Markets are looking to re-establish their recovery trends this morning after something of a bull failure came late in yesterday’s session. The threat of a risk reversal has appeared after Wall Street failed in a breakout to multi-week highs. However, as the FOMC meeting looms today there has been a decent early reaction across risk assets. With Treasury yields holding ground, we see US futures ticking higher again, whilst the dollar has slipped lower once more (after paring losses yesterday). There is nothing decisive about the early moves though, with the Fed decision due later. The Federal Reserve embarked upon three emergency moves in March, so the prospect of a scheduled meeting seems a little odd. However, I am not expecting too much from the Fed tonight, with a wait and see approach likely.
Today’s US growth for Q1 is expected to be bad, but will in no way lay out the full picture of the economic impact of COVID-19 (which will be felt far more significantly in Q2). The Fed may opt to tinker with its asset purchases, with the potential for some sort of Japanese-like yield curve control (however, this could be something more for future meetings as hey know more of the economic impact). Limiting yields from rising would certainly weigh on the dollar in the months ahead as economic recovery begins to kick in and subsequently could jolt the dollar lower today. It would be positive for risk appetite too, and could play into the recent tick higher in sentiment. In front of the Fed though, we expect markets to remain fairly settled today. Watch for the latest EIA inventories as volatility remains elevated for oil.
Wall Street closed disappointingly lower with the S&P 500 at -0.5% (at 2863). However, with futures rebounding (E-mini S&Ps up +0.8%) we see a mixed to positive steer from Asia (Nikkei -0.1%, Shanghai Composite +0.3%). European markets are also looking reasonably well supported with FTSE futures +0.3% and DAX futures +0.2%).
In forex, we see USD drifting off once more, with a positive risk edge as AUD and NZD outperform.
In commodities, gold and silver are around the flat line, whilst oil has rebounded this morning with WTI +13% and Brent Crude +3%.
A first look at Q1 US growth and the Fed meeting are key on the economic calendar today. The US Advance GDP (Q1 annualised) is at 1330BST and is expected to show a decline of -4.0% (after a final growth of +2.1% in Q4 2019). US Pending Home Sales at 1500BST are expected to decline by -10% in March (after growth of +2.4% in February). The EIA Crude Oil inventories are always a market mover now, at 1530BST and expected to show another huge build of +10.6m barrels last week. Finally the FOMC monetary policy decision is at 1700BST with no change expected to the Fed Funds range of 0.00%/0.25%. The FOMC statement will be looked at for hints at potential further action to come.
Having seen the Aussie outperforming impressively in the past few sessions, it is interesting to see the technical outlook for the Kiwi is faring less well. However, we have seen NZD/USD picking up and it is once more testing the key resistance band between $0.6070/$0.6130. This has been the barrier to gains for the past month, restricting the bulls last week but is now coming under growing pressure today. Are the bulls capable of sustaining an upside break. Momentum has been ticking higher in recent sessions, and is edging towards breaking higher.
The bulls will take heart from the reaction to initial weakness at resistance yesterday that has left a near term higher low at $0.5990 yesterday. The hourly chart shows near term breakout support at $0.6040/$0.6090 today and the bulls will want to build on signs of improvement in hourly momentum indicators. This is a market that needs to close above the 50% Fibonacci retracement (of 0.6755/$0.5470) around $0.6110 to break the tendency for repeated bull failures between $0.6070/$0.6130. This would then open $0.6200/$0.6265. The hourly chart shows a band of support $0.5980/$.06000 which the market has gravitate back towards throughout the past month of consolidation.