What we are looking for
- USD gains on a safe-haven bias: The correction of last week has shown signs of stalling as USD moves have been more choppy recently. A mild safe-haven bias has taken hold across major markets this morning and the USD is benefitting from this.
- Indices edge lower: The recent recovery moves are just easing back this morning amid the slight risk negative bias.
- Data trading: Nothing for data traders aside from the Dallas Fed manufacturing survey later in the US session. Signs of further recessionary fears may drive safe-haven flows and subsequently USD strength.
Risk appetite has soured slightly over the weekend as Russian attacks on the port at Odesa question the stability of a deal reached last week to allow the export of grain supplies through the Black Sea. The USD correction has already shown signs of slowing in recent days and this could begin to drive renewed strength in the dollar once more.
Equity markets have been recovering well in recent weeks, especially on Wall Street. Moves have been driven in part by the tech sector, however, a sell-off on NASDAQ into Friday’s close and the broad risk negative bias on Monday morning could begin to question the recovery. With several Big Tech companies such as Apple, Amazon and Alphabet all reporting earnings in the coming days, it will be an important moment for the recovery.
It is a quiet start to the week on the economic calendar today. The only data of note is the Dallas Fed Manufacturing survey which is expected to improve slightly, even if it is set to remain in negative territory.
Market sentiment sours slightly: USD is gaining. European indices play catch up on Friday’s Wall Street close, but US futures are also slipping slightly. Bitcoin is also falling.
Treasury yields steady after recent sharp declines: Yields are holding ground initially today, but the US 10 year yield has fallen around -25bps in the past few sessions. Further declines would add into a risk negative environment.
German Ifo Business Climate misses forecasts: The Business Climate has dropped to 88.6 (from 92.2) which was below the 90.2 forecasts. The miss came as both Current Conditions and especially Expectations have also missed expectations.
Russia attacks the port of Odesa: With missile strikes on the port, the US is saying that Russia has breached its commitments to the recently reached deal on grain exports. This is helping to drive a risk negative bias on markets.
ECB tightening: ECB President Lagarde has said that the Governing Council will raise rates for as long as necessary to bring inflation back to target. Another GC member, Holzmann has admitted that the ECB may accept a “light recession” to tackle inflation.
Cryptocurrencies sliding back: With risk appetite turning sour, cryptocurrencies are falling back again. Bitcoin fell through the weekend and is around -3% from Friday’s close. It is trading back under $22,000.
- Dallas Fed Manufacturing (1530BST) – Although still expected to be negative, an improvement to -12.0 is forecast in July (from -17.7 in June)
Major markets outlook
Broad outlook: Souring risk appetite, leaves a slight USD bias, with equities slightly lower.
Forex: USD is beginning to perform better and is stronger than all major currencies today. However, the AUD continues to hold up well.
- EUR/USD has been fluctuating in recent sessions. Resistance around 1.0275 is building, but support around 1.0120/1.0130 is holding for now. A close back under the support would suggest a move back lower and re-open the prospect of parity again. The rebound has faltered around the falling 21-day moving average. Also with the daily RSI faltering under 50, this adds to the suggestion that the rebound is another chance to sell.
- GBP/USD has been testing the resistance around 1.2055/1.2065 in the past week but has been unable to sustain the recovery momentum. This is still in the backdrop of trading under a five-month downtrend and the daily RSI struggling between 40/50. This all points towards us preferring to use this rebound as another chance to sell for a retest of 1.1760 in due course. Initial support is at 1.1890.
- AUD/USD has recovered well and is putting pressure on the three-month downtrend. This remains an important juncture for the pair as the resistance of the 55-day moving average lies overhead. Encouragingly, the old pivot band is now supportive between 0.6830/0.6895 but this needs to continue to sustain the recovery momentum. A breakout above 0.6965 pushes the recovery forward.
Commodities: Precious metals are hovering, but oil is weakening again.
- Gold has recovered well since the ECB meeting yesterday. A bullish key one-day reversal (bullish engulfing candle) has left support at $1680 and has been backed by another positive session on Friday. The reaction to resistance around $1739/$1752 will now be the next important test. The RSI moving above 40 would be encouraging for the continued technical rally. Initial support at $1713.
- Silver has been less assured than gold in its technical rally. The resistance starting at $19.09 but up towards $19.48 is a barrier to recovery. The market is looking cautious this morning. Under $18.41 would re-open the low at $18.14 once more.
- Brent Crude oil is posting consistent negative candles once more and an early move below $102.35 has opened a test of the support around $98/$100 once more. . Momentum is turning negative again, but there is plenty of downside potential in a move lower. Initial resistance is around $106.50.
Indices: Wall Street recovery is holding for now, whilst European indices are battling to hang on under resistance.
- S&P 500 futures have broken the run of positive candles, but the market is still hanging on to the breakout above the resistance band 3875/3950. Holding above 3950 maintains the encouraging outlook, whilst if 3875 is broken, then it would question the recovery. Above 4115 (Friday’s high) the next band of resistance is 4070/4200.
- German DAX has continued to consolidate in recent sessions. This is coming under the resistance that is mounting between 13,360/13,430. Despite this though, building on the support area around 13,000/13,080 will retain a recovery bias. Above 13,440 opens 13,650.
- FTSE 100 remains under the resistance around 7335/7370. However, there is still a constructive bias to a month-long trading range. Positive configuration on RSI momentum (holding above 50) will keep this whilst support forming between 7205/7229 can hold.
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.