What we are looking at today:
- Market sentiment is more settled this morning: Indices are higher, precious metals are broadly flat and there is a settled feel to major forex pairs.
- Commodities looking more stable, perhaps corrective: The oil price has been looking more corrective in recent days and selling into intraday strength, if this continues it will be encouraging for a broader sentiment recovery.
- Data trading: Michigan Sentiment is the main data point today. Any negative surprise may be negative for USD. Also, Canadian unemployment will impact CAD.
Major markets have been trading with elevated volatility for several weeks now. So it comes with a sense of cautious relief that there is a calmer feel into the European session today. However, can this last? There have been few new shocking headlines surrounding the Russian invasion of Ukraine, but the discussion of chemical weapons is creeping in. This could be the next significant ramp-up in the atrocities and how markets deal with this might be the next decisive test.
For this morning, we see a mild tick higher on European indices, whilst US futures are broadly flat. Precious metals are slipping slightly lower and whilst there is a legacy of USD strength from yesterday's US inflation data, the only significant mover is a breakout on USD/JPY. How traders react to a move higher on oil will also be interesting, as there have been signs of a corrective move in recent days.
The main event for data traders will be the Michigan Sentiment later in the US session. Sentiment is expected to fall and any downside surprise may hit USD initially. CAD traders will also be watching for Canadian unemployment.
Sentiment is beginning to look more settled: European indices are slightly higher, commodities mixed and a slight USD positive bias through major forex.
Treasury yields are showing little direction: Yields shot higher on the US CPI data, with the 10-year yield back above 2% yesterday. However, the move has eased slightly and is consolidating so far today.
Russian invasion latest: Talk is still of the creation of humanitarian corridors. However, the topic of chemical weapons has surfaced, with fears now that this could be the next move by the Russians. This would represent a significant step up in the atrocities if it does occur.
US/Iran nuclear discussions continue: Both sides feel that a deal could be close, but there are still “challenges” to overcome.
UK monthly GDP ahead of forecasts: Monthly GDP for January came in at +0.8% which beat the +0.2% forecast (after a decline of -0.2% in December). Industrial Production data also beat, but the trade deficit increased sharply.
RBA Governor Lowe on interest rates: They are not at a point where inflation is sustainably in the 2% to 3% range yet. However, it is “plausible” that rates could increase this year and that borrowers should plan for it. This is not hawkish, but broadly re-affirms the expectation that the RBA will be in a position to hike later in 2022.
Cryptocurrency slightly lower: Bitcoin has dropped back slightly this morning, once more around $39,000.
- Canadian unemployment at 1330GMT – the rate is expected to improve slightly, down to 6.3% in February (from 6.5% in January).
- US Michigan Sentiment at 1500GMT – The prelim sentiment is expected to fall slightly to 61.4 in March (down from 62.8 in February).
Major market outlook
Broad outlook: Sentiment looks more settled today.
Forex: There is a USD positive bias, with JPY the big underperformer, along with AUD and NZD also lower.
- EUR/USD fell back after the ECB/US CPI yesterday to leave resistance at 1.1120. Given that this was an old key January low, the importance of this resistance is now much greater. The pair is unwinding back towards the initial support at 1.0960 and reaction around there will be key to whether a recovery can build.
- GBP/USD has broken below 1.3080 this morning to take Cable to its lowest since November 2020. This opens 1.2850 as the next important support. We also see the resistance at 1.3160/1.3195 as increasingly important.
- AUD/USD has improved the outlook after leaving the support at 0.7245 intact and forming what looks to be another higher low at 0.7287. The break above 0.7350 opens 0.7440 again, but the support at 0.7287 needs to hold.
Commodities: Precious metals are consolidating. Oil has been looking more corrective in recent days but is ticking higher early today.
- Gold has seen the rally reverse in the past 48 hours, but the support around $1970 is holding. There is more of a consolidation developing now. Initial resistance is at $2009.
- Silver has found support at $25.30 and is beginning to look more settled again. This consolidation is an important gauge for whether this is still a buy into weakness, as a breach of $25.30 would complete a near-term top pattern. Support from the four-week uptrend comes in just under $25.10 today. The initial resistance is at $26.05.
- Brent Crude oil swung back lower for a second day yesterday. The question is whether this is beginning to turn corrective. Reaction to today’s early rebound could be a gauge to this. Support is at $108.70 but a failure under $120.10 would suggest at least consolidation, perhaps correction.
Indices: Indices making good ground in a near-term technical rally. However, recent rebounds have tended to falter in the US session.
- S&P 500 futures have picked up in the past 12 hours but resistance at 4280/4298 is important near term. An upside break would open for a more decisive recovery. It means that the support of yesterday’s low is important at 4207.
- DAX has stemmed the tide of the unwind back from resistance at 13,999. However, the tick back higher is not decided yet and needs to push above initial resistance at 13,640 to suggest improving traction again which would re-open the rebound high of 13,999. Initial support is at 13,275.
- FTSE 100 has engaged in a decent recovery after yesterday’s correction back lower. Support at 7051 will be seen as increasingly important now. Moving back above 7187 re-opens the 7250 rebounds high.