Major markets have continued the theme of the past couple of sessions. A glass “half full” with a mild risk positive bias. This is coming with a lack of market-moving catalysts in recent days as the elevated volatility of the past few weeks begins to ease back. This outlook may now be set ahead of the next key risk event, US CPI inflation, which is tomorrow.
All things remaining equal, we see indices drifting higher and little real direction on major forex. However, oil is one to watch as a correction threatens. The more constructive dialogue surrounding potential conflict at the border of Russia and Ukraine appears to be removing some of the war premia in the oil price.
Risk appetite continues to tentatively improve: Indices are ticking higher and USD is a mild underperformer on major forex.
Treasury yields have slipped back: A moderation of Treasury yields has tended to encourage risk appetite recently. [Risk supportive]
Reduced risk of Russian conflict: The tone from European leaders (France’s Macron and Germany’s Sholz) is more positive in recent days, that preventing war is a common goal. [Risk supportive]
Crypto rally just on pause: The rally of the past couple of weeks has just stalled in the last two days. Bitcoin is holding between $43,000/$44,000.
Two Fed speakers: Watch out for the FOMC’s Bowman (2022 voter, centrist) speaking at 1530GMT and Mester (2022 voter, mild hawk) speaking at 1700GMT. [USD reactive]
- EIA Crude Oil Inventories (at 1530GMT). Inventories are not forecast to have changed much in the past week, with a build of just +0.68m barrels (there was a drawdown of -1.1m barrels last week).
MAJOR MARKETS OUTLOOK
Broad outlook: Once more there is a hint of positive risk appetite developing.
Forex: USD is a mild underperformer, with AUD more positive.
- EUR/USD has begun to settle in its pullback from 1.1482. Holding above the old 1.1360/1.1385 band is a key component of this. If this can continue in the wake of tomorrow’s US inflation data then we would be bullish for pressure on 1.1480 again. Below 1.1345 begins to look less positive again and maintains the range.
- GBP/USD has spent the early part of this week in consolidation but is now starting to edge higher. This is strengthening the support around 1.3490/1.3500 and brings a test of 1.3627 back into play. Above the resistance at 1.3627 would be a key positive move.
- AUD/USD continues to test resistance around 0.7165 and we look for a break above 0.7180 to be a bullish near-term move. Momentum is beginning to improve now and the bulls will look to hold above 0.7105 initial support. A break above 0.7180 opens the upside towards 0.7275/0.7315.
Commodities: Gold and silver are edging higher again. Oil is easing back from multi-year highs.
- Gold is now testing the historic resistance band around $1828/$1832 again. Previously we have seen moves falter around here, so we are cautious of chasing the market higher. Key resistance is at $1854. Initial support is at $1815.
- Silver has now completed the small base pattern on a move above $23.10. This opens for a recovery towards $24.00 near term. Initial resistance at $23.55. There is good near-term support now between $23.75/$24.10.
- Brent Crude oil is threatening a near-term correction following the strongest negative one-day candlestick in the past 8 weeks. The 8-week uptrend that currently sits around $90.80 is being tested. With momentum indicators also teetering on the brink of looking corrective, this is a key moment for oil. A move below $90 would suggest a growing corrective threat. Initial resistance is at $92.65, with the high of $94.55 is now key resistance.
Indices: A drift back higher on Wall Street, with European indices strengthening on improved risk appetite.
- S&P 500 futures have reversed the drift lower and are starting to move solidly higher this morning. Holding above 4532 will help to sustain the improving outlook again. A test of 4585 is the key move, as a breakout would renew the bullish near-term outlook for recovery.e The importance of support above 4438 and 4454 is growing. Initial support is at 4515/4520.
- DAX has swung higher again and is positioning for a test of the lower high at 15,512. Above this resistance re-opens the 15,742 key reactions high. Initial support at 15,240/15,320.
- FTSE 100 continues to eye a test of the 7644 key resistance but is just unable to make the break for now. Momentum is set up for the move and we look to buy into weakness. Above 7644 is a multi-year high and opens the next resistance at 7729. Initial support is at 7596.