What are we looking at today:
- USD to continue to strengthen: With markets looking risk negative and US bond yields rising again, the USD will remain in favour.
- Indices continue to struggle: Selling into strength continues to be the mood for indices in recent weeks. Breaking medium-term support areas continues to play into this move.
- Data trading: More US inflation data today, this time from the factory gate, with the US PPI. Higher than expected on core and headline would refuel concerns over pricing pressures. The focus for CAD traders will be on the Bank of Canada policy decision. A 50bps hike is expected, but what message on further hikes goes with it?
Broad sentiment remains cautious, bordering on negative. This comes as inflation fears remain at the forefront of the minds of traders. The Reserve Bank of New Zealand surprised the market by hiking by 50bps this morning in an attempt to tackle rising inflation. However, after an initial spike higher, the New Zealand dollar has fallen sharply. Despite the aggressive move to tighten rates now, the RBNZ has not increased the 3.25% peak in the forecast for 2023. UK inflation continues to drive higher than market expectations, as the headline CPI has jumped to 7%. Official forecasts are expecting it to move even higher in the coming months.
All the while, the recent trends of subdued risk appetite continue to run through markets. The USD is strengthening once more amongst major forex. In commodities, we see precious metals supported and looking to move higher, whilst indices are struggling for any recovery momentum this morning.
The economic calendar is focused on inflation and rate hikes again. The US PPI is expected to rise on both a headline basis but hold steady at a core level, and any sign of higher than expected inflation pressures could help to drive bond yields back higher again and support the USD. The Bank of Canada is fully expected to hike by +50 basis points today but the question is of the message that goes with it. Guiding for further aggressive hikes should help to support the Canadian dollar (CAD).
Market sentiment cautious again: European indices are struggling for any recovery momentum after yesterday’s selling pressure. The USD is outperforming and precious metals are supported.
Treasury yields moving back higher again: Yields fell yesterday after the core US CPI showed signs of peaking. However, yields are back higher once more today. The widening of the 2s/10s spread continues, now up to 34 basis points (having been negative just over a week ago.
The Reserve Bank of New Zealand surprises with a +50bps hike: The consensus was looking for just +25bps but the RBNZ has increased rates to 1.50% (from 1.00%). The +50bps move was referred to as a policy path of “least regret”. However, despite the surprise, initial NZD gains have turned into sharp losses. The RBNZ hike also came with no change to the 3.25% peak forecast for 2023. A more aggressive hike now may mean a more neutral rate sooner (estimated to be c. 2%).
China trade surplus of +$47.4bn: A fall from $116.0bn in February has come in above the +$22.4bn surplus expected. However, this appears largely down to much lower than expected imports.
UK inflation comes in higher than expected: UK CPI has jumped to 7.0% in March on the headline basis, with core CPI up to 5.7%. Both measures came in ahead of consensus forecasts of 6.7% and 5.4% respectively. This has done little to support GBP this morning.
Cryptocurrency trying to build support: After recent corrective pressure and selling intraday rallies, Bitcoin is ticking higher this morning. Holding back above $40,000 is needed to build the confidence of support once more.
- US PPI (at 1330BST). Consensus is looking for headline PPI to increase to 10.6% in March (up from 10.0% in February), with core PPI expected to hold at 8.4%
- Bank of Canada monetary policy (at 1500BST). Consensus is expecting a +50bps rate hike to 1.00% (from 0.50% previously)
Major markets outlook
Broad outlook: Market sentiment has been deteriorating and remains cautious again this morning.
Forex: The USD remains the main outperformer today, with a sell-off on the NZD and AUD as the key movers.
- EUR/USD has been increasingly struggling on intraday rallies, with strength being sold into. An early tick higher is holding above a test of the 1.0805 key March low but downside pressure is mounting. Below that key support opens 1.06/1.07. Resistance is strong now at 1.0940, with 1.0900 initial resistance.
- GBP/USD continues to heap pressure on 1.3000 and below. Recent sessions have seen buyers tempted under 1.3000 but a close below this support would be a bearish signal. It would open 1.2850 as the next main support but 1.27/1.28 would be likely. Initial resistance is at 1.3025 with more considerably resistance at 1.3050. A move above 1.3110 is needed to suggest a serious recovery.
- AUD/USD recovered yesterday (on stronger commodity prices) but has faltered back under the previous 0.7455 support again. This is leaving resistance at 0.7493 and the pressure is back on the 0.7400 reaction low. A retreat towards the 10-week uptrend (c. 0.7300) still looks likely.
Commodities: Precious metals continue to move higher, whilst the oil rebound is bumping up against resistance.
- Gold has moved clear of the top of a four-week trading band of $1890/$1966. Coming with strengthening positive momentum (daily RSI above 60) this is opening further recovery towards $2000. Intraday weakness is increasingly being bought into. Initial support is strengthening at $1940/$1950.
- Silver is also continuing to move higher and is now testing the key resistance band $25.60/$25.85. With strengthening momentum (again RSI above 60), a close above $25.85 would be bullish for a full move back towards the March high of $26.95., Intraday weakness is being bought into, with initial support at $25.35 above the more considerable $24.80/$25.15.
- Brent Crude oil has rallied strongly to break the near three-week downtrend and test the key resistance band at $105.30/$107.00. A close above $107.00 would be a positive development and open the more important resistance at $112.50 (the first key lower high). A bull failure back under $105.30 would suggest the recovery faltering.
Indices: Markets continue to build on the run of lower highs and lower lows. FTSE 100 continues to buck the trend.
- S&P 500 futures have been falling since the recovery topped out at the end of March. Closing below the support band at 4418/4444 has turned the market increasingly corrective. Intraday rallies are also being sold into, which leaves reaction to this morning’s tick higher important. Another bull failure around 4418/4444 would re-open downside intent. The resistance at 4520 is a key lower high. Below 4375, the next support is around 4335.
- DAX has struggled for recovery traction and now has broken the key near to medium term support area 14,030/14,100 area, and this completes a top area which implies a downside target of 13,280. A trend of lower highs and lower lows suggests a strategy of selling into strength Resistance is growing between 14,180/14,325. Initial support is at 13,885 and then 13,575.
- FTSE 100 has fallen in recent sessions but is trying to build again from support around 7530 once more. There is a near term cautious feel to the market but it would only turn corrective on a move below 7485. A decisive move back above 7590 improves the outlook, with additional resistance around 7615.
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