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Hawkish comments by ECB policymakers lifted EUR/USD to a fresh monthly peak on Monday. The emergence of some USD buying on Tuesday kept a lid on any further gains for the major. Recession fears, aggressive Fed rate hike bets helped revive demand for the safe-haven buck. The EUR/USD pair witnessed an aggressive short-covering move on Monday and rallied to a fresh monthly peak in reaction to hawkish comments by the European Central Bank (ECB) policymakers. In fact, ECB President Christina Lagarde said in a blog post that the central bank was likely to lift the euro area deposit rate out of the negative territory by the end of September. She added that the ECB could raise interest rates further if it saw inflation stabilizing at 2%. Separately, ECB Governing Council member Francois Villeroy de Galhau noted that the deal is probably done because there is a growing consensus on a July rate hike. Apart from this, broad-based US dollar weakness was seen as another factor that contributed to the pair's strong move up. Given that a 50 bps Fed rate hike move is already priced in, the risk-on impulse weighed heavily on the safe-haven buck. Hopes that loosening of COVID-19… Read More »EUR/USD Outlook: Poised to test 1.0775 confluence hurdle after Lagarde’s hawkish comments

Key highlights EUR/USD started an upside correction above 1.0500. It broke a key bearish trend line with resistance near 1.0490 on the 4-hours chart. EUR/USD technical analysis Looking at the 4-hours chart, the pair formed a base above 1.0350 and recovered higher. There was a clear move above a key bearish trend line with resistance near 1.0490. The pair surpassed the 1.0520 resistance zone and the 100 simple moving average (red, 4-hours). It even climbed above the 50% Fib retracement level of the key decline from the 1.0641 swing high to 1.0349 low. On the upside, the pair is now facing resistance near the 1.0650 level and the 200 simple moving average (green, 4-hours). The next major resistance is near the 1.0720. A clear move above the 1.0720 level might push the pair towards the key 1.0800 resistance zone. If not, there is a risk of another decline below the 1.0500 level. The next key support is near 1.0450. A clear move below the 1.0450 level could stage a strong decline in the near term.

Get our view why the end of the bear market may not be in sight, but the US -led stock market sell off could slow down. Does technical analysis even matter anymore? For the last 20 plus years, we could, with a bit of luck and central bank support, predict where markets would fall to on any given sell off. Take the financial crisis, or the global pandemic, when these major events pulled the rug out underneath global stock market bulls, the market tended to sell off quickly before being calmed down by an influx of multilateral central bank support led by the Federal Reserve. But the last two months have been epoch-shifting. Firstly, stocks and bonds have fallen side by side, the first time that they have done this in decades and US and global markets are in the midst of their longest sell off in years. The S&P 500 is down 19%, just above bear market territory, while big tech has fared worse, the Nasdaq is down more than 25% so far in 2022. Bonds have also taken a battering, the benchmark 10-year Treasury yield has fallen slightly, however, it remains at 2.78%, to put that move in… Read More »The Week Ahead: The end of the bear market seems elusive

S&P 500 recovers to the close as option expiry boosts stocks. S&P 500 is now though officially in a bear market.  Nasdaq closes in the red while Dow Jones Index is flat. Another wild and volatile week which seems to be the tone so far for 2022. Wild swings throughout the week were mirrored on Friday with wild intraday swings. The S&P 500 did manage to slide into a bear market territory on Friday. While there is no real official designation for a bear market the generally accepted consensus is that it's 20% from peak. The Nasdaq long ago meet this criterion but the S&P 500 has been flirting all week with the level. The job nearly looked to be done on Wednesday after Target (TGT) sounded alarm bells with its margin pressures and lowered guidance. Friday got the job done but with options expiry, in the afternoon the anticipated flows were always likely to see a late-session rally.  Next week sees more retailers lined up to report earnings and after Target and Walmart the bar has been set pretty low. This could set up a counter-rally with any sort of relief on earnings and or outlook likely to see… Read More »Week Ahead on Wall Street: Options expiry to the rescue on Friday but its official, we are in a bear market

The converging forces of price inflation and economic contraction continue to weigh on asset markets.  The Dow Jones Industrials got clobbered by 1,000 points on Wednesday and is headed for its eighth weekly loss in a row. Meanwhile, precious metals markets are finally finding some footing. After declining for four straight weeks, gold and silver is advancing in this week’s trading.   Markets are experiencing big swings as new recession warnings are flashing. Big box retailers reported disappointing sales numbers this week while major investment banks downgraded their economic outlooks.  Analysts at Bank of America, Morgan Stanley, and Wells Fargo are warning of a looming recession and possible stock market crash.  Here’s commentary from financial advisor Steven Van Metre: Steven Van Metre: First it was Bank of America calling for a crash, now it's Morgan Stanley. Let's check this out. Well, Morgan Stanley warns ingredients for a global recession are on the table, and markets need to confront the possibility of an economic downturn. With inflation at the highest level in 40 years, the Federal Reserve taking increasingly aggressive action to cool consumer demand and prices, the risk of a global recession is on the rise, according to Morgan Stanley's… Read More »Big banks call for recession and possible stock market crash

China’s overnight rate cut boosted sentiment, but investors remain nervous about diving back in to stocks after this week’s volatility. Stocks attempt to recover in final session “It has been another see-saw week in markets, as a rally in the first part of the week turned to dust in the second, but China’s rate cut has provided the rationale for a bounce in global stocks to round off the week. Although very much a lone voice crying in the wilderness, the PBoC’s move provided the fundamental basis for a rally in risk assets, reversing some of the mid-week gloom. But the surge in German factory-gate prices and a slump in UK consumer confidence shows that the broader backdrop continues to be quite negative for equities. With US markets already shedding initial gains, the picture remains uncertain.” Investor sentiment remains weak “Rally or not, investors are not exactly flooding back into equities. Instead, this will be a short-term bounce that may will use to get out at a better price. And given how quickly the bounce earlier in the week fizzled out, it is likely that caution is set to persist. Next week’s Fed minutes will remind markets that there is… Read More »European stocks bounce but Wall Street struggles

UK stocks and the British pound rose on Friday after the surprisingly positive economic data from the country. According to the Office of National Statistics, the country’s retail sales rose by 1.4% in April after falling by 1.2% in the previous month. This increase led to a year-on-year decline of 4.9%, which was better than the median estimate of -7.2%. Excluding the volatile food and energy products, sales rose by 1.4%. Other numbers published this week showed that the country’s economy was doing well as the unemployment rate fell to the lowest level in decades. The Japanese yen retreated slightly against the US dollar after the relatively strong inflation data from Japan. The numbers revealed that the closely watched core inflation rose at the fastest pace in seven years. The figure rose to 2.1%, which was in line with what analysts were expecting. The weaker yen contributed to this inflation. Still, these numbers are significantly lower than in other countries. For example, in the US and UK, core inflation stands at over 6%. Therefore, with inflation above the BOJ target of 2%, there is a possibility that the BOJ will start tightening.  Global stocks were in the green on Friday… Read More »Global stocks bounce back after China’s new stimulus

Energy The oil market has seen a partial recovery in early morning trading today, after Brent settled more than 2% lower yesterday. Reports that the US is looking to ease some sanctions against Venezuela contributed to yesterday’s weakness, with it thought that the easing could see a partial resumption of Venezuelan oil to Europe. Any increase is likely to be rather limited, at least in the short term. There are growing concerns over the refined products market. What started out as a tight middle distillate market appears to be spreading into the gasoline market, at least for the US. At a time when US gasoline inventories should be building ahead of the driving season, inventories instead have declined for most of this year. These are now below the low end of the 5-year range. Gasoline demand should only increase over the coming months and, in the absence of a pick up in refinery runs, the gasoline market is likely to continue to tighten. The tighter gasoline market appears to have also contributed to a narrowing in the WTI/Brent discount, given the need for higher US refinery runs, which should be supportive for US crude demand. Gasoline stocks in the ARA… Read More »The commodities feed: US gasoline tightness

Economic releases this week point to widely different growth momentum in the global economy. Chinese activity data for April were much weaker than expected with retail sales dropping 11.1% y/y and industrial production down 2.9% y/y. The weak batch of data points to a negative q/q growth rate in GDP in Q2 and also suggests downside risk to our 4.7% growth estimate for this year. The government’s 5.5% target will require a significant amount of stimulus, which China does not look prepared to provide. The credit impulse was slightly weaker in April, pointing to moderate stimulus. A key driver of the weak Chinese data has been the outbreak of Covid-19 and the lockdowns by the Chinese authorities implemented to maintain their zero-Covid policy. While Shanghai is improving challenges persist in other cities such as Beijing and surrounding areas. The continued outbreaks highlight the difficulty in keeping Omicron contained and warns of more future lockdowns and supply chain disruptions. On a more positive note, US data released this week showed quite resilient private consumption and industrial production despite geopolitical uncertainty and rising inflation. US retail sales data grew quite strongly in April both in nominal and real terms (taking into account… Read More »COVID-19 lockdowns hit the Chinese economy

EUR/USD The Euro is standing at the back foot on Friday, following 1.2% advance on Thursday, but dips were so far limited, adding to positive signal from Thursday’s bullish engulfing pattern. Fresh bullish momentum on daily chart and formation of 5/10DMA bull-cross, underpin the action for potential stronger short squeeze. Bulls need repeated close above 1.30532/45 (20DMA/Fibo 23.6% of 1.1184/1.0349) to confirm bullish stance and keep in play hopes for stronger correction. Extended recovery will need an extension through 1.0641/43 (May 5 lower top / daily Kijun-sen) and 1.0668 (Fibo 38.2% of 1.1184/1.0349) to generate initial reversal signal. Positive scenario is supported by formation of bullish engulfing pattern on weekly chart and RSI/stochastic indicators emerging from oversold territory. Also, formation of long-legged Doji on monthly chart suggests that larger downtrend might be running out of steam. However, caution is required as geopolitical and economic news remain in play as key risk sentiment drivers and may influence the performance of the pair at any time. Res: 1.0607; 1.0641; 1.0668; 1.0700. Sup: 1.0531; 1.0496; 1.0459; 1.0388. Interested in EUR/USD technicals? Check out the key levels