What are we looking at today:
- USD strength is unwinding: The USD is down this morning, for a third consecutive day. There have not been three consecutive daily declines in the Dollar Index since the beginning of February.
- Indices creeping higher: After strong gains on Friday, yesterday was more of a consolidation move. With US futures higher, European indices are tentatively positive in early moves. Can this last?
- Crypto rebound holding: Crypto continues to trade with a close positive correlation with risk appetite. Bitcoin has a particularly strong correlation with NASDAQ.
- Data trading: With Eurozone GDP expected to be unrevised, the big focus will be on US Retail Sales. Can monthly growth continue? Also, watch US Industrial Production. Later in the session, a speech by Fed Chair Powell will be key after he moved markets last week.
Market sentiment has picked up in recent days. The catalyst seems to have been a less hawkish than expected speech by Fed Chair Jerome Powell late on Thursday. Since then, we have seen the USD strength unwinding and equity markets have rebounded. Can the move continue? Powell is set to speak again today and markets will be straining to hear further updates.
It must be a risk recovery if the Aussie and Kiwi are leading the gainers on major forex today. The UK sterling is also into a third straight day of recovery after the unemployment data showed a tight labour market and potentially inflationary wage growth. Indices are looking to push on in their recovery today too. This is all helping a rebound across the cryptocurrencies too.
The economic calendar is packed with tier one data today. Already through the UK employment, the Eurozone releases revised GDP data for Q1 later this morning. The big focus is on US Retail Sales which are expected to moderate in April after a strong March. US Industrial Production is expected to grow less in April. It is also a packed day of Fed speakers, with Fed Chair Powell speaking at 1900BST along with four others on the FOMC today. It will also be worth keeping an eye out for the ECB President Christine Lagarde who is speaking just before Powell, at 1800BST.
Market sentiment continues to tentatively recover: European indices and US futures are trading higher, whilst the USD is underperforming on major forex. Gold and silver are holding their recovery gains.
Treasury yields continue to consolidate: Yields are slightly higher this morning, but moves have become increasingly settled into consolidation in recent sessions. This stability is helping to support the risk recovery.
UK employment data shows further tightening: Unemployment has dropped further, to 3.7% which was lower than the 3.8% forecast (3.8% in February). Wages including bonuses have shot up to +7.0% in March (from 5.6% in February).
Hawkish hint in the RBA minutes: The minutes for the latest Reserve Bank of Australia meeting shows the argument for a +40 basis point hike given the upside risks to inflation and low level of interest rates. Members agreed that further rate hikes would be needed.
Reuters survey points to an ECB hike in July: 39 out of 39 responders to a survey by Reuters said that an increase to the deposit rate will be seen in July.
Cryptocurrency continues to build support: Crypto has been in recovery mode in recent days. There is still work to do, but yesterday’s slip back has not developed into greater selling yet. Bitcoin is hanging on above $30,000. Above $31,400 would confirm the building of a new positive trend.
A packed day of Fed speakers: The Fed chair Powell is undoubtedly the main focus speaking at 1900BST. Powell helped to turn markets last week when he was arguably less hawkish, so it will be interesting to see if this becomes more of a theme. Elsewhere, FOMC’s Bullard (2022 voter, extremely hawkish) speaks at 1300BST; FOMC’s Harker (2022 voter, hawk) speaks at 1415BST; FOMC’s Mester (2022 voter, hawk) speaks at 1930BST; and FOMC’s Evans (2023 voter, dove) speaks at 2345BST
- Eurozone GDP - revised (at 1000BST). Consensus is expecting the data to be unrevised at +0.2% in Q1
- US Retail Sales (at 1000BST). Consensus is expecting core sales (ex-autos) to be +0.3% MoM in April (+1.1% in March)
- US Industrial Production (at 1415BST). Production is expected to grow by +0.4% in April (+0.9% in March)
Major markets outlook
Broad outlook: Sentiment has been building recovery in recent days. The near-term recovery was questioned yesterday, but survived and is looking to continue today.
Forex: GBP, AUD, and NZD are all performing well today.
- EUR/USD The huge sell-off on Thursday is gradually being reclaimed after a rally from 1.0350. The ket will be the reaction around overhead supply at 1.0470/1.0500 from a raft of late April/early May lows. This is also where a four-week downtrend comes in too. Rallies have previously been seen as a chance to sell, so this is an important moment for the near to medium-term outlook. A breach would open 1.0600/1.0640 as key resistance. Support at 1.0390 is a higher low.
- GBP/USD has recovered strongly following Friday’s bullish engulfing candlestick (bullish key one-day reversal). The move is already pushing through the first important resistance at 1.2400. The next key resistance is at 1.2635. Rallying strongly has left initial support at 1.2295/1.2310.
- AUD/USD is recovering well in the technical rally from 0.6830 and has pushed into the considerable overhead supply between 0.6965/0.7030. A close above 0.7055 would be a strong signal of intent in recovery now. Initial support of 0.6960/0.6980.
Commodities: Precious metals are looking to build recovery momentum. Oil is now testing the top of a seven-week range.
- Gold posted a strong positive candlestick yesterday and was a good reaction in a rebound from $1787. However, in having recently broken the primary three-year uptrend was broken the outlook remains tentative in recovery and consolidation has taken hold this morning. There is a resistance between $1830/$1860 which is now a barrier to recovery.
- Silver has posted two strong daily candles in recovery, but the market is now into the huge overhead supply sitting between $21.40/$22.00. Unless this resistance can be decisively overcome, rallies remain a chance to sell. Initial support is at $21.29 with $20.83 a mini higher low.
- Brent Crude oil has closed higher in each of the past four sessions and is now testing the resistance of the seven-week trading range between $99/$116. There is a hint of a breakout on the RSI (at a seven-week high) but market moves are tentative this morning A close above $116.10 would open upside towards the next resistance around $124. Initial support is at $113.25 and then $109.50.
Indices: Near-term rallies are back on track with decent gains this morning. However, key resistance lies overhead.
- S&P 500 futures spent much of yesterday in consolidation after Friday’s strong recovery. However, the move higher has kicked in again and is looking to push into the considerable overhead supply area between 4060/4140. How the market reacts to this resistance will be key for the near to medium-term outlook. The initial support at 3979 is now a higher low in the recovery.
- German DAX has engaged a strong recovery that is now testing the key four and a half month downtrend. Previous rallies have faltered around the 55-day moving average (c. 14,027) and with the RSI around 50. However, the market is above the 55 dma and the RSI is into the 50s today. If the market could push above 14,321 (the first key lower high) it would be a positive signal for sustaining recovery. Back under 13,855 would suggest the rally once more turning lower.
- FTSE 100 fluctuated yesterday to form a highly uncertain on-day candlestick, but buying pressure has resumed again today. A close above yesterday’s high of 7508 opens 7624 which was the early May reaction high. The intraday chart shows 7360 is a higher low.
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