There has been a broadly positive sentiment that has taken hold at the beginning of another trading week. There has been nothing outright to drive this bias, but it comes as countries in Europe that have been the most significantly hit by COVID-19 have begun to ease their lockdown restrictions. Spain and Italy have always been at the top of many of the graphs but with daily death tolls falling consistently now, lockdowns are being phase lifted. There are also reports in the press that the lockdown could also be lifted in the UK before 7th May, with UK Prime Minister Johnson returning to full time duties after his own bout of COVID-19 illness. So, in financial markets we see the traditional positive risk bias moves taking hold. US Treasury yields are ticking higher, whilst the US dollar (which has become a key safe haven) is underperforming. The Aussie and Kiwi are key outperformers, whilst equities are looking solidly higher and gold is struggling. The only real blot on the copybook today is that oil has once more lurched lower. There is not much on the economic calendar today, so it would be down to newsflow and momentum as to whether this early positivity can be sustained.
Wall Street closed solidly higher on Friday with the S&P 500 +1.4% at 2836. US futures are also looking in decent shape early today, with the E-mini S&Ps up +0.5%. This has set the stage for a good session in Asia, with the Nikkei +2.7% and Shanghai Composite +0.3%. European markets look well set too, with FTSE futures +1.2% and DAX futures +2.0%. In forex, the underperformance of USD stretched across the major forex spectrum, with even JPY doing well. Whilst the commodity currencies as performing well, there is a slight sag on CAD amid renewed downside on oil. In commodities, we see weakness, with gold -0.8% (down -$14) whilst silver is similarly lower. The key move lower is with yet more volatility and renewed selling on oil, with Brent Crude -5% and WTI -14%.
There is little of note on the economic calendar for today.
Chart of the Day – GBP/AUD
The outlook for risk has been wavering of late, but it is interesting to see the Aussie is performing well. The sterling cross has seen the Aussie strengthening in the past few weeks and is now pulling GBP/AUD decisively lower to test some key technical levels. The market has already broken the support of the first key higher low at 1.9515 which effectively completes a small top pattern. This top pattern below 1.9515 projects over -1000 of downside implied target towards 1.8500. Breaking the support of a very well-defined uptrend (which dates back to July) is another key technical breach. We also now see the MACD lines and RSI both accelerating decisively lower to their most corrective since July. The RSI breaking below 40 was a key negative development. It certainly looks as though the performance of sterling is struggling. With a new (sharp) downtrend forming on GBP/SUD, support at 1.9290 is being tested and a breach of 1.9160 would be the next key technical breakdown. It would then suggest that a retreat to the November/December lows 1.8545/1.8645 is forming. Near term rallies look to be a chance to sell, with a three week downtrend at 1.9460 today and resistance around the 1.1915 neckline. Above 1.9730 would be needed to really change the narrative now.
Just when it looked as though a weakening euro was breaking EUR/USD lower, a shift in the sands once more, through a downturn for the dollar and the outlook has turned again. Thursday and Friday were consistently trading below the $1.0770 support but never closed below and a positive candlestick on Friday has been followed up by gains early today. It is interesting to see that not only did the market never close under the $1.0770 support, but also the RSI never closed below 40 (which would have confirmed). Coming into Monday morning, the bulls are in recovery mode. The hourly chart shows this well. A resistance band $1.0810/$1.0840 is being breached and where it had once been resistance is now becoming supportive. Hourly momentum is also improving with hourly MACD at eight day highs and hourly RSI at two week highs pushing into the high 60s. Pulling clear of $1.0840 would mean a test of the key old pivot at $1.0890. This would be the next big test for a recovery. Holding on to $1.0810 (which was an old near term floor) would suggest the bulls laying decent foundations for a swing higher, at least in the near term.
The consolidation on Cable continues and an early tick higher on Monday is helping to bolster recent support at $1.2245. A near term (8 session) downtrend has been broken, and now the bulls are beginning to shift into the driving seat. Between the April low of $1.2160 and the reaction high at $1.2645, there is effectively a mid-range pivot which has formed around $1.2400 area (a couple of lows at $1.2405 and a reaction high here last week). However, this morning, the bulls have pulled clear of this pivot with positive momentum on the hourly chart. This suggests that near term weakness is now seen as a chance to buy. The pivot is a basis of support, with 40/50 on the hourly RSI now a buying opportunity. The next resistance is $1.2485/$1.2520 which is now protecting the $1.2645 April high. There is a good support band that has developed between $1.2245/$1.2300, the latter of which is also the 50% Fibonacci retracement of the big $1.3200/$1.1405 sell off.