Safe Haven Preferred By Markets Ahead of Key Events
Stock markets in Asia corrected lower for the second day in a row following the major indices in Europe and the US. Interest rates continued on the bid with US rates forming a clearer uptrend than in the EU. Oil was on the offer, but still above recent break-out level at 42.40. As investors fled to safer assets, gold was slightly on the bid, but still caught in a more and more narrow wedge formation. FX markets saw a well bid Sterling and Yen. There were no major news releases yesterday, despite a somewhat decent IFO figure from Germany and weakish US New Home Sales dropping -1.5% in March against expectations of a gain of 1.0%. Overall, market participants are on the hold in light of the heavy data releases we have later in the week.
Today, we expect the EU session to be relatively quiet as we don’t have any news to the market neither on the macro nor company earnings front. The DAX has been well bid recently but during the past days, market action could signal a potential reversal in the daily candles. Last Thursday, we saw a relatively large upper shadow and yesterday, we say a bearish engulfing pattern, which both could send the German index lower. Tomorrow’s Fed decision will surely provide guidance, but in the short term, we see 10,100 being the line in the sand. An increasing Euro will also make conditions worse for the export-related Germany.
In the US session, US Durable Goods Orders for March should trigger some market action at 14:30CET (Headline expected at +1.8% MoM vs -3.0% in February, while the Core figure (ex-transportation) is expected at +0.5% MoM from -1.3% in February). At 1545CET, we have the preliminary April figure for the Markit Composite PMI, which is expected to increase to 52.3 from 51.3. A figure above 50 signals expansion. At 1600CET, we have the US April Consumer Confidence which is expected to drop marginally to 96 from 96.2, but since we have seen disappointments in recent US confidence figures, we could see a larger drop. Richmond Manufacturing Index is expected to drop to 11 from 22 in April.
In EURUSD, the pair has been choppy since printing 2016 highs at 1.1465 earlier in April and after three days of losses, the pair came back yesterday, supported by the 50-Day MA. This morning, the 100-day MA has crossed above the 200-day MA, which could trigger additional upside. Technical oscillators are neutral, but there is divergence in price action versus stochastics which could trigger additional offers in the pair.
We could also see some action in the Canadian Dollar, where Governor Poloz will hit the wires at 14:55CET. The CAD has been well bid recently on back of a solid economy and increasing oil prices. Although terms of trade have worsened due to the recent appreciation, we could see further upside in the CAD, given that oil sustains on the bid. Key support at 1.2560-area.
Get market updates on your email by subscribing to T1 MarketScope weekly newsletter