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Market Brief
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Following some horrendous downside that we have seen this week, there are some green shoots of hope emerging within risk assets this morning. It may also be that the bears are taking a break and some profits. Despite Australia’s ASX closing in the red overnight, most Asian indices moved higher during the overnight session. At the London open, European bourses are also trading lower, but the FTSE100 has had a good start. Friday the 13th is notoriously gruesome and traditionally unlucky, but we are above the 61.8% retracement, which means we will likely go higher rather than visit the swing low and below.
A couple of days ago all US companies appeared to be trading lower, however at the close last night, there were sectors that were faring better, which could help put a base in the US markets today. The only scheduled news which could affect the US markets is the US import/export prices and the University of Michigan Sentiment that comes out just after the US open.
The forex heatmap has a risk-on look too, though the euro is mixed, and the Chinese yuan is the weakest. The commodity pairs are solid green as the Australian dollar becomes the relative strongest currency following the late rebound in the US session.
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The weekly chart for the US dollar index signals possible profit taking opportunities at the 3.618% fib extension and I’d be keen to see a test of last week’s high to confirm support is not too far away. The exponential rise in the weekly DXY chart could also mean that we come all the way back down to the previous balance area which was between $99-$98, but that is currently not my base case scenario as there is strong demand for the US dollar from the rest of the world. The slight weakness in the US dollar could also be from the remarks given by Fed Chair Powell last night, where he said in front of the US senate that, due to factors outside of the Fed’s control, the current plans for reducing inflation may imply a “hard landing” for the US economy.
Powell admitted that the Fed should have raised interest rates sooner, and that, with the current condition, bringing inflation back to the desired 2% level might “include some pain.”
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The correction in Brent crude is taking its time to work out. We have now left the triangle/wedge pattern and forming a rising channel. Again, this is more bearish than bullish in my opinion as they tend to break in the opposite direction of travel. The war in Ukraine and the problems around gas supply to Europe will keep the price of oil higher for longer. Sometime in the future, Europe will have sorted out new supplies of natural gas, from possibly the US or Qatar, and will have an EU ban on all Russian imports in place. China says they should have a tight grip on the COVID situation this month, which could also help demand and add to the support at these prices in energy.
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On the 27th of April Gold closed below the 61.8% retracement of the previous impulsive move that took the yellow metal back up to $2k/oz. I am waiting for a sweep of the swing low that was the origin of that impulsive move and for anyone long to switch to being on the side-lines or bearish.
The ActivTrader sentiment indicator shows that 74% of traders are bullish this precious metal and it is this cohort that will have their resolve tested once we get through the $1800/oz level.
