What are we looking at today:
- USD correction has resumed: After a few days of choppy consolidation, a more positive risk bias across major markets has put the USD correction back on track.
- Indices trading with a positive bias: Strong Wall Street gains helped markets higher yesterday and European indices continue to trade with a risk positive bias today. However, this may be less decisive today as US futures are on pause early today.
- Cryptocurrencies are breaking down: Crypto has tended to be positively correlated with risk (especially the NASDAQ) but this relationship is breaking down as coins fall again.
- Data trading: US data is limited to the Core PCE and final Michigan Sentiment. However, traders are already pricing for peak US inflation, whilst a deterioration of sentiment is also being factored in.
Overview
There has been an increased risk positive bias that has taken hold on Wall Street in recent sessions and this has driven the appetite for a near-term recovery. The key tests still lie ahead (resistance around 4100 on S&P 500 futures is pivotal) but indices are starting to look more towards a glass half full again.
With the volatility on US bonds continuing to reduce and yields in a settled marginal downside drift, this has also helped to put the USD correction back on track. This is reflected on major forex as pairs such as EUR/USD and GBP/USD test key resistance. Risk positive sentiment and a USD correction are also helping to fuel higher oil prices once more. Traders will be watching whether the breakout on Brent Crude can be sustained.
For data traders watching the economic calendar, the Fed’s preferred inflation gauge, the Core Personal Consumption Expenditure is the focus. Coming more than two weeks after the April CPI, the Core PCE tends to have too much of an impact on markets. However, any sizeable surprise would see traders sit up and take notice. A slight decline in US inflation is expected. The consensus is not forecasting any revision to the final Michigan Sentiment, so once more, there may be limited impact unless there is a significant surprise.
Today's news
Market sentiment continues to look more positive: Positive sentiment on Wall Street is helping indices higher and a USD correction is back on track.
Treasury yields drift: Yields are a little mixed this morning (2s are down slightly, whilst 10s are up) but the general downside drift of recent weeks remains on track.
Japan inflation slightly softer: Core CPI remained at +1.9% broadly in line with expectation, but there was a slight drop in headline inflation to 2.4% whilst other adjusted measures also fell back slightly.
Cryptocurrencies falling away: The last two days have seen a deterioration across major cryptocurrencies. Bitcoin has pulled decisively below $30,000 and is down -1.5% again today.
Economic Data:
- US core PCE (at 1330BST) Core PCE is expected to have fallen to 4.9% in April (from 5.2% in March)
- Michigan Sentiment - final (at 1330BST) Final sentiment for May is expected to be unrevised at 59.1 (down from 65.2 final April)
Major markets outlook
Broad outlook: Sentiment retains a positive bias, helping to support indices and ushering in renewed USD corrective moves on major forex.
Forex: USD is underperforming across major forex, with NZD and AUD key outperformers.
- EUR/USD picked up from the breakout support at 1.0640 yesterday and with additional early gains, today is putting pressure on 1.0750/1.0800 resistance. Momentum continues to improve and an unwind back towards a near four-month downtrend (at 1.0860) is a growing possibility.
- GBP/USD has recovered well from a decline earlier in the week and is increasing the pressure on the 1.2640 resistance. An intraday breach this morning has unwound, but if there is a closing breakout, then a rally to test the three-month downtrend (currently around 1.2750) will be seen. There is little real resistance until 1.3000 too. Initial support is at 1.2550 but 1.2470 is a key higher low in the recovery.
- AUD/USD continues to recover with the two-week uptrend as a basis of support. There is also a recovery in the RSI above 50 which is a one-month high and encourages further gains. If a move above 0.7125 can hold today, then the next resistance is 0.7165 however, the key lower high at 0.7265 is also back in play. The importance of support at 0.7030 is growing to a higher low.
Commodities: Precious metals have seen their recoveries questioned in the past few sessions, but they seem ready to resume now. Oil has finally broken out of the eight-week range.
- Gold has seen the recovery struggle for traction in recent days but the support in the band between $1830/$1850 has held. Buying into the close yesterday and early gains today suggest that positive pressure is building again. The resistance at $1870 needs to be overcome now and confirmed with the RSI moving above 50 but there will be growing confidence in the recovery now. Initial support is at $1841.
- Silver has consolidated in the past couple of days but buying into the close yesterday and a positive start to today’s session is helping improve the outlook. Momentum is pulling more positively too and a decisive close above resistance at $22.20 would be a strong signal for additional gains. The next key resistance is the lower high at $23.27.
- Brent Crude oil has finally broken out of the eight-week trading range between $99/$116 with yesterday’s close of $117.25. There is a confirmation of this move on the RSI, but the bulls will be looking at a response to weakness now. There is a support band around $114/$116 that will need to be used as a buy zone to maintain a more positive outlook. If this can hold, the bulls will be looking at upside targets towards the March high of $124.40.
Indices: Wall Street is consolidating after a strong session yesterday. A positive bias has taken over European markets.
- S&P 500 futures have posted a strong session to break a one-month downtrend. The key is to now hold this move and test the important overhead resistance around 4100. This would be an outlook changer if it can be overcome. The RSI is unwinding towards 50, around where previous rallies have faltered, so this is a key moment for Wall Street. Initial support is around 3960/4000.
- German DAX was helped by gains on Wall Street yesterday and further upside this morning is eyeing a test of the key resistance at 14,320. Rallies in recent weeks have all faltered between 14,220/14,320 but if this can be overcome on a closing basis it would signal a key shift in sentiment. Next resistances would be 14,600 and then the long-term resistance of 14,800/15,000. Support around 13,850 is increasingly important now.
- FTSE 100 has recovered to test a shallow downtrend from a series of lower highs in the past six weeks. There is still a slight positive bias to momentum with the RSI edging to a 5 week high. This points towards a drift higher to test the early May high of 7624. A breakout would be a positive signal for further gains. Initial support is at 7493 but a breach of 7427 would see the market swinging lower again.
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.
