As traders get back to their desks following a long Easter weekend, they are met by markets hinting at a fairly constructive appetite for risk. The discussion over exit strategies across the major economies following their periods of lockdown is playing into this improvement in market sentiment, as has better than expected Chinese trade data. With several countries in Europe now beginning to ease lockdown restrictions, President Trump suggests that the US is close to completing its own plan to re-open the country. However, we will begin to get some clarity on the scale of the impact on first quarter corporate data as earnings season kicks off this week. It could make very sobering reading. The big banks report this week, with JP Morgan and Wells Fargo in focus today. Furthermore, although the recovery on equity markets continues today, there is still a significant risk that they are simply bear market rallies. We have not seen the scale of second wave of COVID-19 infections/deaths yet, something that should become a factor as economies reduce restrictions on the movement of their populations once more. For now, the recovery is still progressing, but for how long? Treasury yields are higher, the US dollar less strong, and equities also stronger. After a weekend of tense negotiations amongst major oil producers, driving price volatility, oil is relatively settled today. With estimates of well over 20m barrels of oil per day out of demand, are the OPEC+ production cuts even going to make a difference?
Wall Street closed lower last night (S&P 500 -1.0% at 2761) but with the E-mini S&P futures +1.2% today there is a decent look to the equities space this morning. Asian markets were positive (Nikkei +3.1%, Shanghai Composite +1.4%) whilst European markets are around 1% higher in early moves. In forex, there is a mild risk positive bias with USD slightly negative across the majors (aside from the underperforming JPY). In commodities, oil is supported early today around a half to 1% higher, whilst gold and silver are trading around the flat line.
There are no key economic data releases schedules for today.
Chart of the Day – FTSE 100
With a strong move higher into Thursday’s close, the FTSE 100 finally managed to follow other major indices in a breakout above the initial March recovery high. Now for the more important part, holding on to the breakout. Futures are looking promising early today as the bulls look to confirm a sustainable breakout. The technical set up is also encouraging, with RSI at a two month high above 50, whilst MACD and Stochastics are also well set in their recoveries. In the wake of last week’s move above 5815, there is now a run of higher lows and higher highs, which is a new trend formation. If the market closes back below the 5815 breakout, it will be a disappointment, but whilst a three week recovery trend is intact, the bulls will remain encouraged (comes in at 5600 today) to buy into weakness. Support of a higher low at 5590 adds further weight to this trend, whilst on the hourly chart momentum is still in recovery mode (RSI consistently bottoming 40/50). So we would still be looking to use any intraday weakness into support as a chance to buy. For upside targets, the 38.2% Fibonacci retracement (of 7690/4899) is the immediate target at 5965 but there is very little resistance overhead and 50% Fib (the equivalent of around where the S&P 500 currently sits) at 6295. Holding above the 23.6% Fibonacci retracement at 5558 maintains the recovery outlook for recovery. Ultimately, though the key will be sustaining the key higher low at 5352.
The technical rebound on EUR/USD looks on shaky ground, but for now it is still holding. The bounce off $1.0770 has been choppy with a mix of candles (although the Easter holiday period could certainly be playing into that). We have been talking about the resistance band $1.0900/$1.0970 in recent sessions and the failure (admittedly during thin trading) around $1.0970 yesterday will raise some doubt for the bulls. Pivot resistance along with the 38.2% Fibonacci retracement (of $1.1492/$1.0635) around $1.0960 and the old key floor from Q4 2019 at $1.0980 means that the importance of this barrier is elevated coming out of the Easter long weekend. Momentum indicators are uncertain of the rebound too, with RSI, MACD and Stochastics all showing a mix of signals, mostly around neutral configurations. With a bounce early today, it leaves EUR/USD at an interesting juncture. Continued failure around here in the $1.0925/$1.0970 band will increase negative pressure back towards $1.0770/$1.0835 once more. For now, hourly indicators are fairly neutrally configured with hourly RSI sitting between 40/65. Moving clear above $1.0970 opens upside for the 50% Fib at $1.1065. Initial support at $1.0890 now. For now the recovery remains in process, but we remain sceptical of how long a euro rally may last for and the longer the weight of resistance around $1.0970 lasts for, the harder the bulls will find a breakout.
Sterling has had a strong run higher in the past week. A string of positive candles (leaving aside a non-event of a se