What are we looking at today:
- Market sentiment with a cautious start to the week: major markets are slightly risk-negative today. USD outperforming on forex, indices are weaker, precious metals a shade higher. This all comes as the oil price continues to climb back higher again.
- Fed speakers: There are several FOMC member speakers this week. It will be interesting to see their views on inflation and monetary policy tightening. Today there is Raphael Bostic (non-voter in 2022, hawk) at 1200GMT.
- Data trading: It is a quiet day on the calendar, with no significant economic data of note.
Overview
Last week’s strong recovery for equity markets came as market participants took a view of progress in the peace talks between Russia and Ukraine. However, the momentum of positivity appears to be waning. What if the negotiations are just a smokescreen? The atrocities continue, whilst the stalled Russian forces appear content to bomb Ukraine into submission. The oil price will be seen as a gauge and is pulling strongly higher once more. This is risk negative, as is the continued flattening of the Treasury yield curve. Flat yield curves are a strong predictor of a developing recession.
Major markets look cautious this morning. There is a shade of risk negative bias on major forex, whilst equity markets are also cautiously mixed. Precious metals are ticking slightly higher, but the main mover once more is a stronger oil price, which is around +4% higher.
The economic calendar is rather bare to start the week. There is no major economic data of note. There is a flood of Fed speakers this week, starting with Raphael Bostic (who sits at the hawkish end of the spectrum, although does not have a vote in 2022).
Today's news
Sentiment looks cautious: A slightly positive USD in major forex, indices are mixed in Europe with US futures slightly lower. Precious metals are ticking higher, with the oil rebound gathering pace.
Treasury yields continue to climb: Yields are higher again, with a “bear flattening” of the yield curve. The 2s/10s spread is now just +20 basis points.
Oil price climbing strongly again: If the oil price is a gauge of broader sentiment, then traders will be worried. Brent Crude is now around +15% higher than it was at Wednesday’s low. Local attacks on Saudi oil facilities (by Yemeni Houti rebels) were reported over the weekend.
Russia/Ukraine war weekend developments: Regarding talks, President Zelensky has said that he is ready to talk with Putin. However, Putin is not ready, according to a Turkish official.
PBoC holds rates: The People’s Bank of China has kept rates steady with the 1 year Loan Prime Rate at 3.7%. The PBoC has though injected 30bn Chinese yuan into the system via reverse repos.
ECB’s Knot & Holzmann argue for rate hikes: Knot says that a hike is realistic this year. It is worth noting that Klaas Knot (of the Netherlands) is considered possibly the most hawkish ECB member. Holzmann (Austria, also very hawkish) is also arguing for a rate hike to tackle inflation.
Cryptocurrency slips back: With markets slightly risk negative early today, Bitcoin has dropped back by around -1%, towards $41,000.
Economic Data:
- No major data is due today
Major market outlook
Broad outlook: Sentiment is looking mixed to cautious again.
Forex: USD is looking stronger, with EUR also holding up relatively well.
- EUR/USD dropped back again on Friday with a rejection of the important resistance at 1.1120. However, holding on to support around 1.1000 was important and the recovery uptrend is still intact. The next few days could be crucial for the recovery outlook. Reaction around resistance at 1.1120 remains key.
- GBP/USD has been trending higher in the past week but the past few days have been choppy. Resistance at 1.3195/1.3210 is increasingly important for the recovery as a breakout would complete a small base pattern. The uptrend comes in around 1.3130 this morning, with 1.3087 as a key higher low.
- AUD/USD has posted three days of strong gains but is just shying back from the 0.7440 key reaction high overhead. The four-hour chart now shows a slight rolling over and a potential corrective move. Reaction to support around 0.7360 will be key.
Commodities: Precious metals fell over on Friday but are finding support again today. Oil is driving decisively higher once more.
- Gold has recovered from the $1880/$1900 support and is beginning to look a little more range-bound as recent trends are breached. Resistance is in place at $1950 initially. With the daily RSI hovering around 50, there is more of a mixed outlook forming.
- Silver formed a top pattern below $25.30 last week which is still a dominant chart feature for the near to medium term. The outlook in recent days has been more fluctuating and with the RSI around 50 on the daily chart there is an uncertain feel developing. Initial support at $24.82 protects Wednesday’s low of $24.45. Resistance is at $25.30/$25.53.
- Brent Crude oil has driven higher in recent sessions and is now looking at the key lower high at $115.55. If this can be broken it would be a strong positive technical signal as it would be a key breakout. Volatility remains high for intraday price moves, with support in the band $106.90/$110.60.
Indices: Recoveries have been impressive, but there are signs of a stalling this morning.
- S&P 500 futures have broken through the key resistance at 4418 which has completed a base pattern and broken a downtrend that has been in place throughout 2022. The old resistance at 4385/4418 is now underlying support and a potential “buy zone” for moves towards 4585. Initial resistance is at 4484.
- DAX has found support around the breakout which is now a band of support of around 14,100. However, the recovery uptrend is being tested by the early consolidation today For now, this is a consolidation but the bulls need to break through 14,570 to re-open moves towards the key 14,800 resistance area. A close under 14,100 would suggest a correction gathering pace again.
- FTSE 100 recovery remains on track as intraday weakness continues to be bought into. There is a test of this outlook today with the early consolidation, however, the uptrend comes in around 7290 which is around Friday’s latest higher low. The initial resistance is at 7460 which protects key resistance at 7560.
