After the incredible sell-off has come the recovery. Although by any stretch of the imagination, it is difficult to feel all that positive at the moment, technical, Wall Street is back into a bull market. Rallying over 20% off its lows, the volatility on equities continues huge but for now, the momentum is with a recovery. What was encouraging yesterday was that in the shock of the weekly jobless claims coming in with an eye-watering 3.3m claims, traders did not seem to be overly phased by this. When bad news is taken well, this suggests that there could be some sustainability to a recovery. Treasury yields continue to consolidate and this is also helping to reduce the propensity for panic selling. With swaps rates on major forex falling back, the dollar has turned corrective and this is also playing into the sense of risk recovery. Today is likely to see the House of Representatives pass the huge $2 trillion fiscal support package and although there is a sense of moderation to the recovery on markets this morning, major forex and commodities appear to be relatively stable. This should be seen as a positive for the prospect of steady recovery as markets settle down.
Wall Street closed another huge session of gains with the biggest three day winning streak since the 1930s. The S&P 500 closed 6.2% higher at 2630. However, US futures are giving back some of these gains this morning, down by -1.3% (although US futures were also lower yesterday morning). Asian markets were strong overnight , with the Nikkei +3.9% and the Shanghai Composite +0.3%. In Europe the markets are following US futures right now, with FTSE futures -1.7% and DAX futures -1.6%. Forex majors show mixed moves this morning, with only really JPY which is performing well. Other markets are very much mixed, even quiet. In commodities, gold is slipping back by -$10 after yesterday’s gains, whilst silver is flat and oil is also mixed.
There are a couple of US data points to be aware of on the economic calendar today. The Fed’s preferred inflation measure, the Core Personal Consumption Expenditure (Core PCE) is at 1230GMT and is expected to show +0.2% in the month of February which would pull the year on year reading up to +1.7% (from +1.6% in January). Then the final University of Michigan Sentiment for March is expected to show a significant downward revision to down to 90.0 from the prelim of 95.9. This would therefore be a sizeable decline from February’s 101.0 and also be around the August 2019 multi-year low (which was 89.8).
Chart of the Day – AUD/USD
With risk appetite on the rebound, the US dollar has turned corrective. At the forefront of the recovery amongst the forex is the Aussie. This is driving a considerable rebound on AUD/USD. The move has formed positive closes in each of the past five sessions and an array of positive candlesticks. Momentum indicators are now in recovery mode, with the Stochastics rising strongly, RSI posting a buy signal (above 30) from its deepest ever oversold position (of 10) and MACD lines are on the brink of a bull cross. The Fibonacci retracements of the big January to March sell-off (from $0.7031/$0.5506) are interesting gauges. Support formed at yesterday’s low almost to the pip of the 23.6% Fib at $0.5866. Furthermore, the 38.2% Fib around $0.6090 was a basis of resistance. This level is being tested again today, but given the momentum of the rally, a confirmed closing breakout would open the 50% Fib as the next target (around $0.6270). Seeing as there is little real resistance of note, the prospect of continued recovery is strong. We look to use weakness as a chance to buy. The hourly chart shows strong progression in the recovery with a run of higher lows and higher highs. Initial support is between $0.6035/$0.6075, whilst holding above $0.5985 maintains momentum of the rally. The first key higher low is at $0.5870. The next real resistance not until $0.6300.
The progress of the euro rally has been remarkable in recent sessions. We have previously discussed the acceleration of the positive candles, and these continue to build. Yesterday’s huge bull candle added around +150 pips and the move has now retraced around 50% Fibonacci of the massive $1.1492/$1.0635 sell-off. Momentum indicators are obviously turning positive with this move and continue to recovery, with upside potential. We note that since February, EUR/USD has seen huge trending moves over two to three week periods, moving between oversold, overbought and back again. Given we are only a handful of sessions into this move, the upside bias remains strong. The hourly chart shows an acceleration away from the uptrend of the recovery and this may slightly weigh on the move today. There is also a mild negative divergence on hourly RSI (and MACD/Stochastics lines crossing lower). This could induce an intraday slip back at least. However, we would see this as a chance to buy. Initial support at $1.1020 this morning, before a good support band $1.0950/$1.0980. Today’s high at $1.1085 is initial resistance but closing well clear of the 50% Fib at $1.1065 is the next bullish step forward.
The acceleration and dramatic nature of the previous sell-off left little real resistance for the recovery. Subsequently, with the bulls running hard, there is little to stand in their way for the recovery. The move has now added as much as +900 pips since the low of $1.1405 last week. Momentum is clearly strongly improving with this move and the bulls remain strong this morning. In fact having made the way quickly through the resistance at $1.2195 (the old October low), there is actually little real resistance until $1.2765 now. We look to buy into intraday weakness on Cable and given that volatility remains huge, there is still likely to be opportunities to play the move. The hourly chart shows initial support in the $1.2130/$1.2230 band above the breakout support area $1.1930/$1.2000. Hourly indicators show minor negative divergences this morning which could mean a near term pullback is threatening to temper the exuberance of this recovery, but we would look to buy into the weakness. Initial resistance at today’s high of $1.2305, with $1.2430/$1.2500 the next realistic resistance.