What we are looking at
- There was a mixed response into the close on Friday, but the USD is gaining ground once more on the safe-haven flows from a deterioration in risk appetite once more.
- EUR falling again: The big question for the coming days will be what the market reaction will be if parity is hit.
- Indices falling back again: After a decent week of recovery last week, there has been a concerning start to trading on Monday where risk appetite has induced further selling pressure.
- Data trading: It will be a quiet day for data traders, with no major data announcements.
Following the solid Nonfarm Payrolls report, markets firmed expectations of a 75 basis points hike by the Fed in July. Although there was an element of support for risk assets on the lack of recessionary signals, we are seeing more of a fearful mood filtering through markets on Monday morning. COVID infection rates are rising again in Shanghai and with the emergence of the more virulent BA.5 variant market participants are positioning for more stringent restrictions by the authorities. This has weighed on risk assets once more, with sentiment also soured by the suggestion that Russia could entirely cut off European gas supplies, with the potentially damaging consequences to the European economy.
Subsequently, we are seeing selling pressure through risk assets once more, with indices (especially focused in the European mainland) falling strongly in early moves. This is also driving USD strength and commodities lower. The recent recovery in cryptocurrencies has also moved into sharp reverse once more.
There are no major announcements due on the economic calendar today.
Market sentiment sours again: Markets were fairly steady into the weekend, but risk appetite has declined again amid concerns of COVID restrictions in China and the potential for Russia to cut off gas supplies to Europe.
Treasury yields falling back: Yields rebounded strongly on Friday (10-year yield +10bps) but have unwound today (10yr falling back by -5bps).
China COVID concerns: Rising COVID infection rates in Shanghai which include the more virulent BA.5 variant threaten to increase restrictions once more.
Warnings of Russia cutting gas supplies to Europe: According to French finance minister Le Maire, Russia could entirely end its gas supplies to Europe. This would cause significant economic disruption across Europe.
Cryptocurrencies higher: Crypto recovered strongly in recent sessions, but has fallen hard today as risk appetite has soured. Bitcoin is down -6% and is falling back towards $20,000 again.
- No major data is due today.
Major markets outlook
Broad outlook: Risk appetite has soured, driving indices and commodities lower, whilst strengthening the USD.
Forex: The USD is strongly outperforming, with AUD and EUR the biggest underperformers.
- EUR/USD recovered well on Friday from an intraday fall to 1.0070, closing the session with a bull hammer. However, a technical rally needs confirmation today and the early deterioration is ramping up the downside pressure once more. The RSI is still stretched under 30 and a technical rally is due, but a breach of 1.0070 would bring parity once more squarely into view. There is initial resistance at 1.0190/1.0220 with the main resistance of overhead supply starting at 1.0350.
- GBP/USD A rebound in recent sessions from 1.1875 has threatened a recovery but rallies are hard to sustain. Reaction to this morning’s early decline could again be key as momentum remains negatively configured and near-term strength remains a chance to sell. A retest of 1.1875/1.1900 is likely, whilst there is almost no support until 1.1410. Initial resistance is now 1.2055 and then 1.2165.
- AUD/USD again looks to be seeing a near-term rally falter around the overhead supply between 0.6830/0.6870, a course of bull failures. The early selling pressure today is also bolstering a trend of lower highs over the past five weeks. With RSI momentum confirmed in a negative configuration, near-term rallies are a chance to sell. We favour a retest of the 0.6760 support area, whilst there is potential for further downside towards the 0.6650 area in due course. Resistance at 0.6895 is key near term.
Commodities: Precious metals are struggling to generate any recovery traction whilst oil may be faltering in its near-term recovery.
- Gold has been consolidating above the new support formation of $1732. Although the RSI is extremely oversold around 25 and a technical rally is due the bulls cannot manage to generate any real recovery momentum. We are watching initial resistance at $1749/$1752 and then $1784/$1786. However, below $1732 opens $1720 and potentially downside towards the key support at $1676.
- Silver continues to consolidate above support at $18.91. However, the market is edging lower initially this morning amid the swell of negative risk appetite. For now, the support is intact, but below $18.91 is further two-year lows with the next support c. $18.40. The RSI remains around the mid-20s and is oversold, so there is scope for a near-term technical rally to help to unwind the oversold momentum. Initial resistance around $19.48 needs to be broken to open the way towards the more considerable resistance between $20.20/$20.45.
- Brent Crude oil has rallied well in recent sessions to firm the support of the medium-term range lows between $98/$102. However, the negative risk environment taking hold once more has weighed on oil and resistance has been found at $109.65. This is a concern for the recovery as the RSI has faltered around 45 and this may have been a move that has simply renewed corrective potential.
Indices: A rebound in recent sessions will be severely tested by this weakness on Monday morning.
- S&P 500 futures have been recovering well in the past week as a three-week uptrend recovery has formed. However, the move has unwound the RSI into the 50/55 area where previous rallies within a three-and-a-half-month downtrend have faltered. There is a band of resistance between 3876/3950 that is also a barrier as the market has fallen back early today. We still favour selling a faltering rally and look for failure signals. Below 3809/3849 support would be negative.
- German DAX has fallen back this morning having put together three strong bull candles in the past three sessions. This move back lower has left resistance at 13,012 which will now be seen as an important marker for a potential sustainable near-term recovery. A close below 12,755 would be disappointing for recovery prospects.
- FTSE 100 continues to be volatile and lacks certainty even on a near-term basis. However, with momentum remaining correctively configured and the RSI consistently below 50, we still favour selling near-term rallies. Initial support is now at 7071 as resistance has formed at 7218.
This material is for general information purposes only and is not intended as (and should not be considered to be) financial, investment or other advice on which reliance should be placed. INFINOX is not authorised to provide investment advice. No opinion given in the material constitutes a recommendation by INFINOX or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.