What are we looking at today:
- A risk rebound, USD slips: Risk appetite seems to be recovering this morning, which is weighing on the USD. It will be interesting to see how long this lasts.
- Indices are bouncing: After consistently selling into intraday rallies over recent sessions, US futures are higher again today, but can it last this time?
- Crypto is also rebounding: Massive selling pressure on crypto coins will have added to the vicious circle of selling on risk assets this week. However, yesterday’s intraday rally on coins such as Bitcoin will give traders hope that a recovery may be due.
- Data trading: US Michigan Sentiment is the focus on the economic calendar. Consumer sentiment is set to fall back again in May. Given how growth indicators are surprising to the downside and inflation to the upside, there will be a downside risk to the data today.
Overview
Market sentiment has picked up overnight and the glass is looking half full this morning. There have been increasing signs that Treasury yields have started to track lower in recent sessions. This move may now begin to find some traction after comments from Fed Chair Powell yesterday. Powell was broadly neutral in his stance, but interestingly, for the first time in several weeks, he opened the possibility that monetary tightening may not need to be as aggressive as previously thought. There has been something of a sigh of relief to this across major markets, with the early knockings of a risk rally. The question is whether this one can hold.
We are seeing the JPY and USD underperforming across major forex, whilst the AUD and NZD are leading the recovery. Furthermore, equity markets are higher in Europe, and perhaps crucially, US futures suggest that NASDAQ is set for an outperforming open. There has also been a rebound across cryptocurrencies after massive selling pressure in recent days.
The outlook for the US consumer is the focus on the economic calendar today. Michigan Sentiment is expected to decline once more, led by declines in both the current conditions and the expectations components. Given the deterioration in the outlook for Wall Street and economic growth, there will be a downside risk to the data. There will also be another indication for the outlook of inflation with consumer inflation expectations.
Today's news
Market sentiment is in recovery mode today: Indices are rebounding, whilst AUD and NZD are leading the way in forex.
Treasury yields are a shade higher: There have been corrective signals on Treasury yields in recent sessions, however, yields are slightly higher in early moves today. What risk appetite needs for recovery is consolidation across bond markets (i.e. less volatility). This may be now coming.
Calming words from Fed Chair Powell: The Senate has re-confirmed Jerome Powell as Fed Chair for a second term (by 80-19). Powell has commented that they may not be able to control whether a soft landing can be achieved. However, he believes that two more 50 basis points hikes at the next two meetings would be appropriate. He also for the first time in a while noted that the Fed are prepared to do less if the situation improves (although he also said they were prepared to do more). However, this potential to do less seems to be calming some market fears of aggressive tightening.
Big Fed dove speaks today: Keep an eye out for Neel Kashkari, who is speaking at 1600BST. He is traditionally the most dovish member of the FOMC. Although he does not have a vote until 2023, his comments will still prove to be a useful baseline for where those dots still on the Fed’s “dot plots”.
Economic Data:
- Eurozone Industrial Production (at 1000BST). Year on year production is expected to turn negative at -1.0% in March (after being +2.0% in February)
- US Michigan Sentiment (at 1500BST). Sentiment is expected to decline to 63.5 in May (from 65.2 in April)
Cryptocurrency: There have been massive sell-offs across the cryptocurrency space in the past week. This has especially become prevalent in “stablecoins” which have lost their pegs to their underlying assets. As huge selling pressure has flooded across risk assets, the underlying assets that back many of these stablecoins have slid in value, subsequently hitting the value of the coins. Contagion has spread throughout the crypto space, with some suggesting that the “crypto winter has arrived”.
However, although today is Friday the 13th, it seems that the horror show might have already been seen, at least for now. Following remarkable intraday swings higher yesterday, coins such as Bitcoin (BTCUSD), Etherium (XETUSD) and Ripple ((XRPUSD) are looking to recover. Could this be the turning point and time for at least a near term recovery?
- Bitcoin has had huge volatility in price recently. Yesterday alone the price had a £4,700 daily High/Low range, which is around 16%. In posting a “doji” candle yesterday the sharp early move higher today opens the potential for this move to be a decisive turnaround. A rebound higher off a 61.8% Fibonacci projection of the January/April falling wedge is pushing above the 50% Fib and this would open the 38.2% Fib at $34,455. This is also coming with the RSI posting a buy signal too. This brings recovery into the $33,000/$37,000 resistance band into play. The low at $25,390 is now key resistance.
Major markets outlook
Broad outlook: Market sentiment is improving today. Previous intraday rallies have floundered in the US session, so this will be a good gauge of the near-term outlook.
Forex: In a complete turnaround from recent days, JPY and USD are underperforming today whilst AUD and NZD are recovering previous losses.
- EUR/USD broke decisively below 1.0470 yesterday, which implies a -170 pip downside target (c. 1.0300) in the coming two weeks, but also opens the 1.0325 December 2016 crucial low. However, there is a technical rally forming this morning. The question is, how far can it go? There is near to medium-term overhead supply between 1.0470/1.0500, with 1.0600/1.0640 now key resistance.
- GBP/USD continued lower to break the previous support at 1.2260, which has opened the next key support at 1.2075. Rallies remain a chance to sell and one is threatening this morning. Initial resistance is around 1.2260 with a more considerable overhead supply around 1.2400.
- AUD/USD is in near-term recovery mode having broken below 0.6965 old key support to post a new low dating back to June 2020. A technical rally from 0.6830 is taking hold but even if 0.6910 initial resistance can be overcome, there is considerable overhead supply now between 0.6965/0.7030.
Commodities: Precious metals trying to recover after another significant bearish session yesterday. Oil continues to fluctuate within a six-week range.
- Gold fell decisively yesterday to breach the primary uptrend of three years (at $1827 today). This is a significant warning that the corrective outlook is very strong still. Despite this, there has been a near-term technical rally threatening this morning, however, there is resistance now between $1830/$1850 to overcome before thoughts of any sustainability can be even contemplated. Given the strength of correction and momentum configuration, rallies are likely to continue to struggle.
- Silver is trying to engage a technical rally this morning which may allow for a near-term rebound. However, the breakdown below $21.40 was a crucial move and there is now a huge overhead supply sitting between $21.40/$22.00. This suggests that rallies will likely struggle for traction. Yesterday’s low at $20.60 is initial support but the next long-term support is not until $19.00/$19.60.
- Brent Crude oil continues to fluctuate within the six-week trading range between $99/$116. After Wednesday’s decisive rebound, the moves have been less certain. The market is edging higher within the range again, with $105/$107 now a basis of support mid-range. Moves appear to be just near-term noise within this medium-term trading range, whilst there remains an attraction for moves to gravitate back towards $105/$107.
Indices: A near-term rally is threatening across indices.
- S&P 500 futures completed another bearish session yesterday but there has been a shift in sentiment overnight. These moves have frequently been sold into during the US session, so this will be an important test today. Already, the movie is above yesterday’s traded high, the first time this has happened in over a week, so things are looking slightly more positive. With the RSI bouncing off 30 there is room for a rebound towards the key overhead supply area between 4060/4140.
- German DAX has been ticking higher in recent sessions, as the market engages in another recovery within the downtrend channel of the past two months. Previous rallies have faltered around the 55-day moving average (c. 14,040) and with the RSI around 50. How the market reacts around these levels will be key to the sustainability of any recovery. Given previous rallies have all faltered around what is now a four-and-a-half month downtrend, rallies are still to be seen as a chance to sell.
- FTSE 100 has rebounded well off the support at 7157 and is looking to engage a recovery this morning. This support around 7157 is important on a longer-term basis as it marks the mid-point of what is now a 13-month trading range on FTSE. This, therefore, retains a positive bias to the range if held. A previous technical rally from 7157 floundered earlier in the week, so the reaction to resistance at 7358 will be important near term.
This material is for general information purposes only and is not intended as (and should not be considered to be) financial, investment or other advice on which reliance should be placed. INFINOX is not authorised to provide investment advice. No opinion given in the material constitutes a recommendation by INFINOX or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.
