Tuesday has been a huge session for “risk-on” flows as the market continues to price in a recovery from the pandemic. The Aud$ has been leading the way higher as global growth prospects seem to be picking up, driven by demand for Iron Ore prices which are now back above $100per tonne, while all other risk-associated assets had big moves as well. The Kiwi followed the Aus$ higher, while the more noticeable reaction was in the Jpy which was sold off sharply on all fronts as safe-haven demand diminished. In the commodities sector, Gold and Silver were both in the same boat as the Jpy and gave up around 1%, while WTI went the other way in cheering the growth outlook and put on almost 4%.
US stocks ended higher, up by around 0.7% as traders preferred to focus on the “hoped-for” economic recovery in the second half of the year, despite the current protests in the US which threaten to slow the pace of reopening nationwide. Energy stocks led the way higher, on the back of the rising oil price, and were closely followed by the banks after they pledged to commit $1 billion over the next 4 years to support economic and racial inequality accelerated by a global pandemic.
Note that the German DAX had an impressive day, rising by around 3.75% after a three-day break, underpinned by the news that Angela Merkel’s ruling coalition is working on another massive stimulus package. This in turn underpinned the Euro which saw a sharp move towards 1.1200 before consolidating just below that level into the end of the session. The charts hint at another leg higher in the near future.
Wednesday gets underway with the release of the Services and Composite PMIs, beginning with those of Australia, Japan and China ahead of the EU/UK/US. Also due, from Australia, will be the Q1 GDP figure which will be very closely watched. Expectations are for a downbeat reading of -0.3%qq, 1.4%yy, but if it comes in at or above 0.0%, we can probably expect to see another leg higher for the Aud$. The Q2 figures will obviously show a sharp downturn in activity and will come in as a negative reading, so the hope is that today’s number will be above 0.0%, with the aim of avoiding a technical recession. We shall see. Also from Australia, the April Building Permits (exp -15%mm) and New Home Sales are due for release. Germany will release its unemployment rate for May (exp 6.2%, +200K), as will the EU (exp 8.2%). Aside from the Markit PMIs, the ISM Non-Mfg figures will be released in the US, as will the ADP Jobs data (exp -9mio), which comes ahead of Friday’s official jobs data.
Economic data highlights will include:
Wed: Global Services/Composite PMIs (Australia, China, Japan, EU, UK, US), Australian Q1 GDP, Building Permits, German Unemployment, EU PPI, Unemployment, US ADP Jobs data, ISM Non-Mfg PMI/Prices Paid, Factory Orders, Bank Of Canada Interest Rate Decision, EIA Weekly Crude Stocks Change
Market moves, in brief:
FX: DXY 97.70 (-0.17%)
Bonds: US10Y; 0.686% (+3.25%), German 10Y; -0.412% (-2.69%), UK 10Y; 0.227% (-0.83%), Australian 10Y; 0.914% (+1.12%), NZ 10Y; 0.863% (+3.61 %), China 10Y; 2.776% +2.47%)
Stock Indices: DJI; +1.05%, S+P; +0.82%, NASDAQ; +0.59%, EUStoxx50; +2.63%, FTSE100; +0.87%, Shanghai Composite; +0.20%, ASX200: +0.45%
Metals: Gold $1728 oz (-0.68%), Silver $18.18 oz (-1.20%), Copper $2.495 lb (+1.0%), Iron Ore $100.67 per tonne (NYMEX) (+1.50%),
Oil: WTI $36.85 pb (+3.69%)
|INDICES / COMMODITIES|
The risk-on theme is gathering pace with strong moves higher in the Aud and Nzd as well as in WTI. At the same time, this has meant a selloff in Gold and in the Jpy as safe-haven demand diminishes. More of the same looks likely although the Australian GDP later this morning may take some of the wind out of the sails of the growth outlook, but right now the charts generally look positive. – See below for trade ideas.
The main themes today seem to be that the Aud$ (and also the Nzd$) looks particulalrly strong on all time frames, both against the US$ and on the crosses (Aud vs Jpy, Eur, Gbp and Nzd). The Yen seems to have further weakness ahead against all counterparts, while even Sterling seems to have caught a bid tone against the US$. Overall, the ongoing US$ weaknesss seems set to continue against all the majors with the exception of the Jpy.
Oil looks very solid, while stock markets also seem set to grind their way higher.
|1 Hour||Bearish Divergence||Up – Overbought||Turning Lower?||Neutral – Turning Higher?||Up – Overbought||Up – Overbought|
|4 Hour||Neutral – Turning Higher?||Turning Higher?||Neutral – Turning Higher?||Turning Neutral||Up||Turning Higher|
|1 Day||Up||Neutral – Turning Higher?||Neutral – Turning Higher?||Turning Neutral||Up||Turning Higher|
|1 Week||Turning Neutral||Neutral||Possible Basing Formation||Neutral||Up||Turning Higher|
|1 Hour||Possible Basing Formation||Neutral – Turning Higher?||Neutral – Turning Higher?||Turning Lower||Neutral – Turning Lower?||Neutral – Turning Higher?|
|4 Hour||Neutral – Turning Lower?||Turning Neutral||Turning Neutral||Turning Neutral||Turning Neutral||Neutral – Turning Higher?|
|1 Day||Turning Lower||Turning Higher?||Turning Higher||Neutral – Turning Lower?||Turning Higher||Turning Higher?|
|1 Week||Neutral – Turning Lower?||Turning Higher||Turning Higher||Possible Topping Formation||Turning Higher?||Turning Higher|
|1 Hour||Up – Overbought||Turning Neutral||Down||Up – Overbought||Down – Oversold||Turning Lower|
|4 Hour||Up||Neutral – Turning Lower?||Turning Lower||Up||Turning Lower||Turning Higher|
|1 Day||Up||Turning Neutral||Turning Lower||Turning Higher||Neutral – Turning Lower?||Neutral – Turning Higher?|
|1 Week||Neutral – Turning Higher?||Neutral – Turning Higher?||Turning Lower||Turning Higher||Down||Turning Higher|
The short term momentum indicators for the Aud and Nzd do look overbought, and we have come a long way in the last couple of sessions, but right now, buying dips does look to be the plan. Note that strong trend line resistance lies at 0.6920 in the AudUsd (going back to 2013), but if we can overcome that, then we could head quite a bit higher.
The Euro continues to grind its way higher and does look good for a test of resistance in the 1.1200/30 area, above which opens the way to 1.1300.. SL should be raised to just below 1.1100.
The previously mentioned chance of a reverses Head/Shoulder formation in US$Jpy seems to be coming good after having easily broken the neckline at 108.00 and now has a measured target at around 110.00. SL should be raised to sit just under the neckline. The move has flowed through to the crosses and as we said before beneficiaries have been EurJpy and AudJpy, which both look very positive for further gains.
The S+P has now broken the previously mentioned resistance at 3060/65, and the next target is now at 3100 (76.4% of 3397/2165). SL should be raised to break even at 3025.
The ASX reached our downside target at 5700 on Friday/Monday, before a strong run higher, to currently trade at 5865. SL should be raised to around 5825, but with the charts looking positive, I am hoping for a squeeze back to 5900 and eventually to 5950 (100DMA) and even to 5980 (200 WMA)
As per the weekend video outlook (at 13.06 minutes:) https://www.orchardforex.com/1-jun-1-june-weekly-video-outlook-from-orchard-forex/ keep a close eye on Oil. WTI seems to be building a huge reverse Head/Shoulder formation – as per the daily charts. The measured target for WTI would seem to be at around $55per barrel – so worth watching. – Be aware though, that there will be large resistance seen at $40/43 per barrel if we get there. This would fill in the gap on the weekly chart , below, and would also meet the neckline of the HUGE head/Shoulder formation which allowed oil to trade down to $0.00, and lower, a month ago. This area would meet large selling interest and is unlikely to succed in breaking it at the first attempt. We have to get there first, so it is entirely possible we won’t ever see it, although the longer term charts look positive and we live in hope!