USD is falling again ahead of US Advance Q1 GDP
- Recession fears mount: A sharp cut to the Atlanta Fed’s GDPNow adds to concerns over a potential recession looming
- USD weakening again: The USD fell again on major forex yesterday and is again lower today
- Equities are mixed: European indices are following US losses yesterday, but US futures are being propped up by tech stocks
- A rebound on metals and oil: In commodities, precious metals have rallied, whilst oil is trying to regain sharp losses from yesterday.
US recession concerns weigh on risk appetite
The signals pointing towards an impending recession in the US continue to flash red.
Last week, the US Conference Board warned of recession later in 2023 amid a raft of faltering lead indicators. However, with US Advance GDP to be announced, the Atlanta Fed’s GDPNow data is pointing to a potential disappointment already in today’s numbers.
GDPNow warns of a negative surprise in today’s growth number
The final update of the well-regarded Atlanta Fed’s GDPNow forecasting model has shown a sharp decline from its reading just a week ago.
The model now suggests a first look at growth in Q1 could be just 1.1% annualised.
The consensus of analysts is looking for Advance Q1 GDP to be 2.0%. Subsequently, this raises the prospect of a downside surprise in today’s data.
Whilst interest futures markets continue to price for a 25 basis points rate hike by the Federal Reserve at next week’s FOMC meeting, the probability is dropping.
According to CMEGroup FedWatch, the probability of a 25bps hike next week is now 74%, having been around 90% a few days ago.
Markets are also now leaning back towards two 25 bps rate cuts by the end of 2023.
This is all weighing on the USD.
Growing negative sentiment whilst markets continue to sell the USD
There is downside pressure on the USD but also a growing negative bias for market sentiment.
This negative sentiment is showing in the sharp move lower in the oil price yesterday, whilst equity markets (outside of the big tech stocks) are also increasingly sagging.
The Dollar Index has dropped away once more, with pressure mounting for a test of the 100.79 key support.
USD selling versus EUR
There is still a divide for the USD performance on major forex. The European currencies continue to perform much better (central banks that are expected to continue to tighten rates) whilst negative risk appetite continues to weigh on the commodity majors (AUD and NZD especially).
A renewed deterioration in AUD and NZD is notable in recent sessions as fears of a US recession have increasingly taken hold of markets.
The EUR continues to perform much better than the USD and this is again driving EUR/USD higher.
A strong reaction to the support of the one-month uptrend has again pulled the pair above 1.1000.
- Buying pressure continues to test the resistance around 1.1035/1.1075.
- Momentum remains solidly positively configured with the RSI consistently above 55 and pushing into the 60s.
This suggests that any near-term weakness is a chance to buy within the uptrend.
A close above 1.1075 opens the next resistance at 1.1185.
Initial support at 1.0965 with the mid-April low of 1.0910 being the first key higher low.
The Aussie is quite the contrast, with renewing downside momentum weighing on the outlook for AUD/USD.
- A move below 0.6620 has once more brought the bottom of a six-week trading range into view.
- The daily RSI fell below 40 yesterday and points to a continued negative bias to the outlook.
For now, a downside break of the range is not a guarantee.
However, we favour using near-term rebounds towards the mid-range resistance around 0.6680/0.6705 for near-term short positions and an ongoing test of the 0.66565 key March low.
Support and resistance levels for Forex, Commodities, and Futures/Indices
|Brent Crude Oil
|S&P 500 futures
|FTSE 100 Index
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