What we are looking at

  • After three days of strong gains, the USD looks to be more in consolidation mode this morning. The Dollar Index is down from yesterday’s high of 101.85 which was the highest since March 2020. However, there is little suggestion that the USD rally is over.
  • Indices finding support: With a Wall Street rally into the close holding overnight, European markets are looking more encouraging with a rebound this morning. However, rallies have struggled to hold in recent weeks and there is a slightly tentative feel with US futures ticking lower again.  
  • Data trading: The calendar is packed in the US session, which could make for some choppy moves. Consumer Confidence will be the highlight with Durable Goods often rather erratic.


Overview

Market sentiment has picked up following a late rebound on Wall Street last night, helped by Elon Musk’s accepted takeover approach of Twitter. Initial selling pressure had taken hold amid fear of mass COVID testing in China with expanding virus cases. Although European equity markets are playing catch up this morning, there is more of a steady feel to markets. Although there are hints of more positive sentiment, with mild strength in the Aussie and Kiwi, the USD is beginning to look stronger again and JPY is outperforming. Trading over recent weeks has suggested that stability tends to be short-lived, with the USD strengthening and renewing negative pressure on indices being a consistent theme.

There is a stash of US data on the economic calendar later today. Core Durable Goods (ex-transport) are expected to post a mild decline, but the main focus will be Consumer Confidence which is forecast to improve slightly. There is also housing data to keep an eye on, with an increase expected in house prices, whilst New Home Sales are expected to fall by around -0.5%.


Today's News

Market sentiment has recovered, for now: Risk appetite recovered into the close on Wall Street and this has carried over into the European session today. However, with US futures falling over again, this recovery in sentiment may be short-lived.  

Treasury yields consolidate: Yields are off yesterday’s lows suggesting the broad flight to safety (which included market participants buying US Treasuries) has at least eased. There is little move this morning.  

Fears over China lockdowns: The selling pressure in Asian and European sessions yesterday was driven by renewed fears over lockdowns in China. With infection levels rising, fears are growing of restrictions in Beijing and further lockdown measures. This could significantly impact demand for raw materials and affect supply lines again.   

Japan denies fx intervention: The Japanese finance minister has denied that the US and Japan are looking into joint fx intervention. However, alluded to potential future interventions being on the table.  

BoC could hike by more than 50bps: According to reports in Reuters, BoC Governor Macklem has not ruled out hiking rates by more than 50 basis points (+0.50%)   

Cryptocurrency rebounds with risk: Call risk appetite correctly and crypto will follow. Bitcoin has rallied with risk appetite. A “bullish engulfing” one-day candlestick (or a bullish key one-day reversal) was formed yesterday and is a strong reversal signal. Bitcoin is back above $40,000 again.

Economic Data:

  • Durable Goods Orders (at 1330BST). Consensus is looking for core durables (ex-transport) to fall by -0.6% in March (after +0.6% in February).
  • S&P Case Shiller Home Price Index (at 1400BST). Analysts are looking for prices to increase slightly to 19.3% in February (from 19.1% in January)
  • New Home Sales (at 1500BST). The consensus is expecting a -0.5% decline to 765,000 in March (down from 772,000 in February)
  • US Consumer Confidence (at 1500BST). Confidence is expected to improve slightly to 108.0 in April (up from 107.2 in March).


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 had initially picked up in the Asian session, but selling pressure has renewed as the European session has taken hold. This now sees the market at two-year lows and the pandemic reaction low of 1.0635 is the next crucial support. Initial resistance is now 1.0738 with the Old support of 1.0757/1.0805 becoming a basis of key overhead supply. 
  • GBP/USD initially picked up from 1.2697 but as the European traders have taken over this seems to be a chance to sell again. The lows are back in sight and the next key support is around 1.2675 from September 2020. The daily RSI is around 26 and at the moment is failing to attract buyers, now being at the lowest since March 2020 (when the RSI bottomed at 16). The initial resistance is 1.2770.
  • AUD/USD has threatened a recovery but an overnight rebound from 0.7135 has fallen over around 0.7230. The failure to hold the rally suggests that selling into near term and intraday rallies is now a viable strategy. Momentum is not historically stretched to the downside and a retest of yesterday’s low at 0.7135 is preferred.

Commodities: Overnight rebounds are being sold into this morning on precious metals and oil.

  • Gold has close below $1915 for the first time since 25th February. This is now a crucial test of the support band around $1890. The RSI is leading the market lower and in corrective configuration 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 at $1907 with the resistance of the old support between $1926/$1939 barrier to recovery.

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  • Silver has decisively broken the support at $23.83/$24.12 and with momentum confirming a corrective configuration, this has opened 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 turned corrective once more for a test of the March/April lows of $98.00/$99.35. Selling into near term rallies is the strategy with the old pivot area around $105/$107 now the basis of resistance. 

Indices: an attempted rebound into the close yesterday on Wall Street is leaking away again today.

  • S&P 500 futures have a crucial session or two ahead. Yesterday’s positive reaction higher into the close formed a strong bull candle, but this needs to be followed by strength today. The early slip back needs a reaction. If this is used as a chance to buy again and another positive candle forms, then the near term improvement could be sustainable. Initial support is 4245/4255. The first real resistance is at 4355/4385.
  • DAX has just held on to the support around 13,885 (reaction low at 13,855), but the rally needs to continue to build back higher. There is a threat that already this move may be rolling over as rallies in recent weeks have struggled to sustain positive traction. A close below 13,855 would be a downside break and open further weakness towards 13,575 next support. Initial resistance is 14,140/14,240.
  • FTSE 100 rebounded off 7340 yesterday but this rebound is showing signs of falling over again this morning. The rally has failed at 7476 which will strengthen the overhead supply between 7422/7485. Initial support is 7365.  

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