We still see the development of a constructive outlook for risk appetite in the market. This has driven equities strongly higher early this week. This risk acceleration has just had the reins pulled slightly early today as Treasury yields have just pulling marginally lower and the dollar has reclaimed some of yesterday’s lost ground. However, it is interesting to see the Australian dollar holding up relatively well (which would reflect a broadly improved risk environment), whilst we are also seeing gold continuing to correct back. Wall Street sits on the brink of a breakout to multi week highs and with futures looking mixed, this could be “will it, won’t it” day for a move which could herald the next bull leg in the recovery. It is interesting to see that which this improvement in risk has been taking hold, there has also been significant renewal of selling pressure through oi. The sabre rattling of a war of words between Donald Trump and Iran over gun ships in the Persian Gulf has not escalated and the focus has turned back on the massive oversupply due to the plunge in demand, and also the lack of storage capacity in the US. This is not a cocktail that supports oil prices for long.
Wall Street ended another session with good gains, as the S&P 500 closed +1.5% higher at 2878. However, with the E-mini S&P futures a shade lighter today (-0.1%) there has been a consolidation in Asia overnight, with the Nikkei -0.1% and Shanghai Composite -0.1%. European markets look supported early today, with FTSE futures and DAX futures both +0.3%. In forex, there has been a slight paring of yesterday’s losses. NZD is the main underperformer, with marginal weakness across the rest of the majors, aside from JPY which is holding up relatively well. The big moves continue to be seen in commodities, with gold -1.0% and back under $1700 whilst silver is -2.0% lower. Being long of oil is also being very damaging with WTI -13% and Brent Crude -4%.
We are looking towards US data on the economic calendar today. At 1500BST the Conference Board’s Consumer Confidence data is released. Perhaps unsurprisingly, confidence is expected to have taken a nose dive in April (the first full month of lockdown) and plummet to 87.9 )down from 120.0 in March). This would be the lowest reading since June 2014. The Richmond Fed Composite index is at 1500BST and is expected to join other regional Fed surveys and slide hugely in April, down to -34 (from +2 in March).
Chart of the Day – AUD/USD
The Aussie seems to be a leader in the risk recovery right now. Since the March low, AUD/USD has embarked upon two separate bull legs higher and is now threatening a third. Finding resistance in early and mid-April, the pair has formed two flag consolidations before breaking higher. The early April breakout above $0.6210 hit resistance at $0.6445 before the second flag consolidation. With another closing breakout in yesterday’s session the market is now primed for the next bull leg higher. This could now be a move that drives the pair towards the next key resistance at $0.6685. A confirmed break through $0.6445 is doubly significant as it also looks to clear the 61.8% Fibonacci retracement (of the $0.7030/$0.5505 sell-off) at $0.6450. The move leaves $0.6250 as a key higher low support now (also around the 50% Fib at $0.6270). Momentum indicators are positively configured for the next bull run, with the Stochastics swinging higher, MACD lines accelerating above neutral and RSI above 60. This points to the Aussie being bought into weakness now. The hourly chart shows $0.6400/$0.6440 as a near term buy zone now.
The dollar has come under some corrective pressure in the past couple of sessions and this has pulled EUR/USD higher. However is this enough to sustainably change the corrective outlook? For now, this still looks to be a rally on somewhat shaky ground. After the market engaged in a couple of intraday breaches of the support at $1.0770 last week, Friday’s strong bull reaction looked to be one that turned a corner. However, Monday’s candle has been a little disappointing, as the bulls gave up over half of their recovery gains to close with a highly questionable positive candle. Is this a bull failure? Today’s early stuttering under the 23.6% Fibonacci retracement (of $1.1490/$1.0635) at $1.0835 does not help the recovery momentum. Although the Stochastics have ticked higher, we also see RSI and MACD lines struggling for traction in recovery. The hourly chart shows the resistance at $1.0890 is key overhead but the market turning back from $1.0860 is a potential lower high now. The old pivot at $1.0810 will once more be a gauge of support.
A fourth positive close in a row for Cable is helping the bulls just to edge back into control of the near term outlook. Using the 50% Fibonacci retracement (of $1.3200/$1.1405) as a basis of support around $1.2300, the market has now moved decisively higher from this Fib, with the bulls now having their sights set on 61.8% Fib again around $1.2515. Momentum is looking to swing back towards positive once more, but this is very much within the context of what is increasingly a medium term range now. The market has traded between $1.2160/$1.2645 since late March, several swings back and forth in recent weeks. With the daily RSI having spent all that time between 45/60, there is a lack of overall direction in what is becoming a medium term range play. However, on a near term basis, the market is looking to generate positive momentum once more. We are now seeing a tick back above $1.2405 which has been a near term pivot and this is improving the near term outlook again. The hourly chart shows $1.2375/$1.2405 is now a near term buy zone for upside pressure towards $1.2485/$1.2520.