What are we looking at today:
- USD continues to correct: EUR/USD moving into the resistance band 1.0750/1.0800 becomes a key gauge to this.
- Indices higher: European indices are continuing to rally this morning, helped by a strong US close on Friday and further gains on US futures today.
- Cryptocurrencies rebound strongly: Crypto has not been taking part in the risk rally of recent sessions, but finally this morning there are signs of life with Bitcoin up over +6%
- Data trading: The Eurozone sentiment gauges are forecast to be mixed and may cancel each other out. German inflation will move the EUR on any significant surprises due to its knock-on impact on Eurozone data tomorrow.
The has been a growing trend of USD correction and risk improvement over the past week or so. The momentum of this is being sustained on Monday morning. Treasury yields have been drifting calmly lower (although bond markets are shut today for Memorial Day) whilst the USD remains under corrective momentum. This is allowing recovery in equity markets to also continue. A sharp move higher on Wall Street into the close on Friday was driven by the tech-heavy NASDAQ, a move that reflects a more positive risk outlook.
Today is the Memorial Day public holiday in the US and this will mean reduced trading volumes, and thinner liquidity than normal, especially during the US session later. For now, it seems as though initial moves are settling down and this could mean a relatively quiet day. However, thin markets can also lead to erratic moves, so it is always wise to keep an eye out for any moving markets.
As a result of the US public holiday, there is a euro bias to the economic calendar today. The sentiment gauges are forecast to be rather mixed, with Economic Sentiment steady, a drop in Industrial Sentiment and a slight improvement in Services sentiment. The overall impact may therefore be limited. German inflation is released on a regional basis throughout the morning but the countrywide data is expected to show a slight increase in harmonised inflation. This could impact the market outlook for tomorrow’s more important Eurozone inflation.
Market sentiment is sustaining its improvement: European indices are higher, the USD correction continues and major forex trades with a positive risk bias.
Treasury yields have been drifting lower: Bond markets are shut for Memorial Day today, but yields have been drifting lower into the weekend.
China eases COVID restrictions: Beijing has eased some of its restrictions and Shanghai is also preparing to remove restrictive conditions.
Cryptocurrencies rebound strongly: Having failed to take part in a risk recovery over the past week or so, there could finally be signs of life in a rebound. Bitcoin is over +6% higher this morning and back above $30,000. Previously rebounds above $30,000 have failed in recent weeks. Holding a move would be an important near term gauge.
- Eurozone Sentiment (at 1000BST) Of the sentiment gauges for May, Economic Sentiment is expected to improve slightly to 105.1 (from 105.0 in April); Industrial Sentiment is expected to drop to 7.5 (from 7.9) and Services Sentiment is expected to pick up slightly to 13.8 (from 13.5)
- German inflation (at 1300BST) German harmonised inflation is expected to increase to 8.0% in May (up from 7.8% in April)
Major markets outlook
Broad outlook: Sentiment retains a positive bias, with indices higher and weighing on the USD across major forex.
Forex: USD is slightly underperforming across major forex, with only the JPY as a bigger underperformer.
- EUR/USD is once more putting pressure on 1.0750/1.0800 resistance which is a pivotal medium overhead supply. A two-week uptrend supports at 1.0690 as a move back towards a test of the near four-month downtrend (at 1.0855) is a growing possibility. Momentum continues to improve. Support at 1.0640 is now key.
- GBP/USD is hovering around the 1.2640 resistance. There is a two-week recovery trend around 1.2590 as the three-month downtrend draws close (c. 1.2740). If 1.2640 can be decisively cleared there is little real resistance until 1.3000. Initial support is at 1.2550 but 1.2470 is a key higher low in the recovery.
- AUD/USD continues to recover with the two-week uptrend as a basis of support, confirmed by a recovery in the RSI above 50 which is a one-month high. Breaking above resistance at 0.7165 brings the key lower high at 0.7265 back in play. The importance of support at 0.7030 is growing to a higher low, with initial support at 0.7125.
Commodities: Precious metals are steadying and are looking to pull higher again. Oil has sustained the breakout and is eyeing the March high again.
- Gold has rebounded from $1840 which has strengthened the support in the band between $1830/$1850. There is a tick higher this morning and positive pressure is building again, but a break above $1870 is needed to re-engage the recovery. A move on the RSI above 50 would be confirmation of a more positive outlook too.
- Silver has been trading with some uncertainty in recent sessions but continues to test the resistance at $22.20. If a sustainable move decisively above the resistance can be seen it would be a strong signal for additional gains. The next key resistance is the lower high at $23.27. Support is growing at $21.60/$21.75.
- Brent Crude oil has broken clear of $116 and is now building decisive positive momentum. This means that the March high of $124.40 is back in view. The RSI moving into the low 60s confirms this. Rebounding off $116 in an intraday retreat was also bullish on Friday and is now the initial support.
Indices: Wall Street is accelerating higher, with European indices also more positive now.
- S&P 500 futures have shot higher in recent days. Breaking through 4100 decisively has now stopped the market from continuing to pull higher. With the RSI into the 50s, there is growing positive momentum. The key for the coming days is whether 4100 now becomes a basis of support. Also whether a test of resistance around 4300 can be seen. Above 4300 would be a decisive technical improvement on a medium-term basis.
- German DAX burst through the resistance band at 14,220/14,320 on Friday and is now putting significant pressure on the next resistances around 14,600. There is a decisively improving technical outlook now but the long-term resistance of 14,800/15,000 is the key test. The old resistance at 14,220/14,320 is now supportive.
- FTSE 100 has continued higher to break a shallow downtrend from a series of lower highs in the past six weeks and is now testing 7624 resistance of the early May lower high. This is now into a crucial band of long-term resistance of multiple highs between 7624/7695. Initial support is at 7570/7580.
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