What are we looking at today:
- USD once more looking to strengthen: The volatility continues. After a sharp correction yesterday, USD is rebounding strongly today.
- Indices trying to find support: Indices had a massive sell-off into the close on Wall Street. There is an attempt at support today, but the negative trends remain well set.
- Data trading: Final Eurozone inflation is expected to be unrevised so unless there is a surprise it is unlikely to do much for markets. A speech by Fed Chair Powell is also unlikely to contain too many surprises given the FOMC press conference was on Wednesday. It may be down to US Industrial Production to generate the action.
Major markets continue to fly around as a slew of central banks churns out monetary policy updates. A wild ride in bond markets over the past week is keeping volatility elevated across forex, commodities and indices. This is buffeting markets higher and lower. Worrying US data on housing and from the Philly Fed increased fears of a US slowdown and pulled a safe haven bias into markets again. A big move back into Treasuries yesterday saw yields sharply lower and the USD corrected lower. This saw precious metals also jumping on a safe haven bid, however, also sent shockwaves through equity markets with Wall Street and European indices falling by over -3%.
There is a swing back around on all these moves this morning (Treasury yields and the USD higher, precious metals lower, indices finding support) as the wild ride continues. However, with market fear gauges elevated, negative data is being pounced upon at the moment. Elsewhere this morning, the Bank of Japan has held ground in the face of a cluster of other central banks that are hiking rates.
There is important Eurozone and US data on the economic calendar today. However, first up, the Eurozone inflation may not have too much of an impact as it is the revision to flash data more than two weeks ago, whilst also not expected to be changed. The US Industrial Production may be more interesting for traders. Expected MoM growth for May of +0.4% would still mean that YoY growth would be falling to 4.6% (from 6.4% in April). We also have to keep an eye out for a speech from Fed Chair Powell at 1345BST. This speech is less than two days since the FOMC press conference so is unlikely to contain many surprises, however, Powell always has the power to move markets so will need to be watched.
Market sentiment is limply trying to recover: A sharp increase in risk aversion yesterday is moderating slightly this morning. However, can this last?
Treasury yields tick back higher: There is a slight rebound early today after huge falls yesterday. The 10-year yield fell -30bps from the session highs into the close, with a similar move from the 2-year yield. Yields have rebounded by around +6bps today.
The Bank of Japan holds steady: Policy was kept dovish with rates unchanged. The deposit rate stays at -0.10% and yield curve control is maintained and the 10yr JGB target of zero.
Cryptocurrencies hang on to support: Cryptocurrencies have held up in recent days. The lows formed earlier in the week are intact and there is a basis of near-term support forming. For Bitcoin, this means holding above $20,000 even if the market is just hovering above $21,000 for now.
Fed chair Powell speaks today: Powell speaks at 1345BST however, it is unlikely that he will say much that was not said in Wednesday’s FOMC press conference.
- Eurozone inflation - final (1000BST) Final inflation is expected to be unrevised at 8.1% headline and 3.8% core.
- US Industrial Production (1415BST) Production is expected to grow by +0.4% in May but YoY production would decline to 4.6% (from 6.4% in April)
Major markets outlook
Broad outlook: Sentiment is recovering marginally after huge selling pressure on risk assets (and the USD) yesterday.
Forex: USD has rebounded from yesterday’s losses. JPY, AUD, and NZD are the key underperformers.
- EUR/USD has been volatile for over a week since the ECB decision. A broad range of 1.0350/1.0790 has formed. There is also a pivot band which is currently resistant around 1.0600/1.0640. With the corrective configuration still present on the RSI, near-term rallies are still a chance to sell for moves towards the 1.0350 support area.
- GBP/USD has rebounded sharply in the past 48 hours, but it has not been a smooth ride. The wild intraday swings continue this morning with a move back lower from 1.2406. We see overhead supply in the 1.2330/1.2460 area is likely to contain any attempted rallies within the big 4-month downtrend. Near-term support in the band between 1.2150/1.2210.
- AUD/USD has rebounded well in the past 48 hours but is just beginning to fall away again. This is leaving initial resistance at 0.7070 but also bolsters what is a growing pivot band between 0.7045/0.7070 which is in the middle of what is now a two month trading range 0.6830/0.7270. RSI momentum has a slight negative bias.
Commodities: Precious metals gained strongly yesterday is what is growing into multi-week trading ranges. Oil has broken the uptrend channel.
- Gold has rallied strongly in recent days as the market unwinds back towards the resistance of a near 4-month downtrend. This move is also set to encounter overhead resistance of a 6-week trading range ($1787/$1870) with the price just easing back this morning. With the RSI again faltering around 50, we still favour selling into strength.
- Silver has rallied well in the past couple of days and is pulling back towards what is increasingly becoming a 6-week trading range ($20.45/$22.50). The RSI has again recovered to 50 but this is an area where previous rebounds have faltered. As such for now, we look to play this range.
- Brent Crude oil has broken the uptrend channel and formed a small top pattern that implies a move back towards $114/$115. However, the market has rebounded in the past 24 hours and a reaction around the resistance between $122.50/$123.20 will be key. Another lower high around here would be a chance for near-term selling opportunities for $114/$115. A decisive move above $123.20 puts a more positive outlook once more. And brings the recent highs around $126.00/$126.60 back into play.
Indices: Attempted recoveries continue to be sold into.
- S&P 500 futures are struggling for any sense of recovery momentum. Any time the market looks to rally, the barrier of old support which is now new resistance provides a pool of sellers that hits the market. As such, rallies remain a chance to sell. Resistance is building around 3807/3842. A close above 3895 (closes the gap) is needed to engage a serious near-term recovery.
- German DAX sold off hard yesterday to close decisively below the support band 13,220/13,270. This now becomes a basis of resistance near term. There is more considerable resistance between 13,665/13,735 but rallies are now a chance to sell. Support initially comes around 12,930 and a test of the March lows at 12,436 cannot be ruled out.
- FTSE 100 has seen a significant deterioration in outlook on a huge breach of the support band 7132/7155. Although the market is rebounding from 7002 this morning, the old support is now new resistance and near-term rallies are a chance to sell. We look for another lower high to form and retest 7002, whilst a bigger downside move towards the March low at 6755 cannot be ruled out.
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