- Greece remains a driver of market sentiment for investors as the negotiations over its economic reform proposals drag on. However, signs of potential progress as having a positive impact across Greek bonds and the euro is pushing higher. Yanis Varoufakis has been side-lined by Prime Minister Tsipras and this could mean that the bottleneck has been removed. Certainly the markets think so with the Greek 2 year yield falling from 30% on 22nd April to now around 22%. The euro continues to rebound too. Greece needs to sort out its renegotiation of the proposals to secure the tranche of €7.2bn it needs to pay a series of public sector wages and repayments to the IMF. History tells us that the Eurozone will come to an agreement, but one senses it will once more go down to the wire.
- Be careful for positioning ahead of the FOMC. At 7pm UK time on Wednesday the FOMC announces its latest monetary policy. There is little expectation of any significant change to language, with the statement expected to suggest that future rate hikes remain data dependent. Despite this, the volatility around the announcement could elevate. Only a statement will be released tomorrow, with no press conference or projections. This reduces the likelihood of anything too spicy being announced.
- US earnings season is progressing averagely well. The trend has been so far that sale have broadly come in in line with expectations (just under 2%) whilst earnings have beaten (no real surprise with the usual massaging of expectations to help ensure market beating moves). Apple had another stellar quarter with revenue up 27% and earnings up 33%. If the market reacts positively then this be a driver of the S&P finally holding a breakout.
- It is interesting to see that the S&P 500 has rallied as the dollar has weakened in recent days. Equally interesting is that the German DAX has struggled (as the euro has rallied). This means that the DAX is beginning to underperform its European counterparts such as the Italian FTSE MIB.
- The FTSE 100 has so far remained relatively stable despite the increasing likelihood of a weak government to come out of the UK General Election. Opinion polls showing the leading parties likely to be split by just a handful of seats will result in the requirement for deals whether they be formal (coalition) or informal (confidence and supply on a vote by vote basis). The latter seems to be more likely and this could breed a weak government – which the markets would pounce upon. Not only would UK focused equities be targeted by also sterling may come under pressure too as would UK Gilts.
- The Dollar Index has turned lower again and is now falling towards a test of the lows of a two month range at 96.17. The dollar bull run is on pause but it is too early to say whether there will be any sustained correction or whether this is just part of a choppy consolidation.
- Commodity prices (including both oil and precious metals) continue to hold up well. This may also be helped by the near term correction on the dollar.
- This week also contains other key tier 1 US economic data such as a first look at US GDP (backward looking) and also the Manufacturing PMI (forward looking).
- In other events, there is monetary policy from the Bank of Japan and the Reserve Bank of New Zealand, whilst the Reserve Bank of Australia updates early next week. Friday’s manufacturing PMI across the world could also help to set risk appetite.
- Watch for: Greek negotiations with its creditors, US GDP, FOMC and ISM Manufacturing
EUR/USD – Still expect the near term rebound to fall over around $1.1000/$1.1100
- The key tier 1 US data this week will be crucial. The FOMC on Wednesday will be the main driver, but also a first look at Q1 growth and also the manufacturing PMI will also be of significant interest. With the FOMC data dependent these will be driving sentiment for the dollar which has been under pressure recently. Progress over Greece’s negotiations could also increase volatility in the coming days.
- If the rally above $1.0900 can be held then the range highs $1.1035/$1.1050 come into view again. There is then around 65 pips of resistance to the old key floor at $1.1100 to prevent a continued rally. I still see this as a medium term range play that should be sold into ultimately, however with such significant contrasting fundamental drivers it could be a rocky road in the next week.
- Watch for: Greek negotiations, FOMC, ISM Manufacturing
GBP/USD – Sterling beginning to outperform forex majors, but question marks surround the UK General Election
- The two leading parties (Conservatives and Labour) still cannot be separated in the opinion polls in the run up to the election on 7th May. Polls and Strategists suggest the broadly anti-austerity Scottish Nationalists will have a big part to play in the next government. Although this effectively would out an EU referendum, it does mean that question marks hang over deficit reduction and could impact on sterling. The risk does not seem to have been factored into Sterling yet. Even the weaker UK GDP data has failed to stop the run higher (although that may be because already analysts are talking about upward revisions due to the recent months of improving PMI data).
- The huge run through the resistance at $1.5000 (which is now supportive) has opened the next resistance band $1.5315/$1.5550, with the run moving strongly. Back the run in the near term, but there is a huge resistance band to be overcome now.
- Watch for: FOMC, PMIs, UK polling
USD/JPY – Range trade continues between 118.30/120.85 (pivot around 119.40)
- With both FOMC and BoJ announcing monetary policy within 12 hours of each other, Dollar/Yen could be quite volatile in the coming days. This would hopefully inject some interest into a pair that has become increasingly dull. It is likely to be the movement of the Dollar which is the real driver though. With the Fed moving towards tightening I still favour an upside break.
- The range between support at 118.30 and resistance at 120.84 has been in place now for 5 weeks and shows little sign of moving. Technical indicators are increasingly neutral and a decisive break is needed to break the shackles. Dollar/Yen occasionally goes though these phases of sideways trading prior to a sharp move. For now it is difficult to see the direction of the breakout, especially since the pair has been trading sideways since November under 122.
- Watch for: FOMC, BoJ, ISM Manufacturing
Gold – The range between $1175/1224 continues
- As the Dollar Index has become more rangebound in the past 7 weeks, so has the price of gold. However, I the past couple of weeks the strong negative correlation between the Dollar Index and Gold has begun to break down. I am not entirely sure exactly how long this will continue for, but I would imagine it is linked to the lack of decisive trend on the dollar in recent weeks.
- The breach of $1178 was so minor and intraday that the range has in effect been in place now for 5 weeks. There is little sign on the technical indicators that a breakout is imminent and so we await the catalyst. Trading within the range is possible using hourly momentum signals, but be close to positions as retracements and reversals are commonplace.
- Watch for: Risk appetite
Indices – Wall Street challenging the highs, DAX negative correlation to euro
- S&P 500 – Still failing to close at new all-time high levels despite an intraday breach. This has formed a “Bearish Engulfing” pattern near term reversal. However support is forming at higher levels with 2072 now having been left as a near term support. Earnings season is not acting as the decisive upside driver perhaps traders have become accustomed to in recent earnings seasons. Revenues remain sluggish and forward guidance is being impacted by a strengthening dollar.
- DAX Xetra – The DAX continues to move strongly on a weaker euro and vice versa. The index is now beginning to underperform other Eurozone markets. There has been significant volatility in recent sessions and there is a top pattern that could complete under 11,620.
- FTSE 100 – FTSE 100 has consistently failed to breakout above 7119 in recent weeks and the pressure is telling today. A close below 6978 would put pressure on the support of the 4 month uptrend, currently around 6900. The UK election uncertainty could also give an excuse to take profits. Key support remains at 6765.
WATCH OUT FOR THIS WEEK
Wednesday 29th April
- Eurozone – Germany CPI (flash)
- US – GDP (Q1 2015 Advance reading)
- US – Crude Oil Inventories
- US – FOMC monetary policy
- New Zealand – RBNZ monetary policy
Thursday 30th April
- Japan – BoJ monetary policy
- Eurozone – CPI (flash)
- Canada – GDP
- US – Weekly Jobless Claims
- US – Core Personal Consumption Expenditure
Friday 1st May
- Japan – CPI
- China – Manufacturing PMI
- UK – Manufacturing PMI
- US – ISM Manufacturing PMI
- US – University of Michigan Consumer Sentiment (revised)
Monday 4th May
- China – HSBC Manufacturing PMI (final)
- Eurozone – Manufacturing PMI (final)
- US – Factory Orders
Tuesday 5th May
- Australia – RBA monetary policy
- UK – Construction PMI
- US – Trade Balance
- US – ISM Non-Manufacturing PMI
- New Zealand – Unemployment
Wednesday 6th May
- UK – Services PMI
- US – ADP Employment Report
- US – Crude Oil Inventories
Thursday 7th May
- Australia – Unemployment
- UK – Parliamentary Elections (result on Friday 8th May)
- US – Weekly Jobless Claims
Friday 8th May
- Japan – BoJ meeting minutes
- China – Trade Balance
- Switzerland – CPI Inflation
- UK – Trade Balance
- US – Non-farm Payrolls
- US – Average Hourly Earnings