Can the bulls maintain this improvement in risk appetite?


  • What a difference 24 hours makes. On Sunday evening it seemed as though financial markets were ready to take a sizeable leg lower after the disappointment of a failure to come to an agreement over oil production limits in the Doha meeting. However, over the course of the following day, market sentiment first of all steadied and then recovered. The recovery has been remarkable, with the oil price now entirely retracing its initial knee-jerk reaction lower, with commodity currencies sharply higher and equities bursting through resistance levels. Can this move continue as a trend or will it just be part of a series of short and choppy moves?

oil well

  • The oil price has recovered due to two reasons. Firstly, the expectation moving into Doha was fairly low for an agreement with the Saudis always questioning an agreement in the absence of Iran, but the fact that they are talking and n discussion suggests there is an appetite for some sort of action. However, perhaps more importantly there has also been the announcement of a strike by oil workers in Kuwait which (according to Reuters) will reduced the country’s 3 million barrels per day output by 60% to just 1.1m barrels, which is a sizeable impact on supply. This drop in supply more than balances the surplus in global supply (c. 1.5m barrels according to the EIA in Q1). The price action and volatility could ramp up when the oil strike ends and Kuwaiti supplies normalise.
  • The oil price has recovered, but is this just a temporary position whilst the strike in Kuwait continues? The lack of agreement to freeze OEPC/Non-OPEC output could mean that upside is reasonably limited now, with $42.40/$43.50 on WTI and the equivalent at $44.95/$46.25 on Brent Crude providing significant overhead resistance now. I think that oil may now start to develop a consolidation range, much in the same way that gold has.
  • This near term rebound in oil has helped to drive a big improvement in risk appetite. Commodity currencies are breaking to multi-month highs (Aussie and Kiwi) and even sterling which has been such a weak underperformer amongst the majors, has also picked up. The weakness in the US dollar is also notable, with the Dollar Index dropping back and once more closing in on the April low at 93.6 again (just under a percent lower from current levels). It is also interesting that with the improved risk appetite, the yen is coming under some near term corrective pressure again which is helping to drag Dollar/Yen back higher.
  • The positive correlation between oil and equities may not be as strong as it has been previously however the sharp recovery since the intraday lows yesterday shows a strong response from the buyers. The European equity markets have been the standout movers today from a technical perspective, with the DAX breaking out to a 3 month high and the EuroSTOXX indices also completing base patterns. The big question is that if the oil price is hit once more as and when the oil strike in Kuwait comes to an end, can equities maintain their upside momentum?


  • We are getting into the belly of earnings season now in the US, with around 80% of companies set to report in the next couple of weeks. Although the banks have performed better than expectations (is that really a surprise?) but the blended earnings is still looking at over 9% decline for the quarter which is a concern that leaves valuations looking still on the high side and could hamper too much further on the upside.
  • Through all these markets, the common ground is the improvement in risk appetite as the oil price has rallied. The oil price rally has come on this Kuwaiti oil strike. When the oil strike comes to an end there could now be some serious questions asked of these bulls. The correlation works both ways.
  • As the week goes on the focus will turn to the ECB monetary policy. The huge collection of monetary easing measures implemented six weeks ago at the March meeting are still working through the system (the TLTROs are not taking place until June), so there is no expectation of any great change of policy on Thursday. However Draghi’s press conference always drives volatility and needs to be watched. What will be his response to ECB chief economist Peter Praet’s assertion that the floor on the deposit rate has not yet been reached?
  • Other data releases such as the UK earnings growth and UK retail sales are not expected to impact much with little real change from last month’s data. However sterling will be reactive (as it will to the ramp up in Brexit talk as the official referendum campaign has begun). The Eurozone flash PMIs are also expected to show an improvement (the upside surprise in the German ZEW is supportive of this).
  • Watch for: Developments on the Kuwaiti oil strike, ECB monetary policy



EUR/USD – The long term resistance band around $1.1465 remains a key barrier

  • The ECB meeting is the key focus, but the truth is that this may be one of the less crucial (ie. less volatile) meetings. The economic data out of the US is still not crying out for another hike and this should help to underpin the pair.
  • Near term resistance around $1.1330 protects a move back towards the long term range highs at $1.1465. I remain positive within the range whilst above $1.1100 and the ideal buy zine would be $1.1100/$1.1200.
  • Watch for: ECB monetary policy

GBP/USD – Rallies are still a chance to sell

  • The wage growth is solid but unspectacular for now just above 2.0% and this needs to pick up for a number of the Bank of England MPC members to consider a hike vote. The issue of Brexit continues to hang overhead and the start of the official referendum campaign means that the volatility will begin to ramp up in the weeks ahead. The latest feeling is that the “remain” camp are favoured and this is helping to support sterling in the past couple of days.
  • The near term resistance at $1.4345 has been taken out but this now means the key overhead reaction high at $1.4450 is now in range. This marks the bottom of the key medium term resistance of the March highs up to $1.4515. Selling into strength remains the strategy whilst this resistance is intact.
  • Watch for: UK wage growth, UK Retail Sales

USD/JPY – The support around 111 is likely to come under further pressure.   

  • The reversal of safe haven flows is resulting in a yen correction and this is interesting with next week’s BoJ meeting in mind. It may help to prevent any serious action (although the jawboning will continue). The market will also begin to look forward to the Fed meeting too.
  • The support band 107.60/80 is now the floor, whilst the market is still a range below 109.75. I still expect a resumption of the sell-off on the pair and feel that 110/111 is an ideal medium term sell-zone.
  • Watch for: Developments on the Kuwaiti oil strike, general market sentiment

Gold – The medium term range between $1191/$1282 is increasingly set

  • Gold is supported by the dollar weakness amid the repricing of expectations of the Fed rate hike. However there is no real appetite for additional gains at this stage. Subsequently a range phase is forming .
  • The support band $1191/$1208 is the floor, whilst resistance starts at $1260 towards $1282. Momentum indicators are neutral and the range looks set to continue.
  • Watch for: Developments on the Kuwaiti oil strike, US dollar performance

Oil – Could oil begin to range?

  • A failure to agree at the Doha meeting could well limit upside in the near term, but the improved picture on supply is helping to support the market with US oil rig count and oil production falling. The Kuwaiti oil workers’ strike has boosted the price for now but this leaves it open for profit taking on a resolution.
  • Technically the outlook remains strong with WTI supported between $34.80/$36 and Brent Crude supported between $36/$38.30 this should prevent any serious correction in the event of another decline, whilst the resistances at $42.40/$43.50 on WTI and $44.95/$46.25 on Brent Crude could cap the upside. Momentum indicators are looking more rangebound now.
  • Watch for: Developments on the Kuwaiti oil strike

Indices – Equity markets breaking out but can the momentum be sustained?   

  • S&P 500 – The run higher continues with the S&P now at the highest since early December. However the big resistance is now starting to come back in at 2103, 2116, and the all time high at 2134. Will earnings season become the key factor?
  • DAX Xetra – The DAX has been a signal for bullish sentiment, with a breakout today above resistance at 10,122. The 50% Fib retracement at 10,373 is being tested.
  • FTSE 100 – FTSE 100 breakout above 6237 suggested a 200 tick upside target but also the 6487 key October high. Momentum is strong and the old resistance band 6200/6237 becomes the basis of support for near term corrections.



Tuesday 19th April

  • US – Building Permits
  • US – Housing Starts

Wednesday 20th April

  • UK – Unemployment / Average weekly earnings
  • US – Existing Home Sales
  • US – EIA Crude Oil inventories

Thursday 21st April

  • UK – Retail Sales
  • Eurozone – ECB monetary policy + press conference
  • US – Weekly Jobless Claims
  • US – Philly Fed Manufacturing Index

Friday 22nd April

  • Japan – Flash Manufacturing PMI
  • Eurozone – Flash Manufacturing PMI
  • Eurozone – Flash Services PMI
  • US – Flash Manufacturing PMI



Monday 25th April

  • Eurozone – German Ifo Business Climate
  • US – New Home Sales

Tuesday 26th April

  • US – Durable Goods Orders
  • US – Case Shiller House Prime Index
  • US – CB Consumer Confidence
  • US – Richmond Fed Manufacturing

Wednesday 27th April

  • Australia – CPI
  • UK – GDP (Q1 2016 prelim)
  • US – Pending Home Sales
  • US – EIA Crude Oil inventories
  • US – FOMC monetary policy
  • New Zealand – RBNZ monetary policy

Thursday 28th April

  • Japan – CPI
  • Japan – BoJ monetary policy
  • Eurozone – German CPI
  • US – GDP (Q1 2016 Advance)
  • US – Weekly Jobless Claims
  • US – Philly Fed Manufacturing Index

Friday 30th April

  • Eurozone – Flash CPI
  • US – Core PCE
  • US – Michigan Sentiment (revised)


Leave a Reply

Your email address will not be published. Required fields are marked *