Espresso Morning Call: Risk appetite tails off once more

What we are looking at

• USD is starting to strengthen again on a safe haven bias: Weak US Consumer Confidence hit risk appetite yesterday and the USD strength is threatening to take hold once more 
• Indices falling over: Wall Street fell sharply into the close and European indices are lower early today. 
• Powell, Lagarde and Bailey all speaking: The ECB central banking forum has three of the big four central bank chiefs speaking today. Powell (the Fed), Lagarde (ECB) and Bailey (Bank of England) are all speaking. Traders of USD, EUR and GBP will be paying close attention.
• Data trading: Eurozone sentiment data (economic, services and industrial) will impact EUR in the European morning. Also, watch out for German inflation which could also impact. USD is unlikely to take too much from the final GDP (expected to be unrevised).

Overview

Risk appetite has faltered once more as Wall Street sold off into the close for a second consecutive session. Weaker than expected US data are perpetuating recessionary concerns after the US Consumer Confidence and Richmond Fed Manufacturing data deteriorated worse than expected. This is leaving sentiment pressured as the USD is starting to strengthen once more and equity markets fall over again. We have continually seen rallies on indices being sold into throughout 2022 and the latest rebound seems to have been just another opportunity. The deterioration in risk appetite is also reflected in the declines in cryptocurrencies with Bitcoin again back to the $20,000 mark.

It is a day for the central bank chiefs at the ECB‘s Forum on Central Banking in Portugal. It is the big guns too, with Fed Chair Powell, the ECB’s Lagarde and the Bank of England’s Bailey. Each has a fine balancing act for fighting inflation without inflicting recession. Comments will be watched by traders today.

There is also a batch of Eurozone and US data on the calendar. Eurozone sentiment data is expected to deteriorate in June for economic, industrial and services. The German inflation data is always worth watching as the continent’s largest economy is seen as a gauge for Friday’s Eurozone inflation. US final GDP for Q1 may be a bit of a non-event as it is almost three months backwards-looking and is also expected to be unrevised.

Today’s news

Market sentiment falters, again: Concerning US data has driven flow back into safe-haven plays. This is seeing US yields ticking lower, USD strengthening, whilst commodities are falling back and indices are under selling pressure. US futures are consolidating, for now. 

Treasury yields fall back: Longer-dated Treasuries continue to be more volatile to market swings, with the US 10-year has dropped back by -6bps, whilst the 2-year yield is -3bps. 

Sweden and Finland set for NATO membership: Turkey has been a stumbling block but has now seemingly dropped its barriers for the two countries to join NATO. 

Cryptocurrencies slip back: With risk appetite faltering, crypto has also suffered. Bitcoin fell by -3% yesterday and is a further -1% lower this morning. The price is back around the next psychological level of $20,000.

Central bank chiefs speak: The big hitters are all speaking at the ECB’s Forum on Central Banking today. At 1300BST Fed Chair Powell, ECB President Lagarde and Bank of England Governor Bailey are all speaking. Currency traders of USD, EUR and GBP will be on alert.

Other Fed speakers: There are also a few other Fed speakers to look out for. Loretta Mester (2022 voter, hawk) is speaking at 1015BST, whilst arch hawk James Bullard (2022 voter, very hawkish) speaks at 1705BST. 

Economic Data:

• Eurozone Economic Sentiment (1000BST) Sentiment is expected to fall slightly to 103 in June (from 105 in May)
• Eurozone Industrial Sentiment (1000BST) June Sentiment is expected to fall to +4.6 (from +6.3)
• Eurozone Services Sentiment (1000BST) Sentiment is forecast to fall to +12.5 (from +14)
• Eurozone Consumer Confidence (1000BST) Final confidence is expected to be unrevised at -23.6
• German inflation (1300BST) Prelim HICP inflation for June is expected to increase slightly to 8.8% (from 8.7% in May)
• US GDP – final (3rd reading) for Q1 (1330BST) Final GDP is expected to be unrevised at -1.5%.

Major markets outlook

Broad outlook: Sentiment has deteriorated once more since yesterday afternoon. However, US futures are consolidating and the USD strengthening is still being held back. So for now the negative sentiment is contained.

Forex: Consolidation with a hint of USD strength, although GBP is positive, AUD is the main underperformer. 

• EUR/USD has fallen back from the test of the resistance around 1.0600/1.0640 which has acted as a pivot within the range. The key 10-week downtrend is also baring down overhead to be a basis of resistance around 1.0645. A move below the 1.0470 higher low support would re-engage the selling pressure, but for now, the market is consolidating. We still prefer to use near-term rallies as a chance to sell for moves back towards the 1.0350 support area.
• GBP/USD has dropped back from the 1.2330 resistance area and is putting pressure on the support at 1.2160. A decisive move below 1.2160 would be another sell signal and continue the negative trend. It would also re-open a test of the 1.1933 low. Resistance at 1.2405 is key.
• AUD/USD posted a bull failure at 0.6965 yesterday and has formed a sharp trend lower over the past four weeks. This is once more putting pressure on the support band 0.6830/0.6870. With a faltering look to the RSI (struggling around 40/45), the rallies continue to look like a chance to sell. 

Commodities: Precious metals and oil have rebounded in the past couple of sessions, but retain near-term negative trends.

• Gold continues with its negative bias with another negative close last night. This is bolstering the 4-month downtrend (c. $1848) and lends a negative bias to the 6-week trading range. Initial support around $1816 is being tested this morning and a breach opens $1805 initially but the market is positioning for a potential move back towards a test of the May low at $1786. Initial resistance is at $1841/$1848 but a move above $1857 would be needed to start an improvement in outlook.
• Silver fell over at $21.53 to continue a run of lower highs which is building a shallow 3-week downtrend within a 6-week trading range ($20.45/$22.50). With the RSI in a negative configuration, this forms our preference to sell into strength for moves to retest the $20.45/$20.60 range lows. Resistance at $21.95 is growing in importance.
• Brent Crude oil outlook has improved on a break back above the mid-range pivot area of $112/$116. Although the move has stalled early this morning (after three strong bull candles), this is edging a more positive bias to the outlook within the range again. A move below $114.00 would neutralise once more. Support at $107.65 prevents a move towards $98/$102.

Indices: Indices fell over yesterday. Although US futures are reasonably settled this morning, European corrective pressure is growing again. 

• S&P 500 futures posted a big “bearish engulfing” candlestick reversal (bear key one-day reversal) from 3950 yesterday. The market has also broken back under the old gap which had been supportive at 3876/3895. This also comes as the RSI has fallen over again around 50/55 in line with our continued strategy of using rallies as a chance to sell. An early consolidation is holding to an 8-day uptrend but a move below 3800 would turn the market decisively corrective again.

• German DAX has faltered around the resistance between 123,210/13,430. With two consecutive bull failure candles, the outlook is deteriorating this morning. A decisive close tonight under 13,100 would increase the selling pressure back on for what would likely be a retest of the 12,822 low of last week. 
• FTSE 100 has dropped back (from 7369) along with other major indices, but it has not yet posted any explicit corrective signals. This would come on a move below 7215 support. We are cautious though as other indices are looking vulnerable. Support at 7132 is growing with importance.

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.