What are we looking at today:
- USD just easing back slightly: USD has been performing better in recent days but is just easing back slightly this morning.
- EUR under growing negative pressure: The main move in the forex space in the past few sessions has been EUR underperformance. The atrocities of what potentially amounts to war crimes by Russian soldiers will make it even harder to broker a peace deal. This risks extending a war on Europe’s doorstep. Fully sanctioning Russian oil and gas would also put huge pressure on the European economy.
- AUD gaining ground today: The Aussie has broken out this morning in the wake of the Reserve Bank of Australia decision. Holding rates but removing “patient” from the statement suggests they are ready to hike soon.
- Data trading: The services PMIs dominate the calendar today. The Eurozone data has been slightly revised higher. The UK data is a final reading to the flash data a week ago. Forecasts are unrevised from the flash but there will be potential downside risks, owing to the impact of high inflation. The US ISM Services is expected to show an improvement from last month which could add USD support.
Markets have been moving on the increasing acceptance that a peaceful resolution to the war in Ukraine is a long way off. Sanctions are likely to therefore be ratcheted up, and this is likely to include bans on Russian oil and gas. This is beginning to pull the oil price higher once more, whilst the Euro is struggling due to the Eurozone’s economic over-reliance on energy supplies from Russia. The Reserve Bank of Australia (RBA) monetary policy decision has strengthened the Aussie as market participants prepare for a rate hike in the coming months.
This morning we are seeing a slight unwinding of some of the USD gains of recent sessions. Commodity currencies are seeing the biggest uplift. The regathering strength in the oil price continues this morning, whilst indices are cautiously lower in early moves.
The services PMIs dominate the calendar. The main question is whether rocketing inflation drives negative surprises in the final services data for the UK. The ISM Services saw a big downside miss this month but is forecast to improve.
Market sentiment is mixed again: European indices are cautious in early moves, with US futures all but flat. With the oil price rallying and hawkish hints from the RBA, there is the outperformance of the commodity currencies in major forex.
Treasury yields a shade higher: Yields are slightly higher in early moves today. There is a very slight increase in the 2s/10s spread.
Russia/Ukraine headlines: Focus remains on the atrocities of what the retreating Russian forces have left behind in northern Ukraine. This makes for difficult negotiations in the peace talks.
Reserve Bank of Australia’s hawkish hints: The Cash Rate Target was held at +0.10% as expected. However, the RBA removed the reference to being “patient” in the statement. This was something of a surprise and sets up the RBA to hike rates in the coming months and will firm expectations of a Q3 hike, perhaps even earlier.
Eurozone final Services PMI with a slight upward revision: The final services PMI for March has been revised up to 55.6 (from 54.8 at the flash reading). The Eurozine final Composite PMI has been revised up to 54.9 (from 54.5).
Fed doves set to speak today: There are not many doves on the FOMC right now, but the most cautious voices on the committee are speaking today. Kashkari (non-voter in 2022, most dovish) is at 1500BST. Brainard (permanent voter, dove) is also at 1500BST, whilst Williams (permanent voter, slightly dovish) speaks at 1900BST.
Cryptocurrency remains supported but lacks positive traction: Bitcoin is still holding on to the breakout above $45,800. However, for now, the move is more of building support than driving a rally higher. The price is slightly higher but remains under $47,000 this morning.
- UK final Services PMI (at 0930BST) – Consensus is expecting the flash data to be unrevised at 61.0 (up from 60.5 in final February). This would leave the final Composite at 59.7.
- ISM Services (at 1500BST) – Consensus is expecting an improvement to 58.4 in March (up from 56.5 in February).
Major markets outlook
Broad outlook: is looking slightly cautious and mixed today. Indices are slightly lower, but the commodity currencies are strongly outperforming as oil picks up again.
Forex: Commodity currencies (AUD, NZD especially) are strongly outperforming, whilst the USD is slipping lower across the board.
- EUR/USD continued yesterday to slide back towards a test of the 1.0940/1.0970 support area. This support is holding this morning with USD slipping across major forex. However, notably, EUR is not rallying as much as other currencies. Technically the pressure will continue on the 1.0940 support and a downside break opens 1.0900 and maybe 1.0805 in due course. Initial resistance is at 1.1027/1.1054.
- GBP/USD has held up well in the past couple of sessions but for a recovery to take hold the initial resistance around 1.3145/1.3185 needs to be broken. Until it is, with daily RSI indicators still struggling under 50 there is still a mild negative bias for selling into strength and towards testing 1.3050 support again.
- AUD/USD has ended almost two weeks of consolidation and broken decisively out above the key resistance of the October high at 0.7555. This is a big move confirmed on momentum has taken the pair to its highest since June 2021. The next important step is to build support around the breakout. This leaves key medium-term support in the band 0.7455/0.7555. The next important resistance is at 0.7775.
Commodities: Precious metals are just falling over slightly today, with oil higher but also paring initial gains.
- Gold has consolidated for much of the past week around the middle of a 3-week range between $1890/$1966. However, this is also under a three-week downtrend which is around $1938 today. Momentum is neutral for now with daily and 4-hour RSI stuck around 50 but a reaction to the approaching downtrend will be a gauge. Until the range is broken it is difficult to have a decisive view.
- Silver has picked up again this morning and is still defending the support band of $24.45/$24.67. However, there is still a trend of downside pressure and near-term selling into strength. Resistance is growing at $25.08. A close under $24.45 opens $23.85/$24.00.
- Brent Crude oil has pulled higher yesterday to break a mini downtrend of lower highs. The resistance between $113.40/$115.75 is still key overhead, but the outlook has started to improve. There is good support around $108.50 and building a higher low above here would be a positive development.
Indices: There are hints of support forming but moves are still fairly uncertain today.
- S&P 500 futures have been edging higher towards a test of 4585/4630 which is a key gauge of the development of the recovery that had been in place throughout much of March. Although daily momentum remains positive, a bull failure between 4585/4630 would be a concern. The importance of support at 4501 is growing.
- DAX has picked up in the European session and is now looking to break clear of the 14,530/14,585 resistance area. It would open 14,736 but the key resistance of the three-month downtrend and overhead supply come in around 14,800 and these are significant barriers. The pick-up has formed support of around 14,325.
- FTSE 100 has seen the bull move higher lose impetus in recent sessions and settled into consolidation between 7485/7594. in recent days. There is still a slight negative bias from the “bearish engulfing” one-day candlestick reversal pattern but we await the next move. Above 7594 is a breakout that opens the 7635/7695 highs. A close below 7485 would be a corrective signal now.
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