What are we looking at today:
- USD strengthening is taking hold once more: This is weighing decisively on EUR/USD especially, but GBP/USD is also impacted. How this affects the breakout of AUD/USD will also be important.
- Indices falling over: Indices have started to sag slightly in recent sessions. They are in danger of turning back into corrective mode again.
- More sanctions: The US is set to announce more sanctions, whilst there is also the prospect of a ban on Russian energy. This could ramp up oil price volatility once more.
- Data trading: Canadian PMI will interest CAD traders. The FOMC minutes later in the day will be watched for any overtly hawkish signals for a 50bps hike at upcoming meetings.
Markets sentiment is starting to turn slightly sourer once more. With US Treasury yields moving decisively higher again, there has been a notable flow back into the USD in recent days. This is shown most prominently through a decline in EUR/USD. However, it is also weighing on commodities too, as silver a gold both begin to fall away again. Furthermore, with the prospect of ever more stringent sanctions to be placed on Russia, risk appetite in equities is seeping away.
This morning, we see a further bias towards USD strength across major forex. Interestingly, this seems to be bond yield driven, with the safe havens and European currencies the most negatively impacted by this. In contrast, the AUD and NZD are holding up well. Equity markets are again trading with a negative bias across European indices, with US futures also beginning to slip lower.
It is quiet for much of the day on the economic calendar. However, CAD traders will keep an eye on the Canadian Ivey PMI, with a slight decline forecast. The March FOMC meeting minutes may be three weeks old but traders will be looking for further confirmation of a more aggressive monetary policy tightening.
Market sentiment looking negative today: USD is strengthening, whilst the European indices are trading lower again.
Treasury yields breakout again: The US 10 year yield is up to 2.60% now, interestingly though with the 2-year yield at 2.57%, the spread has turned positive once more. This fluctuation is likely to continue as markets argue the toss between higher rates (reflected through the 2-year yield) and higher inflation (more reflected in the 10-year yield).
Russia/Ukraine headlines: Russia continues to play down the horrific scenes witnessed in Bucha, northern Ukraine. Sergei Lavrov suggested the West was “fuelling hysteria”. The White House is expected to announce further sanctions today.
ECB hawk calling for higher rates: The ECB’s Wunsch (Belgium) is slightly hawkish but is now saying that the inflation target has been “essentially met” but also that the deposit rate should be raised to zero (currently -0.50%) by the end of the year. This has done little to support the euro, so far.
Another Fed speaker today: On today’s schedule, we are looking out for Patrick Harker (2022 voter, hawk) who is speaking at 1430BST.
China Caixin PMIs fall dramatically: The Caixin (unofficial) Services PMI has dramatically dropped into contraction, falling to 42.0 in March (49.3 expected), down from 50.2 in February. The Caixin Composite PMI has subsequently fallen to 43.9 (49.0 was forecast). The pursuit of a “Zero COVID” strategy is weighing on economic activity in China.
Cryptocurrency downside pressure: Bitcoin has slipped in recent sessions but has rebounded from around $44,300 overnight to trade just above $45,000 this morning. A negative bias remains.
- Canada Ivey PMI (at 1500BST) – Consensus is looking for a slight decline to 60.0 in March (from 60.6 in February)
- FOMC minutes (at 1900BST)
Major market outlook
Broad outlook: Market sentiment is again looking cautious today. The USD is broadly outperforming whilst indices are trading lower.
Forex: Commodity currencies (AUD, NZD especially) are again holding up well, whilst the USD is performing well again.
- EUR/USD fell decisively to breach 1.0940 support yesterday and has continued early today to break below 1.0900. A close below this support opens the key March low of 1.0805. Initial resistance is now at 1.0940/1.0990 as we look to sell into intraday strength.
- GBP/USD once more failed at 1.3145/1.3185 resistance yesterday and pressure is back on 1.3050 support again. Given the negative configuration on the RSI momentum, we are still looking to sell intraday rallies for what now looks to be a retest of 1.3000.
- AUD/USD the decisive breakout above the key resistance of the October high at 0.7555 has pulled back into the new support. This is an important moment as an instant rejection of the breakout would not be positive. The bulls will be looking ideally to use 0.7525/0.7555 as a basis of support for buying opportunities. Above yesterday’s spike high of 0.7660 the next important resistance is at 0.7775. Support at 0.7455 is now key.
Commodities: Precious metals are sliding back, with oil fluctuating again.
- Gold has consolidated for much of the past week within the 3-week range between $1890/$1966, but is beginning to show signs of slipping. Yesterday’s failure around the three-week downtrend which is around $1935 is adding to the overhead barriers to gains. Momentum is hinting at turning lower and will be a gauge. Below $1915 opens the range lows.
- Silver is forming lower highs and negative daily candles. A close below the support band of $24.45/$24.67 has opened $23.85/$24.00, with increasingly corrective momentum. Intraday rallies are increasingly being sold into, with $24.45/$24.67 as a growing band of resistance initially. Key near term resistance is at $25.08.
- Brent Crude oil has been fluctuating in the past few sessions but has broken the mini-downtrend. An early pick up this morning is bringing yesterday’s rebound high at $112.50 back into view, but the resistance between $113.40/$115.75 is still key overhead. Support is building between $105.30/$107.00.
Indices: The outlook remains uncertain as selling pressure is re-emerging.
- S&P 500 futures have seen a bull failure around the 4585/4630 resistance and given a “bearish engulfing” candle yesterday, the warning signs are flashing for a potential correction. Reaction to the 4501 support will be key as a close below will add momentum to a move that would come back to test 4444 and potentially support around 4400 again. The resistance at 4588 is increasingly important now.
- DAX has also seen a bull failure around old resistance and having failed to break clear of the 14,530/14,585 resistance area, a lower high has formed at 14,610. Attention will now turn to how the market reacts to support at 14,100/14,200 as a breach would be a decisive corrective signal.
- FTSE 100 may have lost some of the impetus of its run higher but is not being subjected to the corrective threat of other indices (at least for now). A move back above 7594 is even a positive signal that opens the 7635/7695 highs again. Reaction to this morning’s mild slip back will be interesting to see if it is used as a chance to buy again. A close below 7485 would be a corrective signal now.
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