Espresso Morning Call: USD supported, Nonfarm Payrolls eyed

What are we looking at today:

• USD regaining lost ground: USD has started to recover, completing a “bearish engulfing” candlestick on EUR/USD and seeing a rally on USD/JPY. This comes ahead of Nonfarm Payrolls later today.
• Oil continues to fall: This comes after the US announced yesterday it will release 1m barrels of oil per day from its Strategic Petroleum Reserve (SPR) for the next six months.  
• Ukraine fighting back: Ukraine is re-taking villages and towns in the North. However, reports suggest Russia redeploying forces from Georgia for reinforcements in Ukraine.
• Data trading: Eurozone inflation and the US Nonfarm Payrolls report. With forecasts expecting significant increases in both, any upside surprises beyond expectations would be EUR and USD supportive respectively.

Overview

Market sentiment has turned cautious again. Wall Street sold off into the close last night as US Treasury yields have started to rise again. This comes despite renewed corrective pressure on the oil price after the announcement from President Biden that the US would release 1 million barrels per day from its oil reserves. Despite the reduced inflationary pressure that would come with lower energy prices, bond yields are higher again as the focus is turning back to the Federal Reserve tightening monetary policy. With that, traders will be eyeing today’s Nonfarm Payrolls. Another strong report today would further cement calls for more aggressive tightening.

Approaching the US jobs report, markets tend to be cautious, and today seems to be going that way. Indices are mixed and there is a hint of USD strength through major forex, whilst commodities are slipping back again.

There are two key data points on the calendar today, with flash Eurozone inflation and the Nonfarm Payrolls report. Eurozone inflation is expected to increase significantly in March, with the headline rate up to 6.6% and core inflation increasing to 3.1%. Any upside surprises would ramp up EUR volatility. The payrolls report is expected to show another 490,000 jobs growth in March, after a strong February too. Upside surprises well above 500,000 would drive USD gains but also watch for wage growth to rise to 5.5%.

Today's news

Sentiment looking mixed/cautious: Indices are looking tentative in early moves. A USD positive bias that re-emerged yesterday is again present. This is also weighing on commodities with precious metals slightly lower.   

The Treasury yield curve continues to flatten: The 2s/10s spread has hit zero this morning (although is slightly positive now). Shorter-dated yields continue to rise faster than longer-dated yields, and the curve is inverted between 3 years to 10 years in the “belly” of the curve.  

Russia/Ukraine headlines: Ukraine is apparently retaking ground in the north, whilst Russia is reportedly looking to redeploy forces into the Donbas region in the southeast. There are no new updates on the peace talks.

The US to release oil reserves: It has been announced that the US will release 1 million barrels of oil per day from its oil reserves. The release from its Strategic Petroleum Reserves (SPR) will last for six months. This will go towards making up for the shortfall of around 3 million barrels per day (according to the IEA) from Russia due to sanctions. 

Eurozone final manufacturing PMI revised lower: The final reading has been revised lower to 56.5 from the 57.0 flash PMI reading last week. 

Cryptocurrency falling again: Bitcoin has slid backward in recent days and is c. -2% lower again this morning. The price is now back into the breakout support band of $44,500/$45,800. 

Economic Data:

• UK final Manufacturing PMI (at 0930GMT) – No revision is expected from the flash reading at 55.5 in March (58.0 final February)
• Eurozone inflation (at 1000GMT) – Consensus is looking for headline inflation to increase to 6.6% in March (up from 5.9% in February) with core inflation increasing to 3.1% (up from 2.7%) 
• US Employment Situation Report (at 1330GMT) – Headline Nonfarm Payrolls are expected to show 490,000 jobs growth in March (after 678,000 in February). Unemployment is expected to fall to 3.7% (from 3.8%) with wage growth increasing to 5.5% (from 5.1% in February).

Major market outlook

Broad outlook: is looking slightly cautious ahead of Nonfarm Payrolls.

Forex: USD is regaining lost ground, especially against JPY (as US Treasury yields pull higher again). AUD is holding up well.

• EUR/USD has turned decisively lower and formed a “bearish engulfing” one-day candlestick reversal. This is a corrective signal. The move has also now broken the support between 1.1070/1.1120 which opens support between 1.0940/1.1000 ahead of Nonfarm Payrolls. The old resistance at 1.1120/1.1185 is once more a barrier for the bulls. 

• GBP/USD has been far more subdued than EUR/USD but resistance is building between 1.3155/1.3185. With daily and 4-hour RSI indicators struggling under 50 there is still a mild corrective bias. Below 1.3105 opens 1.3050 and maybe 1.3000 again. 
• AUD/USD has held up despite the renewed USD strengthening. The pair remains in a range between 0.7455/0.7540. However, faltering momentum remains a warning signal for potential correction. Key resistance remains at 0.7555 and a pullback into 0.7360/0.7425 could be seen.

Commodities: Precious metals are ranging with a slight near term corrective bias, as oil remains under near term selling pressure.

• Gold has continued to swing lower and higher this week, but essentially the market is still in a near term range between $1890/$1966. Moves this week underscore the importance of support in the band between $1878/$1895 as a close below would complete a big top pattern. Momentum is neutral for now and Nonfarm Payrolls may generate the next signal. Initial resistance is at $1950.
• Silver continues to have slightly more of a negative bias than gold, but essentially it is also still ranging. If the market starts to close in the $24.45/$24.67 band or below, then it would suggest a growing downside pressure. For now, though, this area is attracting buyers. Initial resistance is at $25.08. 
• Brent Crude oil is looking increasingly corrective for a test of the three-month uptrend (comes in around $103 today) and potentially back towards $100 again. There is a continuous run of lower highs to point towards selling into strength, with the 4-hour chart suggesting recoveries towards 45/50 on the RSI are a chance to sell. There is resistance between $107.40/$112.00.

Indices: Indices are consolidating yesterday’s declines.

• S&P 500 futures have pulled back from 4630 and are back below the previous breakout of 4585. For now, this is an unwind into support around 4495/4515 support area, however, if this area is breached it could open a deeper unwind into the 4420 area. Furthermore, 4585/4630 now becomes a basis of resistance.
• DAX is threatening to turn corrective again having broken back below the support of the previous breakout support band 14,400/14,585. Reaction around 14,532/14,585 which is now resistance will be key. A bull failure here would open the prospect of a pullback towards 14,100/14,200. 
• FTSE 100 has posted a “bearish engulfing” one-day candlestick reversal pattern. This now threatens a phase of near term correction. How the bulls react today could be key. For now, the move is to rebound, but there is resistance now between 7550/7595 and a failure would put pressure back on 7484 initial support.

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.