There is a continued fluctuation of risk appetite across major markets as a recent phase of uncertainty continues. We have argued that this is a crucial crossroads for markets as the recovery momentum of the risk rally has tailed off in the past week or so. This choppy phase shows little sign of abating this morning as a marginal swing towards a more positive risk appetite has formed after yesterday’s slide. This comes with some mixed signals across major markets today. A rebound on US equity futures are suggesting yesterday’s Wall Street losses are being unwound, but US Treasury yields are slipping marginally lower and oil is just tailing off again. However, there is a slightly more positive backdrop to the forex majors this morning, with the Australian dollar performing well after a broadly more positive than expected readthrough from Chinese trade data (driven by surprise exports growth of +3% for April). The euro has begun to find a level of support once more after another day of selling pressure yesterday. The suggestion is that the ECB may shy away from directly responding to the German Constitutional Court over the legality of its asset purchase programme. Instead, it may leave the response to the Bundesbank, leaving the issue a national one, which would reduce the risk of further court cases. The Bank of England has kept rates on hold at +0.1% (unanimous) and maintained its asset purchases stock at £645bn. The QE decision was not unanimous, with two members voting for an extra £100bn. With the MPC also said that it is committed to increasing support if necessary. This is all broadly anticipated and little to surprise the markets, it has been supportive for sterling this morning.
Wall Street gave up earlier gains to close lower last night with the S&P 500 -0.7% at 2848. However, with US futures rebounding today (E-mini S&Ps +0.9%) these losses are being retraced. Asian markets were mixed overnight, with the Nikkei +0.3% and Shanghai Composite -0.2%. European markets are tentative in their early moves too. In forex, there is a mild risk positive bias, with AUD and NZD performing well, as is GBP in the wake of the Bank of England. JPY is the main underperformer, whilst USD is also struggling slightly. In commodities, there is little direction on gold or silver, whilst oil has not managed to solidify support yet after yesterday bull failure, with WTI and Brent both c. -1% back.
The latest weekly jobless data will be key for the economic calendar today to provide the most recent snapshot of the US labour market. The US Weekly Jobless Claims at 1330BST are expected to show another 3.000 million claims (3.839 million last week).
There are also some central bankers on the radar today. ECB President Christine Lagarde speaks at 1500BST and the speech will be scoured for hints at further policy action,. Especially in light of the German Constitutional Court decision. There is also a speech by the FOMC’s Patrick Harker who is speaking at 2100BST.
Chart of the Day – AUD/JPY
We continue to view the Australian dollar rally with caution and crossed with the Japanese yen this comes into even starker focus. The six week uptrend on AUD/JPY was broken on Monday and the bull failure at 68.97 came right on the new resistance of the underside of the old uptrend. As with several other markets, we see a crucial crossroads here, around the breakout of the first March rebound high. The support around 67.25/67.60 will be key now as a breach would drive a key trend reversal and open for a deeper correction on AUD/JPY. The momentum indicators are already showing signs of reversal as the RSI has moved to a four week low and MACD lines bear cross for the first time since late February. Tuesday’s bull failure adds to the concern that 68.97 (effectively 69.00) is turning into a key lower high. A positive reaction today is encouragin near term, but the move needs to continue at least decisively through 69.00 to improve the outlook once more. Whilst trading under the old uptrend there is a concern that the market is in the process of top building.
The euro has been under pressure for the past three sessions, with the move lower accelerating in the wake of the German constitutional court decision. The move has taken EUR/USD decisively below the $1.0890 near to medium term pivot and towards the lows of the recent range $1.0725/$1.1015 again. The question is whether the market will now be breaking this support between $1.0725/$1.0770. It is interesting to see that much like the price coming back to its range lows, the RSI is also edging towards its one month low around 40. Although Stochastics and MACD lines are still falling, they are also still within scope of the near to medium term trading range. There are signs of consolidation in the past 24 hours and downside momentum has slowed on the hourly chart. It is too early to say for sure, but if the bulls can continue to lay these foundations of support, this move lower will be just another part of the growing medium term ranging consolidation. For that, the support at $1.0770 needs to hold into the close, whilst $1.0725 is a key intraday low too. Whilst there is clearly still downside risk to the continuation of this move lower on EUR, we favour continuing to play this range, and a moderation back towards the $1.0890 pivot in due course. The bulls will be looking for a move back above $1.0810/$1.0830 to generate recovery momentum once more.
With a breach of the mid-range pivot support band $1.2385/$1.2405 broken, Cable fell decisively yesterday and has taken on a mild negative bias within the range once more. Subsequently, the key April support at $1.2245 is under threat if this near term move continues. However, the technical corrective move lower is under threat of correction today on a positive reaction to this morning’s (early) Bank of England monetary policy decision. How the market reacts around what is now the resistance of the mid-range pivot band $1.2385/$