Risk appetite has had several shots in the arm at the beginning of this week. Markets had already been reacting to the accommodative comments from Fed chair Powell in his interview, aired over the weekend. This was then added to with the encouraging trial results for a COVID-19 vaccination in the US. Furthermore, moves by France and Germany to back a system of grants for the €500bn EU Recovery Fund are also a positive step forward. A big jump in US Treasury yields (with a risk positive bear steepener on the yield curve) with the US 10 year yield +10basis points higher. Equities also stormed higher across the world. On forex, a rally for the commodity currencies, the euro and the embattled sterling. We also see commodities following these lines, with oil sharply higher, whilst gold, seen as more of a safe haven play, pulling back sharply from a breakout. Market moves are still feeling the legacy of these move today. Although there has been a minor pull lower on US yields, equity futures are holding up well. Risk positive moves continue and today’s testimony from Jerome Powell could give the bulls another boost later today. It will also be very interesting to see how the market now plays gold. Prior to yesterday’s bull failure, the set-up for multi-year highs was solid. Early moves today are a touch uncertainty, but this breakout may now have to be put on ice whilst the market digests these risk positive factors.
Wall Street closed strongly higher with the S&P 500 +3.2% at 2953. US futures are showing these gains still holding today, with the E-mini S&Ps +0.4% today. This has helped a positive Asian session, with the Nikkei +1.5% and Shanghai Composite +0.7%. European markets are also well set up today, with FTSE futures +0.5% and DAX futures +1.0%. The risk positive moves on forex also continue, with JPY the main underperformer, whilst NZD, AUD and GBP are all outperforming. In commodities, oil is once more moving higher (by around 1%), whilst the precious metals are again lower, gold by -$5 (c. -0.2%) and silver by -0.9%.
The outlook for the German economy is always keenly watched on the economic calendar, with the German ZEW Economic Sentiment at 1000BST. Consensus expects that sentiment will pick up slightly in May to 32.0 (from 28.2 in April). Into the US session, at 1330BST US Building Permits are expected to fall sharply to 1.00m in April (from 1.35m in March), whilst Housing Starts are also expected to dive to 927,000 (from 1.21m).
There will be another important appearance from Fed chair Jerome Powell today at 1500BST where he testifies with Steve Mnuchin via video link to the Senate Banking committee over the Coronavirus aid act.
Chart of the Day – USD/CAD
Another rally has just rolled over again. For seven weeks, the market has been stuck in a range between a band of support 1.3850/1.3920 and highs up towards 1.4265/1.4350. However, within this there has developed a mild trend lower and once more, over the past week, the market has rebounded but subsequently failed around the downtrend. Yesterday’s decisive negative candle looks to be the latest trigger for the next test of 1.3850/1.3920. The Fibonacci retracements of 1.2947/1.4667 have often been key trigger points in the outlook in recent weeks. Once more we see the market moving below the 38.2% Fib level at 1.4010 (which failures have often triggered moves lower), in a move that opens the support once more. Momentum indicators have turned lower, with a bear cross on Stochastics see yesterday (the last two have been solid signals), whilst MACD and RSI have also turned lower. We now look for intraday rallies to fade for the market to pressure 1.3850/1.3920. Rallies are a chance to sell now. Resistance at 1.4140 is key near term.
After more than a week of going almost nowhere, finally some signs of life. Fundamental drives have impacted where Fed chair Powell’s supportive comments spurred USD weakness, and Eurozone Recovery Fund traction have supported the euro. Will the dollar weakness and euro strength that emerged yesterday be enough for EUR/USD to now go on a bull run? For almost two weeks the market has been stuck in a mini range 1.0765/1.0890 but the bulls have stirred from their slumber to break above the $1.0890 pivot. This move needs to now hold today. It has been an important pivot throughout the past six weeks and is a key gauge for sentiment of the market. Holding above will leave EUR/USD in the upper half of the $1.0725/$1.1015 trading range and suggest pressure growing on $1.1000/$1.1015. Momentum indicators are now ticking higher, but are still within the confines of ranging outlooks. The RSI will be the one to watch, moving to a two week high, the bulls are building a position. If it moves into the high 50s it would be a signal of real strength building in a move higher (confirms above 60). A failure back under $1.0890 would be disappointing today and simply reinstate the previously sticky outlook around $1.0800.
The decisive break below $1.2160 support was a key move on Cable. It was a signal of intent and even though the market rebounded from $1.2075 yesterday, there is still the risk of this rebound falling back over once more. The resistance of a two week downtrend sits at $1.2255 will be an early indication of how strong this rebound is. The market is also up into band of overhead supply $1.2160/$1.2265 of all the old April/May lows and again this will be a good indication of how strong this rally really is. Strictly speaking, $1.2245 is the neckline resistance of a double top still. Given the momentum indicators rolled decisively ove