What we are looking at today:
- Market sentiment recovers: Indices are climbing again, major forex has a positive risk bias, precious metals are falling and crypto is also higher.
- Further updates on peace talks: Signs are encouraging, but nothing can be taken for granted. Further updates will be crucial.
- The Fed dot plots: The wide consensus is that the Federal Reserve will hike by 25bps, so the focus will be on future hikes. How many in 2022 and how many in 2023?
- Data trading: Canadian inflation (expected to rise, an upside surprise would help support CAD). US Retail Sales (a positive surprise would support the USD).
Overview
Market sentiment has been boosted by encouraging updates from President Zelensky over the peace talks between Russian and Ukrainian delegates. The “more realistic” positions of the sides suggest there is traction in the talks. A risk recovery is coming ahead of a crucial Federal Reserve meeting today. The Fed is overwhelmingly expected to hike by +25 basis points, but the reaction will come in just how hawkish the path of future hikes will be. How many hikes will come this year? Markets are priced for as many as seven hikes, but will the Fed’s dot plots meet this?
Major financial markets are reacting to this improvement in geopolitical tensions with a risk recovery. Indices are trading higher, with European markets looking to break clear to two-week highs. Major forex is also trading with a positive risk bias as the USD is slipping lower, whilst precious metals are also weaker. A technical rally on oil (after a huge correction in recent days) is will be watched.
The main event is undoubtedly the Fed later in the US session. In the meantime, Canadian inflation may help to support CAD on any positive surprise. The impact of US Retail Sales on USD may only be brief, considering the Fed meeting later.
Today's news
Sentiment buoyed: Indices are higher, with major forex trading with a positive risk bias. Precious metals are weaker.
Treasury yields climbing: The US 10 year yield is higher, whilst the 2-year yield is consolidating. This is a bear steepening to the yield curve.
Russia/Ukraine talks “more realistic”: President Zelensky has given his most encouraging update yet on the talks. There is much ground needed to cover and talks may take a while, but the positions that the two sides are taking are supposed “more realistic” now.
US Federal Reserve in focus today: A +25bps rate hike is widely expected (given the geopolitical uncertainty, a hike of 50bps would be a big surprise now). Traders will also be focused on what the Fed’s “dot plots” say about the number of potential hikes this year (maybe increased from 3 to 6) and 2023 (potentially increased from 3 to 4).
Cryptocurrency recovers: Japan announces the relaxing of crypto coin listing rules. Bitcoin is back above $40,000.
Economic Data:
- Canada CPI at 1230GMT – March sentiment is expected to fall sharply to +10.0 (from +54.3 in February)
- US Retail Sales at 1230GMT – Adjusted sales (ex-autos) are expected to see a monthly increase of +0.8% in February (after rising by +3.8% in January)
- Federal Reserve monetary policy at 1800GMT – A +25bps hike to +0.50% is expected.
Major market outlook
Broad outlook: Sentiment has deteriorated and is impacting equity markets especially. Commodities continue to fall, with the USD faltering against major forex.
Forex: USD and JPY are struggling amid a broad risk recovery across major forex. EUR, AUD, and NZD are leading the way in recovery.
- EUR/USD has been looking for traction in recovery from 1.0900 this week and needs to hold above 1.1000 to then test 1.1043. For a serious recovery to take hold a move above 1.1120 is needed. Holding on to support at 1.0900 is increasingly important above the key support at 1.0805.
- GBP/USD has held the psychological 1.3000 support to the pip and is looking to build on this. The reaction to initial resistance at 1.3080/1.3125 will be key to any near to medium-term recovery prospects.
- AUD/USD has started to find support and build higher again, but the reaction to the overhead supply at 0.7245/0.7275 will be an important test for this renewed recovery. A pull above 0.7275 would be a strong signal for potential continued upside. Support is growing between 0.7165/0.7175.
Commodities: Precious metals remain in corrective mode. Reaction to a technical rally on oil could be key.
- Gold has decisively broken a six-week uptrend as the run higher continues to unwind. There is a slight consolidation this morning but the recent correction is still at risk of coming back to test the $1880/$1900 support area. Resistance is now in place $1958/$1974.
- Silver has broken a six-week uptrend and completed a top pattern below $25.30 to imply a retreat towards the support at $23.85/$24.10. There is initial support at $24.52 from yesterday’s low. The neckline is a basis of resistance at $25.30 with old support becoming new resistance.
- Brent Crude oil a sharp correction fell below $100 yesterday but a technical rally from $98.60 has set in this morning. Reaction to this move will be key as we have consistently seen intraday rebounds being sold into in recent days. Resistance lies overhead at $107.30/$109.60.
Indices: Indices have taken positive momentum in the past 24 hours and are breaking higher.
- S&P 500 futures have picked up strongly from 4138 with a “bullish engulfing” yesterday and a strong early move today, which is strengthening momentum. The market needs to get above 4298/4235 to open the upside in the recovery. The 10-week downtrend also needs to be overcome (today at 4390). Initial support is at 4239.
- DAX is leading the recovery performance on major markets. A break above 14,123 has taken the market to two-week highs and if the market can close above here (especially after the Fed tonight) it would be a strong signal for continued recovery. Subsequent resistance is at 15,523/15,675 which is under the key resistance band that starts at 14,800. Support at 13,575 is increasingly important now.
- FTSE 100 has been testing the resistance at 7264 in recent days and has had an initial move above this morning. The move looks tentative for now and is unwinding slightly but a close above the resistance would be a positive signal for the recovery. The initial support band is 7170/7224 but the support at 7051/7074 is increasingly important.
