23.84/$24.15 pivot band resistance now. There is initial support at $23.30/$23.40.
- Brent Crude oil has recovered through $107 resistance to open $110.70 as the next test in a recovery. This swing back higher maintains our view that this is a market that is swinging between support at $98/$100 up toward resistance at $116. Above $110.70 would open the $116 one-month range highs. Initial support is at $107.00/$107.50.
Indices: Recovery is building but how Wall Street reacts to an overnight pullback will be key. Near term, rallies have been seen as a chance to sell previously. If this dip is bought into, it could signal a key near to medium-term shift in sentiment and open further recovery.
- S&P 500 futures have posted two consecutive positive closes now and is looking towards a near-term recovery. The reaction to resistance at 4303 will be the key issue today. A breakout would open the mid-range pivot band of resistance around 4355/4390. Initial support at 4235 needs to hold to sustain this near-term recovery momentum.
- DAX is in recovery mode and on the brink of a breakout as it eyes the resistance at 14,165. A close above this level re-opens a test of the key four-month downtrend again (this morning at 14,450). Momentum is improving on the 4-hour chart but ideally, the market needs to hold above 14,015 initial support now. Below 13,825 turns negative again.
- FTSE 100 has recovered well in recent sessions and now the market needs to use the old support band between 7484/7530 as a basis of support once more. A move back below 7475 would be disappointing now. Overhead resistance grows around 7615/7660.
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