After another remarkable day of days on Wall Street, trading sentiment has just lost its positive tone coming into this morning. There has been no decisive trigger, but assets at the safer end of the spectrum are performing better as we come into the European session. Treasury yields falling back helping the dollar to claw back some losses is not the move of a normal/confident market and serves as a warning that any return to outright risk aversion will result in renewed strength of the dollar once more. The past week has seen decent risk recovery as traders take the positives from the discussion and some implementation of exit strategies from their lockdowns. However, this morning, traders seem to be a little reticent to follow Wall Street’s lead. The yen is outperforming on major forex, whilst equities are slipping back. Market reaction around the recovery uptrends on silver and Aussie/Yen will be interesting barometers of broad sentiment now. Reaction around US corporate earnings in addition to what will likely prove to be shocking data for March’s US retail sales and industrial production could also be a key gauge for whether the glass is half full or whether it is now half empty.
Wall Street closed another positive session with good gains, with S&P 500 +3.1% at 2846. However, the E-mini S&P futures are -0.4% early today and Asian markets have met that decline (Nikkei -0.4%, Shanghai Composite -0.5%). European markets are also similarly slipping early today. In forex, there is a risk aversion resulting in JPY outperformance, whilst USD is regaining some of its recent lost ground against major forex. AUD and NZD are the key underperformers. In commodities, there is a mixed look to oil after another rout of selling yesterday, whilst the precious metals are beginning to slip back from recent strong gains, with gold a-$15 and silver -2.3%.
It is all about the US data for March on the economic calendar today. US Retail Sales are at 1330BST, with core ex-autos sales expected to dive by -5.0% in March as the bit cities went into lockdown (down from a decline of -0.4% in February). The US Industrial Production for March is also expected to decline by -4.0% on the month, whilst there will also be special attention given to the capacity utilization proportion which is expected to decline to 73.9% (from 77.0% in February). The Bank of Canada is not expected to change rates at 1500BST from the +0.25% (+0.25% previous) so the outlook will be all important.
Chart of the Day – Silver
For now, the recovery and recent breakout on silver remains on track, but it is being tested. Having broken above $14.70 last week we looked at the breakout on silver as being a bull flag formation with an implied recovery back for a test of the old key floor at $16.50. Whilst the third phase (breakout) of the rally has not been as aggressive as the first phase (the flag pole), there has been a continued progression of higher lows. This has formed an uptrend up from the $11.62 low but this initial basis of support is being tested as the market has come under pressure early today. The trend comes in around $15.50. However, for now, we remain positive as the recovery is being taken by strength in the momentum indicators as the Stochastics, RSI and MACD which all suggest continued potential in the move. The market used the 50% Fibonacci retracement (of $18.93/$11.62) at $15.28 as the springboard for the bull candle yesterday and continued trading above suggests that the next target remains the 61.8% Fib at $16.14. Yesterday’s high at $15.83 is initial resistance, but beyond this, there is little real resistance until $16.50. Whilst above support at $15.10, the bulls will remain encouraged to buy into weakness. Additionally, The hourly chart shows good support in the band $14.70/$15.10 along with the hourly RSI which remains consistently above 40 to imply weakness is a chance to buy.
A decisive positive candle got the EUR/USD rally back on track yesterday. The thin volume of the Easter trading period questioned the strength of the near term recovery. However, the bulls fought back really well yesterday in a move which is now threatening to open the legs of the recovery once more. We have been concerned that the resistance in the band $1.1960/$1.1980 would restrict how the recovery developed, but the bulls are in the driving seat of this move now. Leaving aside the thin volume days of the Easter bank holidays, the euro has climbed strongly in three out of four candles. Pressure is growing on $1.1980 for a decisive breakout. As the Europeans take over this morning, there has been a mild slip back, but on the hourly chart this shows as a pullback to a near term breakout of $1.0965. There is a six day uptrend at $1.0935 this morning, and any unwinding move on hourly RSI around 40/50 has been a chance to buy during this uptrend. Initial support is around $1.0950/$1.0965. The bulls will have lost control under $1.0925 and the outlook turns corrective under $1.0890. Above $1.0990 the next resistance is $1.1040.
The dollar has struggled in recent sessions which has helped to drive Cable higher in its recovery. Flanked by the uptrend, the decisive break clear of resistance at $1.2485 has completed a consolidation rectangle breakout to imply c. +325 pips towards $1.2800 in the next couple of weeks. This opens the prospect of the market testing what is now overhead supply of $1.2720/$1.2765. Furthermore, the move has also pulled clear of the 61.8% Fibonacci retracement (of $1.3200/$1.1405) at $1.2515 to open 76.4% Fib at $1.2775. Momentum continues to run higher with RSI into the high 50s, however this is now coming into a crucial time for the rally. The previous two failed Cable rallies came with the RSI topping out at 60. So this is a barrier that now needs to be overcome. The sharp uptrend is supportive at $1.2580 today. An early slip back this morning is unwinding some near term overbought momentum on the hourly chart, however, any retreat towards the low 40s on hourly RSI has been used as a chance to buy in recent sessions. There is initial support $1.2540/$1.2580 whilst the breakout at $1.2485 is key.