What are we looking at today:
- USD continues to strengthen: This is especially against EUR and GBP today, but also against the AUD and NZD which are adding further corrective momentum this morning.
- Indices ticking higher but towards resistance again: Indices are holding the key medium-term support/pivot areas. However, this comes within recent downtrend moves, questioning how long rallies can be sustained.
- Data trading: The only data of note on the calendar today involves is the Canadian labour market. Consensus is looking for a continued improvement in the unemployment rate, which would help to support CAD.
Overview
We are seeing a mild recovery in equity markets today. The fact that indices have bounced off key support areas of medium-term pivots is encouraging. However, this needs to be taken in the context of recent downward trends of the past week or two. It suggests that reaction to the tick back higher will be important in the next couple of sessions. If this rebound cannot be sustained it would add further fuel to the growing corrective momentum.
The US dollar is also once more strengthening this morning. As the hawkish rhetoric of Fed speakers continues, US Treasury yields are once more moving higher. Charles Evans may not be a voter in 2022 but he sees a neutral rate (i.e. the Fed Funds rate c. 2.50%) by the end of 2022 or early 2023. This leaves at least another six or perhaps eight more 25 basis points rate hikes this year. This says a lot considering historically, he is considered to be one of the most dovish leaning of the FOMC.
It is a quiet day to finish a quiet week for the economic calendar. Canadian labour market data is the only data of note today. Consensus is looking for continued improvement to 5.3% with jobs growth and potentially an improvement in the participation rate. Any upward traction in wage growth should also help to support CAD positions.
Today's news
Market sentiment looks more positive: European indices are ticking solidly higher this morning, with US futures also higher. However, with bond yields higher and USD also positive, this questions how sustainable a rebound on indices might be.
Treasury yields are looking higher: Yields rebounded into the close yesterday and are looking to move higher again today, especially on the interest rate sensitive shorter end (such as the 2-year yield).
Russia/Ukraine headlines: Russia has been voted to be suspended from the UN Human Rights Council. In the real world, does this mean anything, probably not much? Elsewhere the EU is looking at an embargo on Russian coal.
China COVID tests continue: Major cities such as Shanghai continue with lockdown measures and testing. This is weighing on analyst expectations for GDP this year.
Fed’s Evans looking for a neutral rate perhaps by the end of 2022: Evans is on the dovish end of the spectrum but is not a voter until 2023. Evans sees a neutral rate (which is considered to be around 2.50%) by the year-end or early 2023. This would mean another six to eight 25bps hikes this year. Considering he is historically dovish, this certainly maintains the stream of hawkish views from the FOMC in recent weeks.
Cryptocurrency stable after recent selling: After two days of decisive moves lower Bitcoin is trying to build some support this morning above $43,000.
Economic Data:
- Canadian Unemployment (at 1330BST) Consensus is looking for an improvement in the jobless rate to 5.3% in March (from 5.5% in February).
Major markets outlook
Broad outlook: Market sentiment is slightly more positive, at least for equities, but USD continues to strengthen.
Forex: Commodity currencies (AUD, NZD especially) are again under downward pressure, whilst USD is the main outperformer.
- EUR/USD has continued to see rallies fail around 1.0940 resistance and is now decisively under 1.0900. With a negative configuration on the momentum we continue to favour selling intraday rallies for a test of 1.0805. Below that key support opens 1.06/1.07.
- GBP/USD continues to see intraday rallies failing and selling into strength. With the resistance strengthening at 1.3155/1.3185 there is now near term resistance c. 1.3110. The trend lower continues to favour another test of 1.3000, below which opens 1.2850 as the next support.
- AUD/USD has continued to retrace the breakout and is this morning testing the key near term support at 0.7455. A close below this support would open a deeper correction within the scope of the 10-week uptrend. Initial resistance is at 0.7495/0.7520.
Commodities: Precious metals have been holding up better in the past couple of sessions but there is still a mild negative bias. Oil is trending lower.
- Gold has continued to resist selling pressure and despite the presence of a four-week downtrend, the market remains in a consolidation over the past eight sessions. The price still sits in the middle of a trading band of $1890/$1966, albeit with a mild corrective bias on momentum. Initial support at $1915 is holding well, with initial resistance at $19445/$1950.
- Silver has formed a couple of positive daily candles as the market rebounds within the four-week downtrend. The rebound is trying to push above the $24.45/$24.67 resistance area of old support. This is a key test today, with the downtrend also close. A move above $25.08 would be a positive development and change the outlook. Support is in place at $23.96/$24.12.
- Brent Crude oil has been firming the downtrend of the past couple of weeks but is ticking higher again this morning. Intraday rallies have consistently been used as a chance to sell recently and the initial resistance is at $105.30/$107.00. It would need a move above $112.50 (the first key lower high) to suggest a sustainable recovery. Below $100 opens the reaction low at $97.80.
Indices: Markets are rebounding from key support areas. The reaction to this move will be an important gauge for the near to medium-term outlook.
- S&P 500 futures have rebounded well from the support band at 4418/4444. A positive candlestick yesterday and early gains today are encouraging. However, reaction to this uptick is key now. A bull failure from here would heap pressure back on 4418/4444 and a breakdown would be an outlook changer. Initial resistance is 4515/4530 with 4588 a key lower high near term.
- DAX has rebounded to leave support in the 14,030/14,100 area. Near term resistance is now being tested at around 14,325 and with the 4-hour chart RSI unwinding, this is an important moment. Subsequent resistance is 14,440 and then the lower high at 14,610.
- FTSE 100 has pushed aside the risk of slowing momentum to once more find buyers into weakness and push higher again. A move above 7635 has opened a full recovery to the February high of 7965 (before the war broke out). Initial support is at 7580 with 7529 increasingly important too.
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