What Next For Stocks And The Major Currency Pairs

Okay, Tuesday, 25th of May. Hope you are doing well. And before I begin the regular briefing, just a quick shout out again to remind you of the Amplify Live Market Watch podcast. If you just go on to Apple Podcasts or Spotify and search for it, you'll be able to find— what we have now is about 17 episodes covering a variety of different things. The head of trading, Piers, and I have a conversation And new episodes go out every Friday, so check it out. Otherwise, let's get straight to it and talk about what's going on in markets this morning. And generally, a positive sentiment. Oil continues to rebound. We've now reversed nearly all of the move lower that we saw last week. And in fact, since Friday, we're up nearly 8% in WTI crude. And I'll talk about the reason, rationale, more in a moment. Equity index futures continue to reverse course. We'll look at those from a technical perspective as well. This follows the positive close we had on Wall Street. All major 3 indices finishing firmly in the green. 10 out of the 11 kind of sectors or groups in the S&P 500 were higher. Tech outperformed. S&P up 1%, Dow up 0.5%, the NASDAQ 100 up about 1.75% at the close. So your Apples, Amazons were up about 1.5% to 1.7%. Tesla, which obviously has been beaten down of late, they were actually up in excess of 5% yesterday. Benchmark 10-year Treasury yields and the dollar declined. And so as we were talking about in the community yesterday, you've got this recurring theme. We're kind of back in that space now with inflationary expectations declining. In fact, yields moving lower, T-notes and equities moving higher. And the dollar weaker, which is supporting those major currency pairs as any of that short-term strength in the dollar continues to be counteracted as Fed officials remain firm with their transitory view of inflation. So let's just have a look at a couple of charts from a technical perspective, then we'll run through the news in the new normal or regular routine. So, um, dollar index actually just hitting fresh lows. As we deliver this briefing. So the DXY is now down at around 89.71, which is a loss of around coming up to 0.21% on the session. So, um, just seeing EURUSD just printing fresh highs here. So just breaking out above the double top from yesterday afternoon in Euro futures here and the kind of late Asia trade. So just keeping an eye here as we trade 122.37. 43 upside would be that area of, um, highs that restricted price action going from Thursday and Friday of last week. And then anything above there would be looking at, yes, last week's weekly high at 122.51 should we move higher. On the daily chart, of course, for the euro, these are important areas that we're trading at from a technical perspective. You can see here stretching it back to late February We've seen this 122.50 area being a difficult level for the market to trade above. But in a period of pretty persistent dollar weakness, underlined by the fact that we have seen kind of hedge fund positioning adding to kind of shorts at the moment in the dollar, and with potentially favorable economic data coming out from Europe, we've got IFO coming out, which is expected to be be pretty firm this morning. Be interested to see whether or not that can act enough as a catalyst in those conditions of those kind of diverging fundamentals at the moment. But this really resurgent euro, which you can quite, quite clearly see here over the, the price over the last 8 weeks or so, comparative to the general weakness direction of a weakening dollar that we've had. So any broader move above this— this is looking on the daily continuation chart then we'd be looking to target then up towards the kind of early Jan highs on the 8th. And basically the 1.23 handle would be the next obvious target above there, then, then looking to have eyes on the year-to-date high at 1.2368. Again, not, not necessarily looking for that move to occur today, but today's close and whether or not we finish above or below that level will be quite, quite key for the euro. Similarly, the pound continues to be supported in the weaker dollar environment. So did see a bit of a chop through that trend line yesterday, but then it's still relatively well respected after that brief excursion to the downside we saw in European morning. And now I think we've got a fairly nice platform here that the market responded to, which was the high that we saw this time yesterday. in the European open. The markets pulled back to that space as Europe's come in, and this latest dollar decline is just helping us accelerate back up onto the upside here. So again, targeting upside, you've got that high that we were printing back around Friday afternoon before the decline took hold, and that would also be the psychological 142 handle on the upside. So for directionally, still favoring the upside. Bias in those currencies. The dollar, um, fluctuation continues to be quite important for gold, uh, but for gold, if we just flick it onto a daily at the moment, this is kind of what we were talking about in the briefing yesterday. I do think we're in for a period of a bit of consolidation, if anything, here in gold prices, just given the really strong move that we've seen. I mean, from a percentage basis here, if we're looking at um, just a period of the last— well, if we take it back to the bottom of the move, 31st of March, so we're talking about, you know, less than 2 months worth of price action, we've risen about in excess of 12%. So as you can see here, we tend to go through push, a bit of a pullback, consolidation, push, consolidation, and I think we're in that latter phase at the moment. So Um, on the upside, obviously 1900 is key target. Um, it could trade a little bit more heavy on the pullbacks down to around 64. But overall, if you look at this on a 30-minute and where we're trading at the moment, I think this is kind of the, the range of which we will probably respect for the time being. You can see on the intraday, uh, you've got this double top from the overnight Asia PAC session. Which is holding for the moment. So that's to keep your eyes on the upside. Pivots just above that, about $1.50 above, and then targeting some of the higher price action we had from yesterday, which would coincide with the R1 should we start to see a bit of any further breakout, likely contingent on, on more dollar weakness to get up there. On the downside then, got the S1 at 69.70, starts to bring in some of those lows in the price action Thursday, Friday last week. And then you've got this more broader range kind of played down from 65. So overall, that's what I'm looking at in gold, to remain within this 65 to kind of 91 range. And that sounds quite wide, but then in the respect of the daily, I think we need to see that range play out a little more before we then start to see either a 1900 test or a more deeper correction. But at this point Um, I kind of just would say better to just play those, those ranges for the time being. Um, equities then. Uh, the DAX has seen on the daily chart what I think is technically quite an important break higher. Obviously just really strong gains being seen since Friday's session with equity recovery. This is looking on the daily chart and something we've looked at a couple times. So just to give you a reference point Basically from here, this is the year-to-date price action, and we've managed to break above what had been an area of resistance respected both in April and in, in May. And we closed above there importantly yesterday, and you can see then this morning we briefly came back to the level and we're moving back onto the upside again. So I think technically that was an important close yesterday for the DAX, and subsequently the US equity index futures also just higher. Uh, again, the DAX moved more in sympathy, I'd say. The US more the lead at the moment, just generally for equity sentiment. But you can see here, another extension, just had a little pop through, um, the late US session high, and it's just seen a bit of an acceleration of gains. We're looking at the NASDAQ 100 here, future on the 30-minute If we go on the daily, again, I think this is quite an interesting area. I'd like to see how we kind of close here in the NASDAQ today, and it's obviously very early at the moment, but whether or not then we can close above this kind of area to see whether or not we can then sort of consolidate within this kind of area, price area, rather than if we close below consolidating at around this 100 DMA blue line, um, and that kind of respective previous level that's had been somewhat of an inflection point for price around the 13,300 level. So quite interesting at the moment now with equities is this, this kind of recovery continues to take hold. And on the S&P Yeah, a bit of a squeeze in price coming into, uh, the kind of Asia session. Bit of a breakout seen from the, from the high that was just before the close on Wall Street before late dip. And on the daily chart, again, this is what we were looking at yesterday. It's quite an interesting area. We've managed to get our heads above here, as you can see. Again, good area of resistance around 4179.5. And this is what we were talking about in yesterday's briefing. Can we close above that we, we did, and we did by a clear distance. And now the market is continuing to move higher. And on the daily chart here, you've got to think a retest of the all-time highs back on the cards again at $42.38. And to help that retest of the highs, a couple things that are happening. One is a bit of more stability in, in the crypto space. And I'm pretty reticent to draw too many parallels to crypto fluctuations to other asset class movements, but it definitely helps general broader sentiment when the crypto sell-off that ensued last Wednesday is not happening and things are a bit more stable. And with that as well, the US 10-year continues to move higher. So any fears on the rates side and inflation continues to remain fairly, um, controlled at this point in time. The US 10-year, you can see horizontally now, just finding a bit of resistance around that 17th high. And that trend line we were looking at yesterday, which was well respected to start, is now playing on the other side as an area of support here. So you're pretty tight range, you're just trading between that trend line pivot and that previous high on the, the 17th. Any breakup above that, the R1 in the 10-year 23 pretty much lines up with the commencement of that trend line on the 11th that I'll be keeping an eye on. So at the moment as long as these moves are continuing, you'll decrease crypto stability, then I don't see any reason why equities can't continue to just kind of grind it up higher, to be honest. And if we get continued dollar weakness as well, then everything should kind of continue to click as it has done from a correlation point of view. Um, talking of inflation expectations, then a couple of things to show you on the screen. Um, off the boil I mean, this is looking at market implied US inflation expectations, and they have dropped recently. This is looking at the, the kind of dollar inflation spot forward, the 5-year, 5-year on the bottom, and the US 10-year breakeven rate on the weekly net change. And you can see here then really, um, the Fed continuing to, to just stick with that idea of transitory. And, and let me remind you, we did have some Fed speakers yesterday Feds Brainard, Bostic, Bullard— so the three Bs came out yesterday, and they said they wouldn't be surprised to see bottlenecks and supply shortages push prices up in the coming months as the pandemic recedes and pent-up customer demand is unleashed. But much of those price gains should prove temporary. And so this hasn't caused a move in the market per se, but it definitely just goes to show that, you know, if you say something enough, people start to believe you— that old mantra. So, uh, and that appears to be the case as far as what some of these inflation indication indicators are showing at the moment. And that for me is a positive for the equity space if this continues to be the pattern that we see. Um, elsewhere, oil, oil markets— I mean, we'll just have a quick look at the oil chart because I think you really need to see it in a bit of perspective. And the This is WTI crude front-month futures on a 30-minute. And as you can see here, after significant selling that we saw pretty much throughout last week, we've now reversed nearly all of the move. And having traded down as much as $61.60, $0.50, we're now back up at nearly $66.34 at the high seen early this morning. So we seen a decent 7.5%, 7.7% or so bounce from last Friday. So this is only literally about a session and a bit's worth of price action, and we've recovered that loss. So really decent buying here. And what's going on? What's underpinning this recovery in oil? Well, there's a couple of different things. For one, Iran has said that gaps remain in negotiations and aimed at reaching a deal to end US sanctions on its crude. And, you know, this is a good lesson, I think, in, in understanding if you're not— if you haven't tracked these types of US-Iranian sanction negotiations before, you know, it's a very complicated matter on many different fronts in terms of what the geopolitics involved is. And so with that, then, trying to achieve a deal, as much as there can be some positive signs as they were at the end of last week, which really was a key catalyst for the downside. Getting the deal kind of done and the ink on the paper is another matter, and so they're not quite there yet. So we've seen a bit of reversal, but there's other things and more important things, I think, beyond Iran. But on the Iran point, um, Goldman Sachs have released a note yesterday. They said that while the market is anticipating The Islamic Republic supply will pick up again by late summer. So this is people's concern last week is about how much more oil will Iran bring back to market. Let's not forget that Iran, after Saudi and Iraq, is the third largest producer within the OPEC nations. Uh, GS said the demand recovery will be strong enough to absorb any of that new supply. And that's something that we've definitely been saying and a believer of going forward because the just impacts of pockets of the global economy from very big nations like the US, developed Western world, and China would oversee then the amount of supply that Iran could ever bring back to market, counteracted by a definitive demand pickup through the months ahead. GS actually see Brent trading at $80 this year as economies continue to recover from the pandemic. Separately, Citi Their analysts have said they expect only a partial return of Iranian barrels initially. Remember, these things don't just flick on the switch and out comes 1.5 million extra barrels. And they actually forecast oil hitting mid-$70s in Q3, but then prices could retreat thereafter. And the retreating thereafter is quite an interesting concept, whether or not then as we go through the kind of exhaustion of stimulus the market does reopen, the data starts to roll over after this boom period in data that will go through where growth is really going to spike up, um, through Q3. What does it look like at the end of the year? It could be quite interesting, and obviously that would be important for oil prices. The other point here then is mobility is in the US is picking up. To give you a bit of context here, um, because mobility in the US has a Direct implication then for consumption. And with more than 61% now of US adults having received at least one dose, new coronavirus cases rose just 0.5% last week, the slowest increase we've seen in the US since March of 2020, so right at the beginning of the pandemic. In addition, the upcoming Memorial Day break at the end of May is a 3-day weekend for many and marks the start of driving season. And so there's, there's a couple of catalysts here underpinning this recovery. Um, the ability to strike a deal with Iran not being so straightforward. The bigger thing here, I think, is fortunately we're in a situation where economies can continue to reopen and therefore demand will increase, and that will outweigh the supply situation in my opinion. So that's the oil side of things. Bitcoin, yeah, gotta have a quick mention, haven't we? So yeah, this is the latest. Elon Musk tweeted last night, spoke with North American Bitcoin miners, they'll commit to publish current and planned renewable usage and ask miners WW to do so, potentially promising. So he was tweeting a lot about Dogecoin last night He was— he's obviously tweeted this, which is a little bit more complimentary perhaps to Bitcoin. It has increased volatility again, nothing to the same degree as what we had last week, but certainly goes to show that this one man has great influence over the price of this cryptocurrency and the crypto space, you could argue. And for me at the moment, you know, definitely, as you've probably observed, I am talking about Bitcoin and and so forth, more on the briefings. And that's because I think that there are, you know, if you look at it in the cold heart of day as a trader, there are some good opportunities if you're that way inclined, liking a high volatility environment. And obviously I would say it's more for someone of experience given that degree of risk associated with trading it. And so I like to look at it that way. I don't like to get too deep into the underlying technology because it's starts opening up lots of different conversations that certainly, uh, I think there's people better skilled than I. But one thing I can't help but feel is that I can't see how there can be any institutional adoption of any type of size at the moment of Bitcoin when it's subject to such volatility down to the fingertips of one man tweeting whenever he wants about whatever he wants. Now I know some people will come back at me and say, well, isn't that what Jerome Powell and the Fed do? I'd say no, because they have a mandate based on certain metrics like price stability and maximum employment, not where is my share price, what are my Bitcoin holdings doing, and, you know, am I invested in these cryptocurrencies to make a profit, and how big is my ego. And so for me, you know, jokes aside, that's a massive barrier, what's been happening over the last 2 weeks, for any type of mainstream adoption from an institutional basis that this could be a genuine contender as an asset class. And I did see a really good image, I don't have it up on at the moment, about the size of the crypto market compared to, say, the credit market or the real estate market, you know, it's marginal at best. So a bit of perspective, I guess. I mean, as I say, that doesn't mean you can't trade these things, and definitely they've had some, some great opportunities. So I'll stick to the chart for the moment and talk about it from that perspective. This is looking at the price action of the last 2 weeks. I think some quite nice technical setup here, so some levels to have a look at. And you can see this trend line, you know, unlike with all cryptocurrencies, they, they tend to have pretty nice technicals given, um, I'd say largely the participants who trade it, the emphasis they put on the price action over the kind of relative lack of fundamentals to a certain degree. So I'm just keeping an eye on the price action here. And I guess before we look at this chart, let's look at the daily. $40,000 is still, you you know, really a big marker here for upside. Last two sessions here, we've kind of got close to it, failed to break it. And I think from a psychological point of view, that's quite key. I think if we did break above it, I think we can see a decent push back up to $42,000, $42,500 pretty quick. Any failure to do so though, and we could see some consolidation here and around these current levels for a period of time. But downside, the same levels still apply, so 32, 30, and so on and so forth. On the slightly nearer time frame, if you're looking at this a little bit closer, intraday trades, then yeah, upside, I'd be keeping an eye on that trend line which would come in kind of roughly around the 39, 39 and a quarter. And then on the downside, you've got the rising trend line, the pivot level, which I'd keep an eye on around 37.5. But that's enough of Bitcoin for now. Um, calendar-wise, what have we got for today? So just to wrap things up from a data perspective, we do have the German IFO numbers coming out this morning. Um, they are expected to hit their highest level since May of 2019. You know, why is that? Well, cases are moving lower, people are becoming more confident that in the near term the lockdown will ease, mobility will increase, people can get back to normal. And that's just generally lifting sentiment in that reading for the time being. So I don't know how surprising that would be, but it certainly helps the narrative of the euro at the moment, which is benefiting from the weaker dollar. And so could act as catalyst for a push up higher and We are testing in the euro, don't forget, up and around those, those highs we saw at the end of last week, which could open up a higher move up to 1.2250. Then going into the afternoon, um, you have— well, these are revisions as far as building permits, so we can skip over there. None of this data is really that market moving until we get to new home sales coming out of the US. That'll be at 3 PM this afternoon. Just quickly wanted to show you the last new home sales report we had for the month of March. It came in at 1.02 million. That was in fact the highest reading that we've had since August of 2006. Now, as you can see here, there's almost like a depressed number against the rising trend, and then this massive monster figure that came out last month. Now, whenever you see data like that, what I try to encourage people to do is if you ever see an anomaly, like a piece of data that's a real outlier, statistical outlier against consensus or the historical price pattern, ask yourself why. Why is that figure so high? And isn't it a bit weird that that previous one's so low? And actually, obviously, when you're in markets week to week, month to month, you know, you already know the answer. But the point being is, is that use that kind of inquisitiveness to get to the bottom then of trying to judge what type of number we're going to see today. And if you actually look at the number today, it's expected at 998,000. So you could say that number puts us back here and that kind of normalizes us over these last 10 readings, for example. Now, the actual backstory here is that February was so low because if you think about new home sales, think about the adverse weather conditions that were experienced in Texas and in the South in North America in February. That was when we had the kind of great freeze, if you like. So new home sales obviously were impacted significantly, but those people who still wanted a new home still wanted a new home when the weather passed, and so therefore they just went back a few weeks later when the weather was better. And so therefore, anything that was going to come out in February just got bumped and pushed into March. If you actually divide the total and divide them by 2, we've pretty much got the same, a steady reading of around 950 to 970, let's say, of which we're going to expect again today. So, um, this figure I don't think particularly is that, that important, but just wanted to talk you through the kind of just Context is always quite key with interpreting these data and making that judgment call. Is it important? Why was it so strong? Can it be that strong again? The answer to that is probably not. All right, um, other than that, what else have you got? API, all inventory numbers coming out later on this evening as usual. Speaker-wise, a couple of interesting ones: Fed's Evans, Barkin, and And Coales is speaking later on at 2:40, 1 o'clock, and 3 PM London time. They are all Fed voting members. And then you've got the chief economist Philip Lane of the ECB speaking this afternoon at 3 PM, and Bank of England member on the MPC Sylvia Tenreyro is speaking at 5 PM. All right, that is it. So, um, I'll see you guys in the Discord chat room. If you're not in the Discord chat room get in there. You just got to go to AmplifyLive.com. There is a free option to join our community chat room. We'd also have a pro chat room, but check it out. All right, guys, have a good day and I'll see you later on. Thanks very much.