What are we looking at today
- US dollar continues to weaken: However, Treasury yields are rebounding and broader markets seem more cautious today. USD weakness may not last.
- Oil fluctuating again, but higher today: Oil was sharply lower on news of progress in the peace talks. However, with more cautious comments from officials, oil has rebounded this morning. Oil is seen as a gauge of risk appetite.
- Russia/Ukraine peace talks supposedly progressed yesterday: However, this comes with a massive caveat. Russia and Putin are the masters of subterfuge and misdirection.
- Data trading: On the jobs front, the ADP and Nonfarm Payrolls consensus estimates are fairly similar this month, so any surprises to today’s ADP data may cause a stir.
Overview
Markets continue to react to more constructive rhetoric over the peace negotiations. Russia has pledged to de-escalate in certain parts of Ukraine and markets have taken this as a decisive step in the right direction. It is now a case of how you view the glass, half full or half empty. Nothing has been signed yet by Russia and Ukraine, whilst the more cautious observers would add that Russia may just be tactically withdrawing to allow redeployment as the military advances have stalled. Taking Russia and Putin at their word has tended to be a mistake in the past, so it remains to be seen.
There is a sense of caution today. Equity markets seemed initially exuberant yesterday, but have retreated slightly. The oil price has been a key gauge of risk appetite recently, falling sharply yesterday, only to rebound once more. The loser from all this seems to be the USD so far, weaker yesterday and again today. However, with increasingly hawkish FOMC rhetoric with talk of +50 basis points Fed rate hikes, yields are recovering. Also with Nonfarm Payrolls at the end of the week, USD weakness may only be short-lived.
The economic calendar is again focused on the US today. The ADP Employment change has been fairly poor at predicting the official Nonfarm Payrolls data in recent months. However, with the two consensus estimates fairly similar for March, any surprises may move USD. The final reading of Q4 US GDP is not expected to pull any great surprises, so may go largely unnoticed.
Today's news
Sentiment is looking more cautious today: European indices are risk negative (DAX underperforming), whilst oil and precious metals are trading higher. The USD weakness is bucking this trend, for now.
Treasury yields have rebounded: A move lower yesterday on the decline in the oil price has reversed again today as oil has rebounded slightly. Despite this yields are still marginally lower on the day.
Russia/Ukraine peace talks: Questions surround how serious Russia is in the peace negotiations. US President Biden has said “we’ll see” about whether Russia is genuine, whilst Ukraine President Zelensky sees no reason to trust their words.
Hawkish Fed rhetoric: There is growing talk of 50 basis points hikes from Fed speakers. Bullard (2022 voter, most hawkish on the FOMC) is looking for rates at 3% by the year-end, meaning 50 basis points hikes will be needed at several meetings. Harker (also a voter) is unsure of +50bps at the next meeting. Bostic (non-voter in 2022) wants six hikes for this year, so is less hawkish.
Oil price fluctuations continue: Oil fell around -6% at one stage yesterday, but has since rebounded. It is trading over +2% higher this morning.
Cryptocurrency has fluctuated but is consolidating today: Bitcoin continues to trade above the $45,800 breakout support. An intraday rebound from earlier weakness means it is broadly flat this morning.
More Fed speakers today: Three Fed members are speaking today. Barkin (non-voter in 2022, mild hawk), Bostic (non-voter in 2022, mild hawk), George (2022 voter, mild hawk)
Economic Data:
- ADP Employment change (at 1315GMT) – Analysts are looking for a consensus of 455,000 jobs in March (slightly down from 475,000 in February)
- US GDP – Q4 final (at 1330GMT) – Consensus is expecting no revision to the +7.0% Prelim GDP (second reading)
Major market outlook
Broad outlook: more cautious sentiment has taken hold after yesterday’s positivity.
Forex: USD is corrective again this morning. JPY is outperforming, with AUD slightly lagging other gainers.
- EUR/USD has seen a massive turnaround in the past 24 hours. A huge rally yesterday has driven the market to break the seven-week downtrend and test key resistance at 1.1120. Yesterday’s initial test faltered but the market is having another go today. A closing breakout would be bullish for 1.1185/1.1230. However, Nonfarm Payrolls is a big caveat for continued gains.
- GBP/USD has been choppy but has again rallied into the 1.3120/1.3160 resistance band this morning. The market is also testing a mini six-day downtrend. Momentum indicators suggest that if the move begins to stall it could be another chance to sell for 1.3050 and maybe 1.3000 again.
- AUD/USD has been more choppy in recent sessions, with the rally faltering just under the 0.7555 key resistance having topped out at a high of 0.7540 this week. The potential for near-term profit-taking for a pullback into 0.7360/0.7425 is still there, but for now, reaction to the key resistance overhead will be an important gauge. Above 0.7555 opens 0.7615/0.7675.
Commodities: Precious metals are fluctuating with a slight near-term corrective bias, with oil also forming lower highs this week.
- Gold has rebounded following a sharp intraday move lower yesterday. The move underscores the importance of support now in the band between $1878/$1895. A close below would complete a big top pattern. The mild tick higher today is more of a consolidation move now. Initial resistance at $1929/$1945.
- Silver has recovered from a sharp intraday decline yesterday, but given the consolidation this morning, there is still a downside risk to the outlook. A close under $24.45 would be a negative signal now. Initial resistance lies at $25.00/$25.18 today.
- Brent Crude oil remains highly volatile on intraday swings but there is a rend of lower highs forming now. The resistance band of overhead supply between $113.40/$115.75 seems to be catching recent highs and RSI momentum on the 4-hour chart shows a negative configuration and a near-term outlook for selling into strength. Another bull failure in this band would confirm the new corrective outlook.
Indices: Indices retracing some of yesterday’s gains.
- S&P 500 futures have broken above 4585 resistance which is a key positive development that opens 4671 and 4739 next resistance levels. The move is confirmed on momentum with the daily RSI in the mid-60s and at levels not seen since November. Reaction to a pullback will now be key. There is support between 4550/4585.
- DAX rallied into the key band of overhead supply between 14,800/15,000 yesterday but has pulled back this morning. The bulls will now be looking to form support ideally above the support band 14,400/14,585 to sustain the recovery momentum. Resistance of yesterday’s high at 14,932.
- FTSE 100 was solid in a move higher yesterday but has just pulled back below the key resistance of the late February high at 7559. The outlook and momentum remain positive and today is a consolidation move. Holding above 7515 would help the improving outlook. Below 7457 would be a negative development.
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