A Risk Relief Rally Kicks In

A swing to a marginally more positive outlook for major markets has taken hold as the European session kicks in today. There has been a nod of encouragement towards the US Congress passing a $480bn relief bill for small businesses. How long this move lasts though will be interesting. A continued rout in the price of oil may be bearing little significance this morning, but it smacks of bigger macro fears. Reduced economic activity and deflation concerns remain. The “bull flattening” of the US yield curve once more, where longer dated yields fall faster than shorter dated yields, reflects this too.


Recent sessions have taken a more risk negative bias and this trend could well come back to bite again on a morning with little real newsflow to hold a sustainable rally.



A slight US dollar slip is in line with the marginal risk positive outlook this morning. Equity markets are bouncing initially with US futures around +1% higher. The Aussie and Kiwi are performing well too. With several major markets eyeing technical support levels yesterday, the response needs to be decisive to prevent momentum gathering in a renewed correction. UK inflation was in line with expectations this morning as both core and headline CPI slipped slightly. UK headline CPI dropped to +1.5% (+1.5% exp, down from +1.7% in February) whilst UK Core CPI was a shad down to +1.6% (+1.6% exp, down from 1.7% in February).


Wall Street closed sharply lower for the second session in a row, with S&P 500 -3.0% at 2758. However, with the E-mini S&P futures +1.0% higher this morning, this is helping to stabilise sentiment. Asian markets were mixed overnight, with the Nikkei -0.7% and Shanghai Composite +0.3%. European markets are also looking more positive today, with FTSE futures +0.9% and DAX futures +1.1%.


In forex, we see a marginal USD negative and risk positive session. AUD and NZD are outperforming, whilst CAD has also found a degree of respite.


In commodities, the slide in precious metals continues, with gold falling marginally again, and silver -1.5% lower. Another day, another sell-off on oil, with WTI (now the June contract) down -7% and Brent Crude down -13%.


There is little of note on the economic calendar until the US session later today. Eurozone Consumer Confidence is at 1500BST and is expected to  at 1330BST is expected to decline to -19.6 in April (from -11.6 in March) which would be the lowest since May 2013. With all the headlines the glut of oil supply and lack of storage, the EIA Crude Oil Inventories will be key to watch at 1530BST. Another huge inventory build of 16.1m barrels is expected, after last week’s massive +19.2m barrels of build.


GBPUSD


We have been discussing the gradual erosion of the gains on Cable in recent days, however, the move accelerated yesterday with a decisive negative candlestick. This candle has shown intent for the bears to take control of the market and important support levels are now being eyed. There is a basis of consolidation around the zone of $1.3200/$1.1405 today, around $1.2300. However, given the strength of the selling pressure yesterday, the Cable bulls are going to do well to contain the move around here.


The key April higher low at $1.2160 is seen as a crucial gauge now. A decisive breach would be a massive breakdown and a bearish signal suggesting real renewed downside could set in. Given the speed of the recovery in late March, there is little react support to speak of until $1.1930 area. The $1.2090 serves as the next consolidation zone. There is resistance for the bulls initially around $1.2300 and then $1.2400. We are now sellers into near term strength.



Good Trading,

Dom

Dominik Stone

Disclaimer: Any Advice or information on this website is General Advice Only - It does not take into account your personal circumstances, please do not trade or invest based solely on this information. By Viewing any material or using the information within this site you agree that this is general education material and you will not hold any person or entity responsible for loss or damages resulting from the content or general advice provided here by Dominik Stone, it's employees, directors or fellow members. Futures, options, and spot currency trading have large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the futures and options markets. Don't trade with money you can't afford to lose. This website is neither a solicitation nor an offer to Buy/Sell futures, spot forex, cfd's, options or other financial products. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed in any material on this website. The past performance of any trading system or methodology is not necessarily indicative of future results.

High Risk Warning: Forex, Futures, and Options trading has large potential rewards, but also large potential risks. The high degree of leverage can work against you as well as for you. You must be aware of the risks of investing in forex, futures, and options and be willing to accept them in order to trade in these markets. Forex trading involves substantial risk of loss and is not suitable for all investors. Please do not trade with borrowed money or money you cannot afford to lose. Any opinions, news, research, analysis, prices, or other information contained on this website is provided as general market commentary and does not constitute investment advice. We will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from the use of or reliance on such information. Please remember that the past performance of any trading system or methodology is not necessarily indicative of future results.

© 2020 Copyright Dominik Stone International. All rights reserved.