What are we looking at today:

  • USD picking up: A key test of any trend is how markets react to counter-trend moves. A rebound in the USD is currently counter to a trend of correction.  
  • Indices have stalled their recovery: DAX is falling back today whilst US futures have unwound slightly this morning.   
  • Cryptocurrencies' strong rebound starting to pause: A strong rebound yesterday has just lost some momentum this morning. This will be a test for recovery.
  • Data trading: There are three key data points today. Eurozone inflation will be key for EUR; Canadian Q1 GDP will be key for CAD and US Consumer Confidence will be impact USD.


The risk recovery that has been developing over the past week or two is just on pause this morning. This could be attributed to month-end positioning, however, it may turn into the first real test of sentiment, which has been fragile, to say the least over recent months. 

The re-opening of China’s major economic hubs (Shanghai and Beijing) continues, so there is some underlying basis for encouragement there. However, less aggressive Fed tightening was starting to be factored in but very hawkish comments from the FOMC’s Waller has just poured some cold water on this outlook. With yields jumping (bond markets were closed yesterday for Memorial Day) this has boosted the USD slightly this morning. Something else that will be a hit to sentiment is that the oil price is surging higher once more as the EU announces the embargo on most Russian oil. If this continues, it may begin to pull inflation expectations higher once more. 

On the final trading day of the month, there are some important data announcements to be aware of on the economic calendar. Eurozone inflation is expected to increase on the headline by staying fairly steady on the core, with EUR volatility likely to be elevated. We are also keeping an eye on CAD positions with the Canadian Q1 GDP. Finally, US Consumer Confidence is expected to continue to deteriorate, driven down by the lowering of consumer expectations.

Today's news

Market sentiment is slipping back: European indices and US futures are dropping back, USD is strengthening and the oil price is pushing decisively higher.

Treasury yields have jumped higher: Having been shut for Memorial Day, yields have jumped higher in early moves. The 10yr yield is +7 basis points with the 2yr yield +5bps.

EU agrees to ban on most Russian oil: The ban covers sea transported oil and does not include pipeline oil imports, for now. According to Ursula von der Leyen, this will “effectively cut around 90% of oil imports from Russia to the EU by the end of the year”.

Japan unemployment falls slightly: The rate fell to 2.5% in April (down from 2.6% in March).

China official PMIs better than expected: The PMIs are still in contraction (below 50 but the May data has recovered better than forecast expectations. Manufacturing at 49.6 (47.4 last, 48.9 exp), Services 47.8 (versus 42.7 last, 45.0 exp).

FOMC’s Waller remains hawkish: Fed speakers have been a little more temperate in recent days, but Waller (permanent voter, hawk) is advocating that 50 basis points hikes should be “on the table” until inflation comes closer to the 2% target.

Cryptocurrencies remain positive: There was a significant leap higher across cryptocurrencies yesterday (Bitcoin +7%) and there are further gains this morning. However, coins are back from earlier session highs and need to now consolidate the gains. Bitcoin holding above $31,500 would be positive.

Economic Data:

  • Eurozone flash inflation (at 1000BST) The flash data is expected to show headline inflation rising to 7.7% in May (up from 7.4% in April) with core inflation steady at 3.5% according to consensus (3.5% a month previous)
  • Canada GDP (at 1330BST) Q1 GDP is expected to remain solid at +1.4% QoQ (1.6% in Q4) 
  • US Consumer Confidence (at 1500BST) The Conference Board's confidence level is expected to drop to 103.9 in May (down from 107.3 in April)

Major markets outlook

Broad outlook: Sentiment is easing back and retracing some of the moves on indices and USD. 

Forex: USD is outperforming all major forex, with the commodity currencies (NZD and AUD) and the EUR the main underperformers.

  • EUR/USD has just eased back slightly from the resistance band at 1.0750/1.0800 (pivotal medium overhead supply). The unwind is back towards the support of a two-week uptrend around 1.0710, whilst the 4-hour chart shows the rising 21 period moving average as a good basis of support too. We are watching the support at 1.0697 which if broken could open an unwind back towards 1.0640 again. 
  • GBP/USD is still hovering around the 1.2640/50 resistance, but consolidation has now started to breach the two-week recovery trend. The bulls will need to battle hard as the bigger three-month downtrend is drawing ever closer (c. 1.2725) and a bull failure around here would be a negative move. 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. But the market is just easing back slightly this morning. The trend is at 0.7125 which is also breakout support too. if these levels can hold then we are still happy to buy into weakness, with the key lower high at 0.7265 back in play. The importance of support at 0.7030 is growing to a higher low.

Commodities: Precious metals are slipping into consolidation, but oil continues to surge higher.

  • Gold has become becalmed in recent days. Small candlestick bodies reflect the lack of conviction and the price has settled between $1840 support and $1870 resistance. This is a market that is starting to need a catalyst.
  • Silver has never managed to decisively clear the resistance at $22.20 and has turned back from $22.44 to test initial support around $21.60/$21.75. If this support is broken on a closing basis it would suggest the rebound has played out, especially as the RSI is already faltering under 50.
  • Brent Crude oil has been rallying strongly for almost two weeks solid. Eight completed positive sessions look like becoming the ninth today. The March high of $124.40 is now well within range. The RSI is strengthening into the mid-60s confirming this is a strong trend but with upside potential too. There is initial support around $120.00 with breakout support around $116.00.

Brent Crude Oil

Indices: Wall Street is easing lower after strong recent recovery gains. This is also weighing on the DAX. 

  • S&P 500 futures pulled decisively through 4100 last week and this now becomes a key basis of support for a pullback. For now, this is a pullback on the recovery but the reaction to this support will be seen as an important gauge. A decisive breach would seriously question the recovery. Near term, resistance has formed at 4201.
  • German DAX has rallied strongly in recent days but has hit the resistance at 14,602 and turned back. The key question is now how does the market react to the support around 14,220/14,320. If this can be held then this would be an important step forward in recovery towards a test of the long-term resistance at 14,800/15,000. 
  • FTSE 100 has so far managed to maintain the recent recovery gains (certainly helped by a stronger oil price). However, with the key resistance between 7624/7695, there is a considerable barrier to gains. Initial support is at 7570/7580. 

Support and Resistance levels

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