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Market Wrap
The low volume that we saw in the London session due to the bank holiday only picked up for a small blip around the US economic data release today.
Compared to March, the April US Manufacturing PMI® registered 55.4%, a decrease of 1.7 percentage points. The overall economy has expanded for the 23rd consecutive month following a contraction in April and May 2020. Though we are at the lowest point since July 2020 (53.9%).
The US Employment Index for May is 50.9%, which is 5.4 percentage points lower than its March reading of 56.3%. The Supplier Deliveries Index registered 67.2%, an increase of 1.8 percentage points compared to the March figure of 65.4 percent. The Inventories Index registered 51.6%, 3.9 percentage points lower than the March reading of 55.5%.
The forex heatmap is showing a complete mix in terms of risk-on or off but the flip from bearish to bullish the US dollar shows the market is not concerned about the dip to the mean in the US ISM data. The EURUSD is trading in a tight range with the floor of 1.0500 being tested several times as is 80 pips higher at 1.0580. The strength in the US dollar is mainly being seen in the USDCHF and USDCAD which have made higher daily highs and higher lows.
Some of the biggest moves today actually came in the precious metals markets, with palladium the largest move lower by -3.81%.
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Gold bounced at the $1850/oz level and is looking more likely to make a measured move to the 200-period moving average. The drop is being pushed by the rising US dollar strength but also by the fear of a recession being initiated by higher interest rates, lack of economic growth and worsening retail sentiment. Precious metals have a few functions, with the industrial usage a significant percentage. The main driver is more likely to be the rising US Treasury yields which itself is supporting the greenback into this week’s FOMC meeting.
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The energy markets however are higher today on supply fears, with Brent up 0.88% at the time of writing. We’re moving closer to the apex of the wedge and so I am expecting initially a false breakout, but we could also get an explosive expansion. In which case, I’ll wait for a breakout, retest, and continuation. Germany could initiate a ban on Russian imports imminently, but other EU countries including Italy are willing to pay in roubles for a few more months.
