A swing to a marginally more positive outlook for major markets has taken hold as the European session kicks in today. There has been a nod of encouragement towards the US Congress passing a $480bn relief bill for small businesses. How long this move lasts though will be interesting. A continued rout in the price of oil may be bearing little significance this morning, but it smacks of bigger macro fears. Reduced economic activity and deflation concerns remain. The “bull flattening” of the US yield curve once more, where longer dated yields fall faster than shorter dated yields, reflects this too. Recent sessions have taken a more risk negative bias and this trend could well come back to bite again on a morning with little real newsflow to hold a sustainable rally. A slight US dollar slip is in line with the marginal risk positive outlook this morning. Equity markets are bouncing initially with US futures around +1% higher. The Aussie and Kiwi are performing well too. With several major markets eyeing technical support levels yesterday, the response needs to be decisive to prevent momentum gathering in a renewed correction. UK inflation was in line with expectations this morning as both core and headline CPI slipped slightly. UK headline CPI dropped to +1.5% (+1.5% exp, down from +1.7% in February) whilst UK Core CPI was a shad down to +1.6% (+1.6% exp, down from 1.7% in February).
Wall Street closed sharply lower for the second session in a row, with S&P 500 -3.0% at 2758. However, with the E-mini S&P futures +1.0% higher this morning, this is helping to stabilise sentiment. Asian markets were mixed overnight, with the Nikkei -0.7% and Shanghai Composite +0.3%. European markets are also looking more positive today, with FTSE futures +0.9% and DAX futures +1.1%. In forex, we see a marginal USD negative and risk positive session. AUD and NZD are outperforming, whilst CAD has also found a degree of respite. In commodities, the slide in precious metals continues, with gold falling marginally again, and silver -1.5% lower. Another day, another sell-off on oil, with WTI (now the June contract) down -7% and Brent Crude down -13%.
There is little of note on the economic calendar until the US session later today. Eurozone Consumer Confidence is at 1500BST and is expected to at 1330BST is expected to decline to -19.6 in April (from -11.6 in March) which would be the lowest since May 2013. With all the headlines the glut of oil supply and lack of storage, the EIA Crude Oil Inventories will be key to watch at 1530BST. Another huge inventory build of 16.1m barrels is expected, after last week’s massive +19.2m barrels of build.
Chart of the Day – AUD/JPY
We often see Aussie/Yen as a good gauge for broader market risk appetite. Given that sentiment seems to be gradually turning more negative in recent sessions, is this reflected on the cross of AUD/JPY? With a broken recovery uptrend having already been a flashing warning light, it seems to be that the bulls are in retreat, but for now the selling pressure has been restrained. A build-up of negative candles in conjunction with a some bull failure candles suggests the recovery is turning into reverse. It will be interesting to see if this morning’s rebound also falls into this category of bull failures. Key for the near term outlook is still how the market reacts around the 67.60 pivot. Yesterday’s intraday breach of the key pivot did not confirm into the close, and the market is back higher again today. However, given the run of recent daily candles, the risk is on further pressure towards a test of 67.60. A close below 67.55 would confirm a new trend formation, with lower highs (at 69.25 and then 68.90) and lower lows (on the breach of 67.55). With the recovery losing its way, we draw in new Fibonacci retracements (of 59.90/69.25), meaning that 23.6% Fib around 67.05 would be another key near term gauge for a correction to take hold. A decisive closing breach of 23.6% Fib would open deeper retracements, with the prime support glaring with 50% Fib at 64.57. With Stochastics bear crossing lower this is a warning, but RSI and MACD lines are still lacking conviction for a sell-off. The hourly chart shows this morning’s rally struggling in the near term resistance band 68.00/68.20 with the risk of another bull failure, as increasingly corrective hourly momentum takes hold. Above 68.85 renews the positive outlook.
It was interesting to see the euro holding up relatively well in the face of dollar strengthening yesterday. The bulls are fighting hard to prevent renewed negative momentum on EUR/USD. The defence of $1.0810 continues to hold as the market has spent the past three sessions in tight consolidation between the support at $1.0810 and pivot resistance at $1.0890. Despite this, there is still an ongoing negative bias which is present on EUR/USD and we continue to see intraday rallies as a chance to sell. Throughout April, there has been a pivot around $1.0890 and trading below this suggests a bias towards $1.0810 but also the increased potential for testing $1.0770, the key April low. Small bodied negative candles in recent days, and again this morning also suggest the marginal drift lower is underway. This is again reflected in the momentum on the daily chart, with all indicators stable below their neutral points, whilst a similar configuration is seen on the hourly momentum too. For now we wait for the next decisive break, either clear below $1.0810, or above $1.0925 (which would be a confirmed break above the $1.0890 pivot) in what is a very quiet period of trading for EUR/USD.
We have been discussing the gradual erosion of the gains on Cable in recent days, however, the move accelerated yesterday with a decisive negative candlestick. This candle has shown intent for the bears to take control of the market and important support levels are now being eyed. There is a basis of consolidation around the 50% Fibonacci retracement (of $1.3200/$1.1405) today, around $1.2300. However, given the strength of the selling pressure yesterday, the Cable bulls are going to do well to contain the move around here. Daily momentum is turning decisively lower now, with the Stochastics