What are we looking at today:
- USD edging lower: A near-term drift lower of the USD continues on Monday. Initial support at 103.85 and 103.41 on Dollar Index could be tested.
- Indices continue to rebound: A sharp rally to end the week has carried into Monday’s early trading. There is a decent tailwind for the recovery for now, but near-term rallies have consistently struggled to sustain traction in recent weeks.
- ECB’s Lagarde speaking: The ECB President is speaking at the ECB Forum on Central Bank. Recent focus has switched to just how hawkish monetary policy moves by the ECB may need to be to control inflation. All eyes will be on Lagarde for any hints.
- Data trading: There is a US focus for data traders, with Core Durable Goods growth expected to be slightly positive again. Pending Home Sales look set to continue to deteriorate in May. Finally, the Dallas Fed Manufacturing index will be watched for an expected return into positive territory.
A risk recovery is on. Since Fed Chair Powell suggested last week that recession fears could restrict the monetary policy tightening, we have seen yields lower, the USD slip back and equity markets have responded well. The rebound in equities has continued today, however, with yields ticking back higher, this will likely begin to feed into the USD and potentially build support again.
The European Central Bank’s Forum on Central Banking will generate a batch load of speeches on the economic outlook and monetary policy response. ECB President Lagarde is speaking later today and with the ECB on the brink of hiking rates, markets will be watching for any hawkish hints.
There is a focus on US economic trends away from the services sector in the economic calendar. Durable Goods Orders are at 1330BST and are expected to be +0.3% for the month on core durables (ex-transport) in May. However, there is likely to be a downside risk to this, seeing the negative trends seen in US growth. Pending Home Sales are expected to deteriorate further in May with a drop of -4.5% to worsen YoY sales to -10.6%. Finally, the Dallas Fed Manufacturing is expected to improve back into positive territory at +1 in June following from the -7.3 reading in May.
Market sentiment continues to recover: European Indices are positive again, with US futures around half a percent higher. USD is also continuing to drift lower, whilst silver is outperforming gold in a rebound.
Treasury yields tick slightly higher: This is one to watch, as yields moving lower at the end of last week helped a risk recovery to take hold. However, yields have stopped falling and are edging slightly higher once more today, with the 10-year yield +2bps.
G7 pushing for more sanctions: Russia remains the hot topic for the G7 and further sanctions could be announced as leaders meet again today.
Cryptocurrencies are relatively stable: Crypto has been relatively stable for more than a week, but interestingly has not caught on to the recovery in equities. Bitcoin is higher today by +0.7% and is above $21,000.
- Durable Goods Orders (1330BST) Core durables (ex-transport) are expected to grow by +0.3% in May.
- Pending Home Sales (1330BST) Sales are expected to decline by -4.5% in May.
- Dallas Fed Manufacturing (1530BST) The index is expected to be +1 in June.
Major market outlooks
Broad outlook: Sentiment continues to recover, with the USD underperforming to help precious metals and indices higher.
Forex: USD is the main underperformer, but interestingly the NZD and AUD are lagging a risk recovery, with GBP leading the way.
- EUR/USD has been edging higher over the past week and a half from the 1.0350 bottom of the near 2-month trading range. The move is creeping higher towards the resistance around 1.0600/1.0640 which has acted as a pivot within the range. The key 10-week downtrend also comes in at 1.0650 as resistance. It suggests that near-term rallies remain a chance to sell for moves back towards the 1.0350 support area. 1.0470 is higher low support.
- GBP/USD has moved higher early today and is now into the 1.2330/1.2410 resistance area. We still see this is likely to contain any attempted rallies within the big 4-month downtrend (today at 1.2470). Near-term support is growing around 1.2160.
- AUD/USD has rebounded to bolster the support band 0.6830/0.6870 but there is still a trend of lower highs over the past 3-weeks and with RSI momentum retaining a slight negative bias, near-term rallies remain a chance to sell for further pressure on the 2-month range lows. Above 0.7000 would improve the outlook.
Commodities: Precious metals and oil have rebounded in the past couple of sessions, but retain near-term negative trends.
- Gold has struggled for significant direction but continues within its 4-month downtrend. Essentially the past 6-weeks have been a trading range, but there is a negative bias that continues to weigh on the price. Initial resistance is at $1848 but a move above $1857 would be needed to start an improvement in outlook. However, the RSI momentum continues to falter around 50, so we still favor selling into strength.
- Silver has rebounded from the lows of a 6-week trading range ($20.45/$22.50) to bolster support around $20.45/$20.60. However, the RSI continues to falter around 50 which leaves a slight negative bias to the range and leaves a preference to sell into strength. Initial resistance is around $21.45 and then $21.95.
- Brent Crude oil has been hit by a series of strong negative sessions in the past couple of weeks that has pulled the price back below the mid-range pivot area of $112/$116. The configuration of momentum on the RSI suggests that the outlook is all but neutral as the market has rebounded in recent days towards the pivot again. Above $117 resistance would improve the outlook once more. Support at $107.65 prevents a move towards $98/$102.
Indices: A recovery is gathering momentum, but can this continue?
- S&P 500 futures took off in recovery on Friday and the move has continued today. This has now closed the gap at 3895 and the next basis of key near-term resistance is not until 4065/4100. The RSI will be watched as an unwound has come back to 50, whilst the previous rebound faltered around 55. There is now support in the 3850/3895 area.
- German DAX is into its second day of a strong recovery from the 12,822 low of last week. The improvement in RSI momentum is backing the move and if the resistance at 13,430 can be breached it would be an important first lower high broken. It would then open a test of 13,665 as the next resistance. Support is growing now between 13,140/13,160.
- FTSE 100 has turned sharply higher in recent sessions and is continuing the move this morning. The resistance at 7335 is the next key test for the bulls amidst this swing back higher. There is now support initially between 7155/7200.
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