What are we looking at today:
- USD looking a little more mixed today: A strong USD in the wake of payrolls, is now looking more nuanced. USD performance is sitting in the middle of the bunch this morning, between more positive commodity currencies and the subdued safe-havens.
- Commodities ticking higher: A key theme in the coming days could be the debate over Russian oil and gas supplies. Do they continue? If not then the oil price could move higher once more and be negative for risk sentiment.
- Data trading: It is a relatively quiet start to what is a relatively quiet week on the economic calendar. US Factory Orders are out later today and are expected to have declined by -0.6% in February. However, also watch out for the Reserve Bank of Australia meeting early tomorrow morning.
Overview
The world is seeing more evidence of Russian atrocities as the Ukrainian forces reclaim lost ground. The clamour for charges of war crimes grows ever greater and this will seriously complicate the prospects of a mutually agreed peace negotiation. This could be reflected in financial markets through higher commodity prices and risk negative trading sentiment taking hold once more.
We see a creep of this to an extent in major markets this morning as the European session takes hold. Equity markets are looking cautious, whilst there are hints of commodity prices moving higher once more. There is nothing decisive to these moves yet, but were they to continue, it could develop into more of a sustaining theme.
It is a quiet start to the week for the calendar. The only data of note is the US Factory Orders which are expected to decline in February. One of the important announcements for the week comes early tomorrow morning, with the Reserve Bank of Australia. No hike is expected yet, but any signals to the timing of potential lift-off will be pounced upon. A rate hike in Q3 is becoming ever more likely.
Today's news
Sentiment looks cautious: With European indices slipping and US futures a shade lower, there is a hint of risk aversion this morning. This is reflected in higher commodity prices which have tended to come with risk negative sentiment.
Treasury yield curve continues to invert: Yields continued to move higher in the wake of the Nonfarm Payrolls report on Friday, dominated by the move higher on shorter-dated bonds yields. This is the driver ever more significant curve inversion with the 2-year at 2.47% but the 10-year at 2.41% this morning.
Russia/Ukraine headlines: Atrocities are being revealed as the Russian military is pushed back. The prospect of a peaceful resolution of the war will become ever harder to stomach.
Fed members talk about rates and the balance sheet: Williams (voter, leans slightly dovish) says that balance sheet reduction could begin in May. Evans (non-voter in 2022, dove) believes that a 2.50% interest rate by 2023 gives “optionality” whilst +50bps hikes are not a big risk.
EU to discuss Russia this week: More sanctions are expected to be discussed on Wednesday. This could also include discussions about a ban on Russian oil and gas.
Cryptocurrency choppy but steady: Bitcoin has fluctuated in recent days but is relatively stable around $46,000 this morning.
Economic Data:
- US Factory Orders (at 1500GMT) – Consensus is looking for a monthly decline of -0.6% in February (after growth of +1.4% growth in January)
- Reserve Bank of Australia monetary policy (at 0530GMT on Tuesday) – No change is expected to the interest rate of +0.10%.
Major market outlook
Broad outlook: is looking slightly cautious again on Monday.
Forex: Commodity currencies (AUD, NZD, CAD) are slightly outperforming, with EUR the underperformer.
- EUR/USD continued to track lower following the “bearish engulfing” one-day candlestick reversal which along with the key resistance band 1.1120/1.1185 is the key near to medium term chart feature. EUR is slipping this morning, and below 1.10.25 would open the way toward the 1.0940/1.0970 support area.
- GBP/USD is trying to reclaim lost ground in the wake of the payrolls report, but resistance continues to build around 1.3145/1.3185. With daily and 4-hour RSI indicators struggling under 50 there is still a mild negative bias towards testing 1.3050 and maybe 1.3000 again.
- AUD/USD has ticked higher this morning and remains in a range between 0.7455/0.7540. This morning’s move is helping to improve momentum slightly once more, however, key resistance remains at 0.7555. It means that this consolidation is still at risk of becoming a profit-taking pullback. Watching support at 0.7455.
Commodities: Precious metals are looking to build recovery momentum today, with oil also ticking higher
- Gold has picked up this morning but essentially the market is still around the middle of a 3-week range between $1890/$1966. There is a gauge of a downtrend at $1941 today to watch. Momentum is neutral for now with daily and 4-hour RSI stuck around 50. Until the range is broken it is difficult to have a decisive view.
- Silver has picked up this morning to defend the support band of $24.45/$24.67 but there is still a trend of downside pressure. Reaction to initial resistance around $25.08 will be important in the coming days.
- Brent Crude oil has picked up this morning into the European session, but there is still a trend of lower highs where near term rebounds are being sold into. Resistance around $110/$112 will be an important gauge as the 4-hour chart continues to suggest that recoveries towards 45/50 on the RSI are a chance to sell. Support around $105/$106 is in place initially.
Indices: Indices have been edging more corrective and selling intraday rallies in recent sessions.
- S&P 500 futures have pulled back from 4630 and are back below the previous breakout of 4585. For now, this is still an unwind into support around 4495/4515 support area, however, if this area is breached it could open a deeper unwind into the 4420 area. Reaction to a rebound towards 4585/4630 now becomes a key gauge.
- DAX is now seeing rallies struggling around the 14,530/14,585 resistance area and are used as a near term chance to sell. This increases the potential for a corrective move back towards the support band 14,100,14,200. A breach of 14,100 would open a much deeper correction.
- FTSE 100 has been looking far less secure in a bull move in recent days. A “bearish engulfing” one-day candlestick reversal pattern continues to dominate as the market slips over again this morning. It makes resistance at 7594 increasingly important. A close below 7485 would be a corrective signal now.
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