What are we looking at today:
- USD renewed strength: USD has recovered strongly and is driving higher again today. A big downside break on GBP/USD (helped by GBP selling) below 1.3000 could now hold.
- Indices pulled back from recovery highs: After rejecting resistance the big question is whether indices can start to build support again.
- Data trading: The reaction to the flash PMIs will help to mould the early European session, with the UK PMIs mid-morning. The US flash PMIs are into the US session. Both are expected to continue to decline, but the US seems to be more insulated to the pace of reduction for now.
Market sentiment has swung again, back into a risk negative mindset. Hawkish comments from Fed chair Powell have driven renewed buying intent into the USD and seen equity markets sell off sharply. These moves were born in the US session yesterday but have continued overnight. It seems as though peak-hawkishness of the Fed has not yet been reached, and while this is the case, fighting against USD strengthening will be a painful trade. GBP selling has also accentuated a breakdown on Cable as UK Retail Sales disappointed. The sense of improvement in indices has turned sour and the question is now whether important support levels can hold.
The flash PMIs for major economies dominate the economic calendar today. It is interesting to see the Australian and Eurozone data picking up. However, the UK’s Composite PMI is expected to fall back by almost 2 percentage points and back below 60. For the US, the reduction in the Composite PMI is expected to be slightly smaller.
Market sentiment turns sour again: The US dollar and even more so, the Japanese yen, are outperforming major forex. Equity markets are lower, whilst gold is holding up well, whilst cryptocurrencies have fallen over again.
Treasury yields are higher: Mostly this is coming at the shorter end of the curve (which reflects near-term interest rate expectations), with the 2 year Treasury yield pushing above 2.70% once more today. The 2s/10s spread is narrowing again.
Fed chair Powell hawkish comments: Powell said that the US economy is more remote from the impact of the Ukraine war. This is allowing the Fed to act more quickly. A +50bps hike will be on the table at the May meeting. The Fed will be raising rates “expeditiously” to more neutral (which is c. 2.50%) and then tighter policy is appropriate.
FOMC’s Daly is now a hawkish dove: Daly is traditionally one of the more dovish FOMC members. She is not a voter in 2022 but she has talked about raising rates by +50bps at a couple of meetings. There will also be a discussion on +75bps. This reflects the increasingly hawkish stance throughout the FOMC.
Australian flash PMIs better than expected: The Composite flash PMI came in at 56.2 (versus an expected slide to 54.3) which is up from the previous 55.1.
UK Retail Sales disappoint: Adjusted sales (ex-fuel) fell by -1.1% in the month of March (versus -0.4% exp). The year on year sales has subsequently turned negative at -0.6% (from +4.7% in February).
Eurozone flash PMIs better than expected: The Composite PMI has come in at 55.8 (53.9 exp) which was up from 54.9 last month. This has been driven by better than expected readings on both Manufacturing and Services.
Cryptocurrency falls away again on deteriorating risk appetite: Bitcoin took a dive into the close yesterday. Initial selling pressure has unwound today but the market is still under pressure to the downside. $40,000 is holding for now.
- UK flash PMIs (at 0930BST). Consensus is looking for the Composite to drop to 59.0 in April (from 60.9 in March). This is driven by Manufacturing lower to 54.0 (from 55.2) and Services falling to 60.0 (from 62.6) a drop of Services.
- US flash PMIs (at 1445BST). The Composite is expected to fall to 57.0 in April (from 57.7 in March). This is expected to be driven by a decline in the Manufacturing to 58.0 (from 58.8) and Services falling to 57.0 (from 58.0).
Major markets outlook
Broad outlook: Market sentiment has turned negative again. JPY outperformance in forex reflects this.
Forex: JPY and USD outperformance is the story of the day. Commodity currencies are underperforming.
- EUR/USD fell sharply on Fed chair Powell’s comments yesterday and has turned lower once more this morning. A retreat to test the 1.0760/1.0800 support area is coming. A close below 1.0760 would be a decisive negative move again. The resistance at 1.0940 has been further strengthened by price action in the past 24 hours.
- GBP/USD has plummeted through support at 1.2970/1.3000 in a decisive selling phase. Thie old band of support will now be seen as a basis of initial resistance. A close under 1.2970 suggests that a move to test 1.2850 is on the cards as the next support. Below that is 1.2680.
- AUD/USD has turned decisively lower again and has broken the support of both 0.7340 (18th April low) but also the 11-week uptrend. This confirms a new corrective phase is coming with lower highs and lower lows. The next important support is at 0.7165. Initial resistance is at 0.7340/0.7400.
Commodities: Silver has been hit by renewed negative risk, whilst gold is being supported as a safe haven. Oil continues to fluctuate in a ranging outlook.
- Gold has not been impacted negatively by the USD strengthening (at least not yet) and is holding up well. Support is holding with the 11-week uptrend (comes in around $1935) and a band of price support between $1930/$1940. Momentum is neutrally configured, but for now, we are happy to use weakness as a chance to buy. Initial resistance is at $1958/60.
- Silver moved decisively lower to breach the 11-week uptrend (at $24.75) and the move lower is now eyeing a test of the support around $24.10. With momentum deteriorating further, we wait to see how the market reacts to this support. A breach would turn the outlook decisively negative again.
- Brent Crude oil retains a highly uncertain near to medium-term outlook. Fluctuating moves between support around $105/$107 and resistance at $113/$116, have developed. Below $105 opens $98/$99 again. Above $116 opens $121/$124. We remain neutral for now.
Indices: Improvements have been scuppered and investors look to see how supports now hold.
- S&P 500 futures turned decisively lower yesterday and an improving outlook has turned to one with downside risk. The reaction to support at 4355/4370 will be key now. Can this support hold? An early uptick in the European session is encouraging, but resistance is now in place around 4410/4444.
- DAX fell sharply back following a rejection of the big 2022 downtrend and the resistance around 14,600. However, initially, we see support around 14,200 is holding. The bull would be encouraged if the initial rebound can push decisively above 14,325 which is an old pivot. However, the outlook is once more uncertain and it may be easier to see how the dust settles before taking a view again.
- FTSE 100 fell sharply intraday yesterday but support has held around the key band 7485/7526. An early move higher this morning reflects the incredible resilience that FTSE 100 has to negative shocks still. A range is forming between 7485/7677.
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