What are we looking at today:
- USD has been looking more corrective: Signs of selling into a strength are gradually taking hold of the USD.
- Indices finding support in weakness: There could be an important shift in sentiment. Previously rallies have been decisively sold into, but supports and higher lows are holding, for now.
- Crypto also looking to build support: If sentiment and risk appetite holds up, this should also be seen in cryptos.
- Data trading: Eurozone Consumer Confidence is the only data of note, with a slight pick up expected. Any positive surprise could help to play into a rally on EUR.
There have been a few green shoots of recovery in recent days. For weeks, market participants have been seeing a negative bias to risk appetite, with near relentless USD strengthening and risk rallies being sold into. However, in the past few days, we are seeing the USD starting to correct and weakness is starting to find support. The key could be whether Wall Street plays its role in this recovery. US futures are higher this morning, with NASDAQ leading the way. That tends to be a good sign of positive risk appetite.
In overnight data, Japanese core inflation, as expected, has jumped above the Bank of Japan’s 2% target. Additionally, UK Retail Sales have come in significantly ahead of expectations in April. Admittedly, analysts had been fearing the worst but it has not materialised, at least not yet. This is helping GBP to build on support today.
The economic calendar is a fairly quiet end of the week. Flash Eurozone Consumer Confidence is announced later today, but interestingly the consensus is looking for a slight pick up in May. This could be a turning point after the dramatic deterioration in confidence in March as consumers digested the impact of the wake of the Ukraine war.
Market sentiment is holding the improvement: European indices and US futures are higher this morning. There is a positive bias on major forex, with the commodity currencies outperforming.
Treasury yields edge mildly higher: Yields have been lower in recent days (weighing on USD) but are looking relatively steady today, with just a mild hint of the upside move.
Japanese inflation increases as expected: Core inflation in Japan has increased sharply to 2.1% in April (from 0.8% in March). This was in line with analyst forecasts.
UK Retail Sales better than expected in April: In a surprisingly positive set of data, core UK Retail Sales (ex-fuel) have increased by +1.4% MoM having expected to be a decline of -0.2%. The YoY data has still turned sharply negative although not as bad as feared and is now falling by -6.1% (-8.4% expected) after being -0.2% YoY in March.
Cryptocurrencies look more stable: A decent pick up during yesterday’s session has seen Bitcoin back above $30,000 once more. This seems to be a neutral area for now. Above $31,400 turns BTC more positive.
- Eurozone Consumer Confidence (at 1500BST) The flash confidence data is expected to improve slightly in May to -21.5 (from -22.0 in April)
Major markets outlook
Broad outlook: Signs of improvement continue overnight. Indices are feeling the benefit today, with a positive risk bias to forex too. Commodities are consolidating.
Forex: USD has been slipping lower recently. NZD, AUD, and CAD are outperforming.
- EUR/USD rebounding decisively from the support area around 1.0460/1.0470 could be an important momentum in the near term outlook. This now becomes a higher low in what could be a recovery. The resistance at $1.0600/$1.0640 is now key overhead. A breakout would be a first breach of a lower high for arguably 12 months.
- GBP/USD has fluctuated in recent sessions with elevated volatility but the bulls reacting to buy into weakness could be a key shift in sentiment. It means the support at 1.2330 is an important gauge. Despite this though there has been no key technical improvement yet, with the lower high at 1.2637 the key resistance. Initial resistance is at 1.2525.
- AUD/USD has fought higher and is looking to now move decisively clear of the lower high at 0.7055 (which would be seen on a closing breach) but also now testing the seven-week downtrend resistance (at 0.7085). The resistance band starts around 0.7165 and then becomes the next upside target area. Initial support at 0.7000 with 0.6950 now a key higher low.
Commodities: Precious metals are looking to sustain the recent improvement. Oil trades with a slight positive bias within the seven-week range.
- Gold drove a decisive recovery through resistance at $1836 yesterday with a strong bull candle. This is now breaking a one-month downtrend and starting to lay the building blocks of recovery once more. A move above $1858 would be the next step. There is a higher low at $1807, whilst $1836 is initial support this morning.
- Silver is looking to build a near-term recovery with a base pattern above $21.95/$22.10 resistance. With a recovery in the RSI, momentum is improving for this near-term rebound to be a move that could see a recovery towards $23.75. The higher low at $21.28 needs to hold for this recovery to continue to build.
- Brent Crude oil continues to fluctuate within the seven-week trading range between $99/$116. Picking up yesterday from the mid-range pivot area between $105/$107 again lends a mild positive bias, but this remains a market lacking intent to drive a breakout of the range.
Indices: Wall Street holding support is important, whilst European markets look more positive.
- S&P 500 futures held the support of the key May low at 3955 to the tick and with the market moving higher this morning, the potential for a rebound of note is growing. Pulling above yesterday’s high of 3943 is needed to drive the market higher near term, but the concern remains the run of lower highs. There is room for a near term rebound towards a one-month downtrend (at 4070).
- German DAX may be in the process of a decisive shift in sentiment. After Wednesday’s decisive sell-off there was an opportunity to chase the market lower. Previously we have seen selling pressure mounting. However, the weakness was bought into and the buying has continued early today. The key test will be the resistance at 14,260/14,320. Support at 13,675 is also a key gauge now.
- FTSE 100 is recovering from a sharp decline yesterday which has bounced from 7227 and adds weight to the support now between 7157/7227. The recent moves re-iterate the uncertainty in the near to medium-term outlook, with big swings higher and lower, but unable to sustain a move. This makes for difficult trading. Resistance at 7545 is the first important barrier of a lower high.
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