After a strong move higher into the close for Wall Street on Friday, there has been a continuation for markets on Monday morning. Risk appetite is showing decent signs of recovery. This comes with USD giving back some of its recent gains and indices threatening recovery patterns. Amidst all the elevated volatility of major markets last week, and what is a hectic week on the economic calendar this week, today could be relatively quiet. With only Eurozone GDP and German inflation, this gives the potential for the recovery in risk appetite to trend higher. However, reaction to the resistance of old key support levels will be an important gauge.
Risk appetite improves: NASDAQ is outperforming after Apple’s strong earnings on Friday. DAX is outperforming the more defensive FTSE 100. Pro-cyclical currencies (AUD and NZD) are outperforming in forex. Oil is testing higher again.
Yields beginning to settle: After a volatile period in recent weeks, there are signs of Treasury yields beginning to settle (at least on the 10-year yield). This will help the elevated volatility to reduce across markets. [Slightly USD negative]
Italian President Mattarella continues: A second term for the President helps with political stability. [Slightly EUR supportive]
Chinese New Year: China is on public holiday this week, so Asian markets will be relatively subdued [risk neutral]
- Eurozone GDP (at 1000GMT). The first look at Q4 growth is expected to have been +0.3% for QoQ.
- German inflation (at 1300GMT). Inflation in the Eurozone’s largest economy is expected to have fallen by -0.3% on the month in January and down to 4.3% YoY (from 5.3% in December)
MAJOR MARKETS OUTLOOK
Broad outlook: A recovery in risk appetite across asset classes. USD is giving back some recent gains.
Forex: JPY and USD are underperforming, AUD and NZD are outperforming.
- EUR/USD has rebounded but now needs to tackle the key resistance around 1.1185/1.1220. This is an old overhead supply and will be a key gauge for the strength of a recovery. Initial support is at 1.1120.
- GBP/USD is trying to now push above near-term pivot resistance at 1.3435. Holding above here with improving momentum would open a potential recovery of c. +70 pips and towards the next resistance around 1.3525. Support is initially at 1.3360/1.3370.
- AUD/USD is recovering from a breach of support at 0.6990. The reaction around 0.7080 which is another old support recently broken will be an important gauge to the sustainability of the recovery. Support is now at 0.6967.
Commodities: Gold and silver showing signs of support. Oil is still being bought at higher levels.
- Gold is just beginning to stabilize after a sharp sell-off in recent sessions. Up from a low of $1780, the selling pressure has eased. Reaction around $1800 will gauge any prospective recovery. We are neutral on gold between $1780/$1810.
- Silver acceleration lower has eased and there are signs of support this morning. A rebound needs to move decisively above $22.80 resistance to suggest a serious improvement forming. Initial support at $22.15/$22.25.
- Brent Crude oil may not be driving decisively higher, but is still finding buyers and forming support into intraday weakness. Support is now between $88.50/$89.50. Given the lack of resistance, holding in the $90s retains the potential for further gains (potentially towards $100). A close below $88.50 would begin to question the continued run higher.
Indices: A potential recovery on Wall Street. The European index's performance is varied.
- S&P 500 futures are threatening a recovery as resistance at 4445 is tested. A close above would be a six-day high and hint at a sustainable turnaround. Resistance starting at 4492 is then the next test. Initial support at 4402.
- DAX is also testing a potential near-term recovery pattern with resistance at 15,585 being key. A close above would be a six-day high. The next resistance would then be at 15,700/15,900. Initial support at 15,463.
- FTSE 100 has failed to ignite this morning and is just struggling around 7540 resistance initially. The outlook remains choppy and uncertain. However initial support is at 7480 above 7427.