Since China announced on Monday that it would retaliate with a fairly mild increase of tariffs on US imports, there has been a gradual improvement in market sentiment. For a change, some good news surrounding tariffs too. With the US administration delaying a decision on the imposition of tariffs on autos imports by six months, suddenly the glass looks half full again. Add in a smattering of encouraging US data (building permits, jobless claims and the Philly Fed) and we have ourselves a risk rebound. This has driven a reversal in safe haven assets and allowed higher risk plays to rally. Although there is a slight pullback on this risk sentiment early today, there is still a feeling that a recovery of sorts is underway. VIX volatility is pulling back again and bond yields are stabilising. This has been also keenly felt with a sharp move back lower on gold, with US Treasury yields higher. Equity indices have also been making a decisive move higher too, with the DAX and S&P 500 both strongly higher. It is also interesting to see that the dollar, which has been recent days, starting to pull higher once more. Key gauges to watch come with a move below support at $1.1175 on EUR/USD and back above 110 on USD/JPY. With geopolitical tensions in the Middle East again rising, and the improvement in risk, there oil price has started to pull higher again. Look for a breakout on WTI above $63.00/$63.30 to signal a bullish breakout from the recent consolidation.
Wall Street closed decisively higher with the S&P 500 +0.9% at 2876, but with US futures dropped back -0.3% today there has been some of the sheen taken off this rally. Asian markets were mixed overnight, with the Nikkei +0.9% but the Shanghai Composite -2.7%. European markets are lower in early moves. In forex, there is a slightly less positive look to sentiment, with JPY performing better, but little real direction other than continued GBP weakness. In commodities there is a consolidation on gold after yesterday’s corrective move, with oil also consolidating.
The only real economic calendar entry for the European morning comes with the final readings of April Eurozone inflation at 1000BST. There is an expectation that the flash readings will be confirmed for Eurozone headline HICP at 1.7% (1.7% flash, +1.4% in March), with Eurozone core HICP at +1.2% (+1.2% flash, +0.8% March). The US session will be looking at prelim Michigan Sentiment for May at 1500BST. Consensus expects a slight improvement to 97.5 (from the final reading of 97.2 in April).
Chart of the Day – NZD/USD
Rallies to the downtrend channel resistance are a chance to sell. We have been looking at selling into near term strength since the market broke the support at $0.6590. This old key low has become an area of overhead supply and throughout the past week this along with the channel downtrend of the past seven weeks gives another opportunity for further downside to test $0.6525 initially. Momentum indicators remain decisively negatively configured. The RSI is continually struggling around 40 and in the low 30s still has further downside potential. The same can be said for the Stochastics which have crossed lower this week. Yesterday’s intraday rally failed bang on the channel resistance leaving another lower high. The resistance of the channel comes in around $0.6575 today. There is little real support until the October/November lows $0.6420/$0.6465.