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“An afternoon wobble shows that nervousness remains, but equities have moved through the week without giving back too much ground.” Rally continues, despite growing scepticism “The recent bounce from the lows is still going intact, if it has taken a knock in afternoon trading, although the darker global economic outlook means that many are wondering whether these gains can be sustained. Investors keep waiting for the other shoe to drop, but as yet stocks are not giving people the trigger to begin selling once again. This caution is perhaps the best foundation for more gains, since it doesn’t appear to be accompanied by too much euphoria, but with the Fed now openly talking about 50 basis point hikes it is sensible to ask whether valuations can keep rising even as the prospect of weaker growth looms ever larger.” Oil moves up even as US ponders new reserves release “Oil seems impervious to any potential bad news, with today’s move higher coming despite news that the US is pondering another release of petroleum from its strategic reserve. But such releases offer temporary respite from rising oil prices, much as the cut in fuel duty on Wednesday did for UK consumers. OPEC’s… Read More »Shaky finish to the week for equities

Gold and oil prices surged on Friday, as markets reacted to the news that there was an attack on Saudi Aramco’s facilities in Jeddah.   Reports claimed that missiles and drones were fired at the facilities, near the port city, resulting in huge explosions.  A Yemeni based Houthi group took responsibility for the attacks, which came days before a Formula One event was to be held in Jeddah. Following the attack, Saudi Arabia refused to  bear responsibility for any global oil shortages, as a result of the attacks on its oil facilities. WTI crude hit a high of $115.74, whilst XAUUSD peaked at $1,964 for the day.  Meta marginally higher, following U.S/EU data transfer pact  Meta was trading marginally higher on Friday, as it was reported that the EU and U.S. had agreed on a new data sharing pact. Several huge tech companies in the U.S. the likes of Meta and Google, were considering their options in Europe, as both were uncertain about how changes in legislation would affect data flows. Today’s pact will see the formation of a new framework for cross-border data transfers, which will replace the old “privacy shield”. Speaking on Friday, President Biden said that, “This… Read More »Gold and oil prices gain following attack on Aramco’s Jeddah facilities [Video]

According to the Office for National Statistics, retail sales in the UK decreased by 0.3% in February, as opposed to market expectations of deceleration to 0.6% from 1.9% growth in January. Moreover, sales excluding fuel fell 0.7% in March and missed market projections of 0.5%. As for the US dollar has pared some of its intraday losses by drawing some support from rising bets on a 50 bps rate hike by the Fed in May. Bears await a decisive break below the ascending flag support, as fundamental news prompted downward pressure on the GBP/USD pair. The rest of the day is expected to be dominated by Fed officials' speeches, which may reinforce the hawkish stance and offer more support to the dollar. Technical view The pound has exhibited a bearish flag against the US dollar on the four-hour chart, struggling with the 50-bar EMA. Sterling is currently trading in a range market, fluctuating between 1.32242 and 1.31526, corresponding to a 23.6% Fibonacci retracement of the prior downtrend. As it turns out, sellers tend to violate this key support area at the confluence of 50 EMA, lower flag line, and 23.6% Fibo level. Yet, there are still no signs of a… Read More »GBP/USD challenging with a key support level [Video]

GBP/USD Cable holds in a choppy and directionless mode for the second straight day and remained resilient despite downbeat UK retail sales data for February. Weaker dollar in European trading on Friday helped sterling ahead of pivotal support at 1.3150 (50% retracement of 1.3000/1.3298, reinforced by 10DMA), after the action was already rejected at this zone on Thursday. Technical studies on daily chart lack clearer direction signal as bullish momentum is rising but stochastic is heading south and 10/20DMA’s are in mixed mode. Watch the action around 1.3150, as firm break here would encourage sellers and risk test of Fibo supports at 1.3114 and 1.3071 (Fibo 61.8% and 76.4% of 1.3000/1.3298 respectively) which guard key 1.30 level. At the upside, initial barrier lays at 1.3245 (Fibo 38.2% of 1.3642/1.3000) followed by 1.3298 (Mar 23 recovery peak), violation of which would bring bulls back to play. Res: 1.3245; 1.3282; 1.3298; 1.3321. Sup: 1.3150; 1.3114; 1.3071; 1.3034. Interested in GBP/USD technicals? Check out the key levels

Outlook: Markets would really prefer to be more risk averse but who can stomach the returns on cash and fixed income assets when inflation is so high? The tension in the air can be cut with a knife. Morgan Stanley notes the sell off in Treasuries has resulted in “flattening the 5s30s curve to 14b p, a new low since 2007.” This observation does not pass the “So What?” test. Fed chief Powell advised we look at the short-end of the curve only. Bloomberg today has the 3 month at 0.49%, the 6-month at 0.94% and the 2-year at 2.16%–nicely normal. Yield-seekers are glad about central banks in Brazil and Mexico front-running the Fed, although AMLO confused everyone by announcing the rate hike before it happened. At least in those two countries the short-term return has a sane relationship with inflation. You can’t say that about the US or the West generally. And weirdly—very weirdly—the yield diff might even be starting to become a factor in Japan. After a hint of inflation in Tokyo, the 10-year JGB yield was up almost to 0.24% from near zero where it has languished for months under the policy of yield curve control. This… Read More »Why the euro is not weaker is a mystery and a rather frightening one

AUD/USD The Australian dollar remains well supported, with strong gains against Japanese yen, underpinning the AUDUSD pair. Aussie advanced around 5% vs the US dollar and 10% vs yen in past almost two weeks, as Japanese currency remains under pressure on dovish BoJ and soaring prices of commodities and energy, as the country heavily depends on imports. The daily chart shows that  AUDUSD price action is slowly running out of steam, on approach to key resistance at 0.7555 (28 Oct 2021 high) as the bodies of daily candles are getting smaller, while shadows are longer on both sides. Although the bullish momentum continues to strengthen, overbought stochastic adds to signals stall. Correction is likely to be shallow, as weekly studies are in full bullish configuration and the pair is on track for the second strong weekly gains and close above weekly cloud top that generates bullish signal. Good supports lay at 0.7441/17 (Mar 7 spike high / broken Fibo 76.4% of 0.7555/0.6967) with extension towards rising 10DMA (0.7385) not ruled out and expected to offer better levels to re-enter bullish market. Break of 0.7555 pivot would expose net key barrier at 0.7634 (Fibo 38.2% of 1.1079/0.5514, 2011/2020 downtrend). Res: 0.7536;… Read More »AUD/USD outlook: Bulls are losing traction on approach to key resistance

USD/CAD traded lower yesterday, breaking below the key support barrier of 1.2560, initially marked by the low of January 26th, and tested again several times this week. This, combined with the fact that the rate is trading below the lower end of the sideways range that contained most of the price action from January 26th until March 17th, paints a negative short-term picture. We believe that, despite a subsequent bounce, the dip below 1.2560 may have opened the way towards the 1.2453 zone, which is marked as a support by the lows of January 13th, 19th, and 20th. If that key zone fails to provide support this time, then we may experience extensions towards the 1.2387 barrier, marked by the low of November 10th, the break of which could allow a test at the 1.2327 level, defined by the low of October 29th. Shifting attention to our short-term oscillators, we see that the RSI, although it rebounded from slightly below 30, it turned slightly down again, while the MACD, already negative, had also turned south and just crossed below its trigger line. Both indicators detect downside speed and support the case for further declines in this exchange rate. We will abandon… Read More »USD/CAD falls below 1.2560

RBA rate meeting – 05/04 – The RBA has been uncharacteristically dovish in recent months despite rising evidence that inflation is running well ahead of expectations. Governor Philip Lowe has gone to great lengths to play down the prospect of a rate rise this year, although at the last meeting he was careful not to rule it out. Unemployment has been falling while wages, as well as inflation pressures, have been increasing. As a major commodity exporter, the rise in wheat, oil and metals prices is likely to exert significant upward pressure on inflation in the coming months, which is a significant shift from the start of this year, when the RBA was insisting that a rate rise this year was unlikely. Events have moved on since then and the RBNZ has already started raising rates, leaving the RBA in its wake. This suggests the RBA could be closer to moving rates off their current 0.1% than at any time in the last six months. Expectations are still for a possible hike in June, however this still seems some way off and given the fluidity of the current situation it wouldn’t be impossible for the RBA to move at their April… Read More »Week ahead: RBA, Fed and ECB minutes, ASOS and THG results

As the conflict in Ukraine remains frozen for now, markets have started shifting their attention also to other topics, especially monetary policy signals. Despite volatile oil prices rising again to USD/bbl 120 after Russia demanded Rouble payments for gas, positive risk sentiment sent yields higher and equities held up. Bund yields rose above 0.5% for the first time since 2018 and 10Y US Treasury yields are now trading around 2.4% after hawkish comments from Fed chair Powell, which seemed to prepare the ground for a more aggressive monetary policy tightening ahead. EU leaders agreed on more joint gas buying going forward, although an embargo on Russian energy imports remains off the table for now amid German opposition. G7 leaders agreed to crack down on Russia’s ability to sell its gold reserves to support its currency and the US announced expanded sanctions against more than 400 Russian individuals and companies. Norges Bank (NB) continued with its gradual policy tightening and hiked rates by another 25bp this week, but we think the NB rate path will prove too aggressive and pencil in fewer hikes and an earlier top in policy rates (read more in Reading the Markets Norway – NB firms tightening… Read More »Fed is stepping up the pace

The war at Europe’s eastern border weighed heavily on the common currency, hurling EUR/USD back to levels not seen since the 2020 pandemic year. The focus returned to reigning market themes in the meantime. In this respect, the ECB’s hawkish shift protects EUR/USD’s downside. A solution to the geopolitical conflict may be required for the pair to start a sustained comeback. EUR/GBP remains trapped near YTD lows. Sterling/UK money markets do not buy into a cautious BoE normalization narrative. A 2% policy rate by year-end is discounted. As in EUR/USD, EUR/GBP’s downside is better protected though thanks to the ECB. Monetary policy divergence and higher core/US real rates launched USD/JPY to the highest levels since 2016. High commodity/oil prices weigh on the yen as well with Japan being a net energy importer. The currency fall-out of the war in Ukraine was the biggest on nearby countries, including in Central Europe. The Czech National Bank (CNB) intervened in FX markets to stabilize the koruna. The central bank will also raise rates more and keep them restrictive for longer than previously envisaged. Calm meanwhile returned, allowing the koruna to appreciate close to pre-war levels as the underlying fundamentals remain solid. The forint… Read More »KBC monthly chartbook: February