As we come to the end of a short holiday week, with the Easter weekend likely to keep markets thin until Tuesday at least, I am expecting some squaring of positions and a certain amount of hedging flows at least. The day hasn’t quite gone as planned with the EURUSD big drop occurring before finding weekly resistance and the US data has led to another drop in the US indices.
Today’s big news focus was around the ECB and their widely expected no change in monetary policy. What we did learn is that the asset purchase program (APP) will be concluding around Q3 this year. With the taper completed that may then open the door for a rate hike or balance sheet reduction or maybe both. The ECB President Lagarde gave a very gloomy outlook for European sentiment and productivity with Russia’s aggression in Ukraine as the biggest concern other than the rising and persistently high inflation.
The EURUSD collapsed through the recent range sweeping the liquidity below 1.08054 before testing Tuesday's lows. 1.08500 or 1.0900 are still in play as levels of resistance and due to the nature of a thin holiday market, I fully expect the EURUSD to drift back into the range to test these levels. However, there could be a larger sell-off from this level to the downside targeting the 1.07000 as traders look to de-risk ahead of the long weekend.
The sentiment indicator on the ActivTrader platform is now up to 76% long so these traders are the target of the squeeze lower if it occurs.
The US dollar index is holding above the $100 level and the recent economic data will go some way to keeping it up there.
Where we heard President Lagarde say European sentiment is dropping we see the US consumer sentiment now bouncing. The initial jobless claims from the US came in higher than expected but the previous reading was reduced. US retail sales also came in under expectations but had a higher revision than the prior reading. Which suggests a more bullish theme for the long run.
The forex heatmap is trying its best to confuse everyone as it has for the entire week. There is still no clear direction in risk assets. However, we are seeing the precious metals now give up some of their gains from this week.
The sentiment indicator for silver still shows a very crowded trade to the upside and these traders have been loving the rising silver markets. However, I did say earlier this week that the fall from these highs was the real pain trade as we revert to the mean and then possibly continue through the bottom of the range.
I’ll be waiting to see if these traders can close lower today and then head back to the daily 200 MA around the $24/oz level. The stochastic could be signaling the top of this wave, and the RSI is showing momentum favors the downside from here.
I thought the build-in inventories in the US would lead to a sharp decline in the Brent contract today but for the 3rd day, we see higher prices in energy.
The S&P500 looks like it still wants to come lower and test below the 4300 and fill in that imbalance from the mid-March break higher. The stochastic indicator can give the bulls some hope that a bounce may occur shortly, but there is still 52% of the companies within the benchmark index below their 200-day average. A drop in retail sales and build-in business inventories will probably lead to companies giving weaker forward guidance this earnings season, which investors will see as bearish.