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Will It Be Sell In May & Go Away?

Morning Brief.

Today is Friday the 30th of April 2021, which means two things. It’s the end of the week and the end of the month, so if you have made gains this week or over April you really don’t want to be handing them back today. It will just ruin your weekend and then set up May on the wrong footing. Wednesday this week was subdued due to the FOMC meeting minutes and Press Conference, and it was notable how compressed prices were across risk assets. Yesterday in the aftermath of the market first digesting that the Fed won’t be raising rates or even talking about raising rates for some time, they had to internalise the big improvement in US GDP. The price action was distinctly opposed to the previous day’s action in the Nasdaq especially, which not only made new all-time highs but also tested the previous day’s lows before settling in the middle of the range. In summary, we have had a compression, followed by an expansion and now we’re looking for risk assets to trend. The question is, does the “Sell in May and go away” sentiment come into play next week. Because if it were not for the massive fiscal support, the market could very easily trend lower.

In the Asia-Pac session, we had data from Japan revealing that their industrial production month-on-month (MoM)for March was doing a lot better rising from -1.3% in February to 2.2% in March. The Japanese household confidence survey had dropped, as lockdowns and rising covid-19 cases dampen the spirits of the average consumer. But Japanese Construction Orders and Housing Starts data came in better than expected. We also learned that the Chinese Manufacturing PMI remains expansionary above the 50 level on the diffusion index but had slightly weakened from the previous print, dropping 0.8 down to 51.1 for April. The Chinese Caixin Manufacturing PMI did print slightly higher moving up to 51.9.

Just before the start of the London session, the UK’s Nationwide HPI rose MoM. French GDP QoQ for Q1 ticked up into the positive but still remains low at 0.4% as they also suffered fresh lockdowns due to the pandemic.

Looking at the ActivTrader sentiment indicator it is worth noting that the GBPUSD, EURUSD, and USDJPY traders are fairly evenly spread between the bulls and bears, which is indicative of a balanced market or a confusing market. If it is balanced then we should expect prices to consolidate around these levels but if it is a confused market, things could get more exciting on headline trading.

The GBPUSD daily chart still has prices above the 50 ema and 200 ema which suggests there is still more upside momentum to come. Though a clear break and close above or below the 19th April daily candle would be a significant signal of which way this pair is likely to trade.

The EURUSD has found decent resistance as it approached the 1.2150 price level and yesterday’s daily candle closed at its opening prices which could mark a change in direction should we break lower and close today with a bearish candle. This would also mean that the DXY is more likely to appreciate and test the $91.30-$91.40 zone of previous support.

The USDJPY is my most likely candidate for a continuation of the trend higher, having compressed prices on Wednesday we end up with a bullish engulfing candle yesterday. A break higher than yesterday's close will be a bullish continuation signal.

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