Hawkish Fed Speakers send Risk on the offer – H-S in S&P
Following a good finish for the week in global markets, Monday’s price action was negative on back of hawkish comments from Fed speakers (Bullard in particular mentioning that if interest rates were kept too low, for too long time, it would hurt the economy) about the US monetary policy and potential rate hike in June. The negative mood followed through in Asia, where stocks tumbled to 2 ½ month lows. Hang Seng was down 0.2% and the Nikkei fell almost a percent despite a better than expected Japanese Trade Balance on Monday, and is still rangy between the daily Ichimoku Cloud and 61.8% Fibo retracement in recent wave. Fixed income yields rose across the board on back of the hawkish Fed comments as investors are looking for additional yield.
In FX markets, the JPY appreciated following the development in the weekend, where the G8 countries warned Japan about intervening in the markets to avoid an appreciating Yen and USDJPY was yesterday rejected by the Ichimoku cloud and found trend support, projected from the 2016 highs, but we could see further downside in the pair on back of a pick-up in risk aversion. Except against the Yen, the USD appreciated more or less across the board.
This morning, the yearly figure of the German GDP for Q1 2016 came out lower than expected, which has made sent EURUSD below 1.12 and eyeing the 100-day SMA, where a break below would open up for a test of 1.1160 and then key support at 1.1140. The Eurogroup will meet and Greece is expected to be the main point on the agenda as well as a review of the Spanish economy. Despite the weak German GDP figure, the DAX is trading higher.
From the UK, we have the Public Finances which are expected to show a better start to 2016 relative to 2015. The Sterling still has Brexit-jitters and price action has been quite volatile and choppy, but this morning, cross-selling of EUR has benefited the GBP through EURGBP.
From the US, New Home Sales for April will be in focus, with consensus showing a solid increase to 2.0% from -1.5% in March. The underlying data shows a recent flattening in new home sales whilst the Existing Home Sales have been improving. This should overall lead to better conditions for growth. Whilst the US economy is gradually improving, the rate speculation is also on the rise again and S&P has printed a head-and-shoulders formation, which is confirmed if the index closes below the neck-line, giving scope for a technical target of 1955. We have no Fed speakers today, but Yellen’s speech on Friday will be key for the week.
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