With bond yields dropping back this morning there has been a degree of corrective pressure building on the US dollar to start the week. There has not been any real catalyst behind the move, but there could be an element of a payrolls hangover to consider. Whilst headline jobs growth seemed decent in March (and a good recovery from a terrible February), the decline in wages will have come as a disappointment and certainly will do little to change the course of a patient FOMC. The US 10 year yield is now 5 basis points back from Friday’s high and back under 2.50% again. Trade talks between the US and China seem to be progressing well but without the wow factor, there could be an excuse to take a step back on risk. Gold is higher, the yen gaining, yields lower and equities futures are off. Not a great combination to get the bulls going on a Monday. UK politicians will continue on Monday to find a way through the roadblock on Brexit which has, as yet, proved to be insurmountable. Furthermore, as the week progresses, attention will turn to how another extension of Article 50 is dealt with both in the UK and in the EU Council.
Wall Street closed positively with the S&P 500 +0.4% at 2893, but US futures (-0.2%) are giving back some of these gains this morning. Forex majors show a broadly weaker dollar (yen, sterling and euro all in recovery) whilst a mild risk negative vibe too (Aussie and Kiwi off). In commodities, a weaker dollar and risk negative equates to a gold rebound to a one week high, but still needs to overcome the $1300 barrier. Oil is once more finding the appetite to push higher.
It is a quiet start to the week today on the economic calendar. The only real entry of note are the US Factory Orders for February which are expected to decline by -0.6% on the month (+0.1% in January). Given the context of a +1.6% reading in February 2018, this could be a concern.
Chart of the Day – EUR/GBP
There has been a recovery on Euro/Sterling as sterling has slipped and the euro is beginning to see performance turn a corner. This rally has pulled the market back to test a three month downtrend but also the key overhead supply band at £0.8615/£0.8690. With the RSI again recovery towards 50 (an areas where February and March rallies floundered) this suggests that the market is flirting with a crossroads early this week. A close above £0.8650 would be a two week high but also begin to break the downtrend but also the falling 55 day moving average (currently £0.8650) which has been a basis of resistance for three months. The hourly chart shows an improvement in the momentum of the recovery but still not quite positive. A near term pivot support at £0.8555 is supportive initially and a failure would resume the EUR/GBP negative configuration.