Espresso Morning Call: Rallies being sold as sentiment sours

What we are looking at today:

• USD remains hugely strong: EUR/USD has now broken to levels not seen since the pandemic. The dollar is overbought but remains very strong in this environment.
• Indices see any strength sold into Intraday rallies continue to be sold into. S&P 500 futures are back to test huge support at 4100/4140.
• Data trading: The calendar has just the Goods Trade Balance and Pending Home Sales, two announcements that may not normally impact too greatly. However, given the negative risk sentiment of recent sessions, anything that plays into this might be pounced upon.

Overview

Market sentiment remains decisively negative. Any hints of intraday rallies on risk assets are being quickly snuffed out and renewed selling pressure is never far away. A big tech-related sell-off on Wall Street has now dragged S&P 500 futures back towards their key lows of early March that were seen in the wake of the Russian invasion of Ukraine. 

The one big winner of this remains the US dollar. Although Treasury yields have fallen, this is seen as a flight to safety and the USD strength means that pairs such as EUR/USD and GBP/USD are testing and breaking crucial levels of support. There is one exception to this USD strength today, with the Aussie which is in recovery after Australian inflation came in well above expectation.

It is just lower-tier US data on the economic calendar today. The deficit in the Trade Balance is expected to improve slightly in March. However, perhaps more notable might be the Pending Home Sales. With New Home Sales dropping by -8% in March (after an upward revision to February’s data) it will be interesting to see the size of the decline in the pending sales.

Today's news

Market sentiment under negative pressure once more: A big Wall Street sell-off has impacted risk sentiment into the European session today.

Treasury yields are tracking lower now: Although yields have rebounded slightly today, there is a growing sense of a move lower, especially on the US 10-year yield which has fallen consistently over the past week.  

Russia halts gas supply to Poland and Bulgaria: The two countries have missed payments in roubles for gas from Russia, so the supplies have been halted.

Australian inflation jumps higher than expected: Headline CPI has increased to 5.1% in Q1 (up from 3.5% in Q4. This was significantly above the 4.6% expected. Trimmed Mean CPI (the RBA’s preferred measure of core inflation) increased to 3.7% which was above the 3.4% expected. The AUD is performing well today.

Cryptocurrency trending lower: With risk appetite remaining negative, crypto coins are tracking lower. Bitcoin is finding rallies being sold into and back under $39,000 today. Next support is around above $37,100

Economic Data:

• US Trade Balance (at 1330BST). Analysts are expecting the trade deficit to improve marginally in March to -$105.0bn (from -$106.6bn.).
• US Pending Home Sales (at 1500BST). Analysts are expecting month-on-month sales to decline by -1.1% in March which would leave 12-month sales falling by -5.0%.

Major markets outlook

Broad outlook: Market sentiment has improved again, but for how long? Already the cracks are showing again.

Forex: AUD and NZD are a shade higher, but USD and more significantly the JPY are strong.

• EUR/USD has sold off sharply in the past few sessions and has now broken below the 1.0635 reaction low from March 2020. The next support is around 1.0520 but the next support of significant note is at 1.0325, the massive low from 2016. Old support is now new resistance, leaving initial resistance is now 1.0695/1.0738 with the key lows of 1.0757/1.0805 becoming a basis of significant overhead supply. 
• GBP/USD has decisively broken the 1.2675 low from September 2020 and is now looking at initial support around 1.2480/1.2515 but the next low of significance is not until 1.2250. The daily RSI is very oversold at 21 now and the potential for a snap bear rally is growing. The initial resistance is 1.2675/1.2700.

• AUD/USD has picked up from 0.7120, with the Australian inflation data higher than expected. However, this support appears tentative. Momentum has picked up from 30 on the RSI but this is not historically stretched. The 4-hour chart shows resistance at 0.7230 is an initial gauge for a recovery. The next support is 0.7085/0.7095.

Commodities: Precious metals continue to test supports, whilst oil has picked up in the past 24/36 hours.

• Gold has continued the crucial test of the support band around $1890. The concern is that the RSI is below 40 and is leading the market lower in corrective configuration. This suggests that a breakdown is a growing risk. This is a crucial moment as a break below $1877 would be a confirmed corrective move which could drag the market back towards the primary uptrend (dating back to May 2019) which is currently around $1818. Initial resistance is growing around $1910/$1915 a new downtrend forming a further barrier around $1925.
• Silver continues to pressure for a downside move with support around $23.40 threatening to give way. With momentum confirming a corrective configuration, this suggests further retreat. The next support is around $22.80/$23.08. Overhead supply is now a barrier at around $23.83/$24.12.
• Brent Crude oil has managed to engage another rebound and is now testing the top of the old pivot area around $105/$107 which is a basis of resistance. A move above $107 would open $110.70 as an initial test, whilst this move once more plays into the outlook of a market that swings between support at $98/$100 up towards resistance at $116.

Indices: As markets look to rebound this morning, intraday rallies have consistently been seen as a chance to sell in recent sessions.

• S&P 500 futures fall back towards the crucial support at 4101/4138 (initial reaction lows after the Russian invasion). The market has rebounded this morning, but recent Wall Street sessions have shown rallies to be a chance to sell. Resistance at 4303 is the first lower high of note that would need to be overcome to engage a recovery. Until this is seen, we favour selling into strength for a test of 4101.
• DAX decisively brok the support at 13,855/13,885 which opens further weakness towards the 13,575 next support. It also continues the run of lower highs and lower lows, suggesting that near term rallies are a chance to sell still. There is now a resistance band between 13,855/14,030 which is overhead supply. 
• FTSE 100 remains under pressure as recent sessions have shown consistently that intraday rallies are a chance to sell. The early rebound this morning is another test of this strategy. Given recent breaches of support and the lack of catalyst for a meaningful rebound today, we favour further declines for a test of the old pivot at 7264. Resistance is growing between 7475/7530.

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.