What are we looking at today:
- USD has pulled back this morning, will it last?: The FOMC minutes were broadly hawkish yesterday, however, US Treasury yields have dropped back and this is weighing on the USD slightly this morning. This move is likely to be just near term.
- Indices find respite from selling: Recent selling pressure is testing some key support levels, however, a slight tick higher this morning is adding support. Reaction to this support in the coming days will be key for medium-term direction.
- Data trading: The ECB meeting accounts (i.e. the minutes) will be poured over for potential voices calling for tighter monetary policy in the fight against interest rate hikes. The US Weekly Jobless Claims are also out and have been around record lows in recent weeks.
We are just some retracement of the recent trends across major markets this morning. The US dollar (USD) has been strong in recent sessions but is easing back as US Treasury yields have eased lower. Given the hawkish bias in the FOMC minutes, it will be interesting to see how long any USD unwind lasts.
We are also seeing a minor rebound in equity markets, where indices have been under growing downside pressure over the past week. The reaction around key pivots and support levels will be a key gauge in the coming days. One market that already seems to be failing in a rebound in oil. An early tick higher has been quickly sold into. This continues the slide of the past couple of weeks, where intraday and near term rebounds have consistently been sold into.
It is relatively quiet again on the economic calendar today. The ECB Monetary Policy Meeting Accounts will be watched for signs of hawks on the Governing Council stretching their wings. There are also more Fed speakers on the docket. The uber-hawkish Bullard is unlikely to say much we don’t already know. However, there are also three more speakers to look forward to later, with Evans, Bostic and Williams all scheduled. Maybe Evans is the one to watch out for, being traditionally dovish although he is a non-voter in 2022.
Market sentiment improves slightly: The question is for how long. Sentiment has been progressively more negative recently. With a slip back in the USD and a rebound in indices, there is a sense of respite this morning.
Treasury yields unwind lower: Yields are lower across the curve, with the spread between 2s/10s widening, now up to +13 basis points, having touched negative (below zero) last week.
Russia/Ukraine headlines: Russian forces have withdrawn from near Kyiv but the US believes that Russian forces are being resupplied in Belarus. This is likely a redeployment rather than anything more positive.
NATO meets for Russia sanctions: Further sanctions are to be discussed, including bans on investing in Russia, and bans on Russian coal imports (interestingly this does not suggest banning Russian oil and gas yet).
Fed minutes were hawkish: Members talked about rates and the balance sheet. On rates, “many” wanted +50bps of hikes were it not for the war in Ukraine. It looks like 50bps of hike in April’s FOMC meeting is now a given. Concerning the balance sheet, the run-off will begin in May. Also, the rate of monthly caps on Treasuries and Mortgage Backed Securities seems to be relatively high, at $60bn for Treasuries and $35bn for MBS.
Another four Fed speakers today: On today’s schedule, we are looking out for arch-hawk Bullard (2022 voter, very hawkish) who is speaking at 1400BST. There is also Evans (non-voter in 2022, leans dovish) at 1900BST, Bostic (not a voter until 2024, hawk) at 1900BST, and Williams (permanent voter, slightly dovish) at 2105BST.
Cryptocurrency downside pressure growing: The alignment with risk assets continues. Bitcoin is lower again by almost -1% this morning, having fallen sharply yesterday.
- ECB Meeting Accounts (at 1100BST)
- US Weekly Jobless Claims (at 1330BST) Claims are expected to be around last week’s level of 200,000 (202,000 last week).
Major markets outlook
Broad outlook: Market sentiment is slightly more upbeat today, however, by no means decisively positive.
Forex: Commodity currencies (AUD, NZD especially) lower again, having fallen into the close last night. USD is also a mild underperformer.
- EUR/USD has broken below 1.0900 to open the key March low of 1.0805, there is a near term sense of consolidation forming. However, the pair is unable to break back above 1.0940 which was a previous late March support and this adds to the continued downside bias. We favour selling intraday rallies for a test of 1.0805.
- GBP/USD has arguably held on to the support around 1.3050 with a rebound from 1.3045 and is now ticking higher this morning. The broad trend of the past couple of weeks has been to sell into intraday strength and continue the run of lower highs. Initial resistance is at 1.3110 with more considerable near-term resistance at 1.3165/1.3185. Given the negative configuration on the RSI momentum, we still prefer a retest of 1.3000.
- AUD/USD will have disappointed the bulls with a sharp pullback in the past couple of sessions. The unwind is now eyeing a test of the bottom of the 100 pip support band 0.7455/0.7555. A breach of 0.7455 on a closing basis would change our bullish near-term outlook.
Commodities: Precious metals continue to consolidate with a mild negative bias. Oil is, with oil continuing to sell into strength.
- 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 had been threatening to form support but broke sharply lower below the $105.30/$107.00 support yesterday. On a technical basis, it has also now broken the support of a near 4-month uptrend as the market has fallen away again this morning. There is now initial resistance at $105.30/$107.00 with $112.50 the first key lower high. Below $100 opens the reaction low at $97.80.
Indices: Markets continue to slide back, initially holding key support but the test is ongoing.
- S&P 500 futures have tested the start of the key support band at 4418/4444. This looks to be an important moment as an initial rebound early today has struggled to take off. Decisively moving below 4418 would be a shift towards a negative near to medium-term outlook again and suggest a strategy of selling into strength.
- DAX is turning increasingly corrective as the support at 14,100/14,200 is being breached. A decisive close below 14,100 would re-establish our preference for a strategy of selling into strength. Resistance is already mounting as intraday rallies are faltering around 14,200/14,325.
- FTSE 100 continues to lose the impetus of the run higher as the market has consolidated in the past couple of days. However, the index is still not being subjected to the corrective threat of other indices (at least for now). Initial support at 7528 will be seen as a gauge as the market has slipped slightly lower today, whilst 7485 is the first important higher low in the recovery. A close below 7485 would be a corrective signal now. Resistance is building at 7616.
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