What are we looking at today:
- USD strength on pause: USD has been extremely strong versus commodity currencies recently. It is just showing signs of stalling slightly versus EUR.
- Indices try to recover: After yet another negative session on Wall Street, European indices are trying to recover today. US futures are higher. However, near-term rallies have been consistently seen as a chance to sell since the end of March.
- A busy day of Fed speakers: There are 5 Fed speakers scheduled today. Expect volatility in US bond yields and subsequently USD positions.
- Data trading: German ZEW Economic Sentiment mid-morning for European session traders. Given the deterioration in broad risk appetite, there is a downside risk to the expectations component which could lead to a negative surprise.
Overview
Yet another negative session on Wall Street has pulled the S&P 500 Index below 4000 and to levels not seen since April 2021. You can pick your reasons from any one of recession fears, the Ukraine war, and supply chain issues arising from COVID in China. Each is a valid reason to be bearish and equity markets are responding accordingly. However, there is a recovery of sorts forming this morning, with US futures rebounding and European markets trading higher.
Technical analysts will note a “bearish key one-day reversal” on the US 10-year Treasury yield, which is a topping signal and is something to keep an eye on now. If yields do begin to slip lower, this may allow support to form on indices. However, recent history tells us that rallies tend to be short-lived right now. This potential turning point is also coming as the USD has stalled in recent sessions, especially against the EUR. Although it is far too early to be calling an end to the incredible USD bull run, once more, it is something to keep watch of.
The German ZEW Economic Sentiment is the main focus on the economic calendar today. The sentiment is expected to continue to deteriorate in May. There will be a risk of a downside surprise to the current conditions component, given the deteriorating outlook on equity markets. This may feed into further weakness on the DAX.
Today's news
Market sentiment is looking to recover: After yesterday’s big sell-off on indices, there is a sense of turnaround this morning. How long this lasts is another matter.
Does Treasury yield top out?: We note a “bearish key one-day reversal” on the US 10-year yield. This can be a powerful topping signal. Interestingly, this follows a similar bearish key one-day reversal on the US 2-year yield last Wednesday (on the FOMC decision).
An uneventful Victory Day: After weeks of speculation of what President Putin might do or use Victory Day for, in the event, his speech was unremarkable and was just used to air historic grievances. No change in the increasingly stagnating war in Ukraine.
Reports of the UK ready to scrap the Northern Ireland Protocol: UK press reports that UK Foreign Secretary Truss is ready to scrap the Northern Ireland Protocol after talks with the EU have got nowhere.
More work to get an EU oil embargo on Russia: EU officials continue to work on an agreement to enforce an oil embargo on Russia. Hungary continues to stand in the way but EU Commission President von der Leyen believes progress is being made but more work is needed.
Cryptocurrency rebounds after huge sell-off: An enormous sell-off (Bitcoin has lost -25% in 6 days), there is a rebound of sorts today. Bitcoin has bounced from briefly dipping below $30,000.
Five Fed speakers today: Williams (permanent voter, dovish) speaks at 1240BST, Bostic (voter in 2024, hawkish) speaks at 1330BST, Kashkari (voter in 2023, very dovish) speaks at 1800BST, Waller (permanent voter, very hawkish) speaks at 1800BST, Mester (2023 voter, very hawkish) speaks at 2000BST
Economic Data:
- German ZEW Ecnonomic Sentiment (at 1000BST). The headline sentiment is expected to deteriorate in May to -42 (from -41 in April).
Major markets outlook
Broad outlook: Market sentiment is trying to recover, but it is a long road back.
Forex: USD is looking more into a phase of consolidation. Forex majors look subdued, but NZD is a mild underperformer
- EUR/USD has been in consolidation over the past two weeks (between 1.0470/1.0640) and the support at 1.0470/1.0500. However, there seems to be a growing appetite to support weakness, as mild positive candles have been forming on the daily chart. Initial resistance is around 1.0600 with 1.0635/40 now key.
- GBP/USD has stalled in its downside move following the break of 1.2410. This consolidation over the past two days of trading shows little sign of serious recovery yet, so the outlook of selling into strength remains viable. Initial resistance is around 1.2410/1.2475 which is a basis of overhead supply throughout the past week. A move below 1.2260 opens 1.2075.
- AUD/USD is looking to consolidate this morning after another huge negative candle and a breach of support around 0.6965/0.7000. The next support at 0.6775 is now open but a near-term rebound may be forming. However, there is considerable overhead supply now between 0.6965/0.7030 to restrict recoveries.
Commodities: Precious metals struggling to find traction in a rally, whilst oil is looking to build recovery momentum this morning.
- Gold fell sharply through support at $1861/$1871 yesterday but the low at $1850 has held up the price this morning. A move below $1850 opens $1820/$1825. Momentum remains correctively configured to suggest that rallies are a chance to sell. Already we see the early rebound just lacking intent this morning. Initial resistance is at $1871 with growing resistance around $1890/$1920.
- Silver has rebounded this morning after another decisive move lower yesterday. However, it remains at risk of a test of the key support at around $22.00/$22.10. Momentum remains bearish but is a little stretched, however, with initial resistance around $22.00/$22.60 already proving to be an issue, the bulls are struggling. Below $21.40 would be a key breakdown and the lowest since July 2020. Initial resistance is at $22.63 with mounting resistance between $23.25/$23.55.
- Brent Crude oil fell decisively back from the resistance area (c. $114.80/$116.00) of the 6-week range. There has been a retreat back towards the mid-range area around $105/$107. Picking up from $103.80 support this morning, a rally is looking to gather momentum again. However, this just plays into what we see as a choppy trading range, with moves lacking certainty.
Indices: Wall Street has broken key support but is looking to rebound this morning. Rallies have struggled to hold recently.
- S&P 500 futures broken below 4000 to hit the lowest since April 2021 today. However, there has been a good initial response by the bulls to this and a very early stage recovery has kicked in. The issue is that there is now a huge amount of overhead supply between 4055/4140 to contend with. Momentum is bearishly configured for rallies to be sold into.
- DAX is trending lower in a downtrend channel for the past 7 weeks. This morning’s rebound is a decent response to yesterday’s break to a new 2 month low, however, rallies have struggled for traction in recent weeks. Momentum remains negatively configured and rallies are a chance to sell. Initial resistance is at 13,790/13,900. The initial support is at 13,275.
- FTSE 100 is looking increasingly susceptible to selling phases. Having held up extremely well relative to the massive Wall Street sell-off in recent months, the selling pressure is mounting on FTSE. Today’s early rebound is helping to claw back some of yesterday’s losses, but resistance is mounting at 7299/7395. Initial support is at 7157.
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