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Fresh Quarter. Fresh Month. Fresh Week. Market Insight for the Week Ending 7 April

Fresh Quarter. Fresh Month. Fresh Week. Market Insight for the Week Ending 7 April

Friday saw markets conclude what was a turbulent quarter, albeit an upbeat one for global equities.

The recent banking turmoil shook Q1, though does appear to be receding. Despite the collapse of Silicon Valley Bank and Signature Bank and UBS’s rescue of Credit Suisse, Q1 ended well and truly on the front foot in the equities space. The Nasdaq 100 added an eye-popping 20.0%, Germany’s DAX jumped 12.0%, and Japan’s Nikkei 225 climbed 7.5%. The dollar, however, was a notable victim in March (-2.3% [Dollar Index]) as market participants felt that the recent banking concerns would lead the Fed to pause rate hikes, thus weighing on demand for the buck.

The week ended with a look at the Fed’s preferred measure of inflation—the personal consumption expenditures price index excluding food and energy (for February)—showing that prices rose less than expected at 0.3% (vs 0.4% forecast and a touch lower than January’s 0.5% reading). The YoY measure for February also came in lower than anticipated at 4.6% (vs 4.7% expected). US equity indices gapped higher at the cash open following the release; the S&P 500, in the shape of a near-full-bodied daily bullish candle, added 1.4%, and the Nasdaq 100 cemented its position north of YTD pinnacles to 13,181 (+1.7%). Market pricing for the upcoming Fed meeting on 3 May shows a 58% probability of another 25bp increase over a 42% chance that the central bank presses the pause button and holds rates steady. Furthermore, current market pricing shows a possible 50bp cut by the year’s end.

Looking ahead as we step into the first full week of April, Monday welcomes the latest US Purchasing Managers Index (PMI) during the early hours of US trading. This release surveys purchasing managers to assess economic health and is a leading indicator. Therefore, this will be a closely watched release this week.

The Reserve Bank of Australia (RBA) and the Reserve Bank of New Zealand (RBNZ) steal the spotlight heading into mid-week trading. Markets are pricing in a potential pause in rate hikes for the RBA, leaving its Cash Rate at 3.6%; this follows lower-than-expected annual inflation data out of Australia, released late March (cooled to 6.8% from 7.4%, but is still far beyond the central bank’s 2.0% inflation target). However, some desks are still calling for another 25bp push and for rates to peak at 3.85%. Consequently, early hours on Tuesday will be interesting and may elevate volatility across domestic markets in Australia and the AUD-based currency pairs. Regarding the RBNZ, there is around a 90.0% chance (according to short-term interest rate markets) that the central bank increases its Official Cash Rate by 25bps, bringing the OCR to 5.0%.

Friday will also see the latest US employment situation report, which is expected to reveal an increase of 240,000 new payrolls (versus last month’s stronger-than-expected 311,000 print). Unemployment is expected to remain steady at 3.6%. Importantly, though, the NFP release comes when most major banking institutions close their doors to observe Good Friday. So, the market response could be limited, though bear in mind that with thin liquidity, any reaction could magnify volatility.

Economic Data for the Week Ahead:

Monday 3 April

US ISM Manufacturing PMI for March at 3:00 pm GMT+1

Markets welcome the latest manufacturing PMI data from the US, expected to marginally tick lower to 47.1 in March from February’s 47.7 figure. However, the forecast range resides between 48.0 and 44.4.

Tuesday 4 April

Reserve Bank of Australia (RBA) Interest Rate Decision at 5:30 am GMT+1

The RBA is expected to increase its Cash Rate by another 25 basis points to 3.85%, though many desks also anticipate a pause in rate hikes hereafter.

Wednesday 5 April

Reserve Bank of New Zealand (RBNZ) Interest Rate Decision at 3:00 am GMT+1

The RBNZ is expected to hike interest rates by 25 basis points, bringing the Official Cash Rate to 5.00%, following a 50 basis-point increase in February.

US ADP Non-Farm Employment Change for March at 1:15 pm GMT+1

With a forecast range between 250,000 and 169,000, the median consensus heading into ADP employment calls for 200,000—lower than February’s print of 242,000.

Friday 7 April

US Non-Farm Employment Change for March at 1:30 pm GMT+1

The expectation heading into the NFP announcement is for a lower-than-previous print of 240,000 new jobs, following February’s 311,000 reading and 517,000 in January.

Technical Markets to Watch for the Week Ahead

Currencies:

Downside Risks Remain for the Greenback?

Sentiment for the US dollar remained to the downside last week. According to the US Dollar Index, the buck pencilled in a third straight week of losses (-0.5%); MTD, the index shed 2.3%. And technically, traders are likely betting on further losses materialising.

The absence of support on the monthly chart, following the rejection of ascending channel resistance taken from the high of 103.82 in Q4 of 2022, places long-term bids in an exposed position. Technical elements, therefore, show the dollar remains depressed, and expectations call for further selling towards support from 99.67. As a result, with the long-term trend favouring buying (trending higher since 2008), is the 100.00 neighbourhood an area we could see dip buyers emerge from? In the context of the Relative Strength Index (RSI), the indicator is still on the doorstep of its 50.00 centreline, which happens to be shadowed by a trendline resistance-turned-support from the high 82.87.

You may recall from the prior week’s Market Insight that I highlighted a medium-term bearish scenario could unfold on the US Dollar Index. Rupturing the 50-day simple moving average (103.48) on 20 March and maintaining position beneath the dynamic value on the daily chart helps reaffirm my initial outlook. While 103.48 remains a potential overhead resistance, the lack of support seen on the daily timeframe until 100.27-100.77 (and scope to press lower on the monthly), together with the immediate trend facing southbound since September 2022 (essentially denoting the correctional phase on the monthly timeframe) which is also demonstrated by way of a Death Cross (50-day SMA crossing under the 200-day SMA [106.56]), sellers are likely to remain in control as we step into April.

Technical Markets to Watch for the Week Ahead

GBP/USD: Challenging YTD Peaks?

Sterling has outperformed since stamping in a low of $1.1802 against the US dollar. Last week gained 0.8% and is now on the doorstep of YTD peaks at $1.2448, a level likely to be watched closely this week. Further outperformance in GBP/USD could have the pair chalk up a fresh higher high (and, by extension, confirm an uptrend based on price structure) and aim for trendline resistance drawn from the high of $1.4250 on the weekly timeframe, closely shadowed by weekly resistance as far north as $1.2767.

Working from the daily timeframe, the YTD top at $1.2448 is key this week, as is resistance coming in from $1.2469. Albeit a considerable (technical) ceiling to contend with, the Relative Strength Index (RSI) recently overthrew trendline resistance etched from the high of 67.65, helping to confirm upside momentum on this timeframe. This places a question mark on the said resistances.

Things get a little more interesting on the H1 chart. Since mid-March, I have watched the pair carve out a rising wedge formation between $1.2027 and $1.2200. In recent weeks, I also saw a smaller, more local rising wedge take shape, using the same lower ascending line from the larger wedge formation, with a less steep upper boundary (blue dashed line) taken from $1.2343. As you can see, price ended the week taking out the lower edge of the rising wedge pattern’s boundary. Technically speaking, this tells me short-term buyers lack steam, despite chalking up higher highs. This is also evident on the RSI: DOUBLE negative divergence in the region of overbought territory.

So, with the above analysis on board, attention is on the YTD peak from $1.2448 this week in the medium term. Shorter-term price movement, on the other hand, may see further downside unfold in early trading after taking out the lower base of the H1 timeframe’s rising wedge pattern. $1.2305 H1 support calls for attention and a break here could pave the way for a drop to $1.22.

GBP/USD: Challenging YTD Peaks?

Commodities:

WTI Oil Adds 9.0% Last Week!

I wrote about the oil market when it shook hands with what I deemed major support on the weekly scale at $65.30 (complemented by a 1.618% Fibonacci projection from $65.16 and a 50.0% retracement at $64.44). The last two weeks have seen the unit rally from the noted support and reclaim most of the month’s losses to end the month of March down by 1.7%. Last week gained an eye-watering 9.3% and chucked light back weekly resistance from $85.20.

While recent performance is impressive, the weekly timeframe is still entrenched within a downtrend, presenting a series of lower lows/highs since forming a top at $129.42. Additionally, the Relative Strength Index (RSI) remains contained between two converging lines between 34.78 and 50.17. We have yet to see a breakout to the upside here to confirm recent buying, and we also remain under 50.00. This week, the upper boundary of the descending line on the RSI will be a key watch.

The technical landscape on the daily timeframe finished the month connecting with resistance at $75.53, which happens to be joined by the 50-day simple moving average, currently fluctuating around $75.62. Subsequent buying shines the technical spotlight on double-top resistance at $80.62 while rejecting current resistance shifts attention to support at $69.26. Regarding where I stand on the RSI, the indicator is exploring ‘temporary’ overbought space between 60.00 and 50.00 (common area of resistance amid down-trending price action).

Ultimately, despite the recovery from weekly support of $65.30, there is an evident downtrend in play and clear resistance on the daily timeframe of around $75.53. Consequently, while jumping on the back of recent upside could be something traders consider this week, the current technical situation should not be overlooked.

WTI Oil Adds 9.0% Last Week

Gold XAU/USD Bullish Pennant?

Working with just the daily chart this week, we can see that since 20 March, the yellow metal has been in the process of crafting a potential bullish pennant pattern between $2,009 and $1,934. Note that the pattern is confined between support and resistance from $1,949 and the widely watched $2,000 base. With pennant formations traditionally viewed as continuation patterns, a breakout to the upside could be seen. This may have the price overthrow $2,000 resistance to eventually approach all-time peaks of around $2,070, technically representing double-top resistance.

The Relative Strength Index (RSI) has recently made its way out of overbought space and ended the week at around 60.00. No divergence is visible, but a clear area of support resides between 55.00 and 62.00, which, if held, could encourage a push higher this week and reinforce a breakout of the noted pennant structure.

Gold XAU/USD Bullish Pennant

Equities:

S&P 500: Short-Term Buyers in Control; Resistance Eyed at 4,141

MTD, the S&P 500 added 3.5% (Q1 added a cool 7.0%), which recouped last month’s losses and closed at session peaks. This is about as bullish as you can get regarding candlestick analysis.

We have been working with a defined uptrend since mid-2013 on the monthly scale after price broke out of its near-13-year range between 1,555 and 777. As you can see, since bottoming at 3,491 in October last year, the index has begun what appears to be a recovery, following the correction from all-time highs of 4,818 in January 2022. Another technical observation from the monthly timeframe is the Relative Strength Index (RSI) indicator testing the mettle of support between 40.00 and 50.00, which is common in trending markets. This area has offered a floor for the momentum indicator, which I have considered a temporary oversold zone since 2010.

Moving across to the weekly scale, trendline resistance-turned support from the all-time high of 4,818 entered the fray in March and prompted a three-week bullish phase. Following last week’s 3.5% advance, further buying could be seen towards resistance from 4,177 this week, bolstered by the RSI indicator crossing above the upper boundary of an ascending triangle pattern drawn from 53.72 and 30.47.

Out of the daily timeframe, price action is on the verge of bumping heads with a trendline support-turned-resistance from the low of 3,491, which happens to join with a descending resistance etched from the high 4,325 and a 100% projection at 4,141 (AB=CD resistance structure). Trend direction favours buyers on the daily chart, emphasised by price structure and the 50-day simple moving average (4,020) crossing above the 200-day simple moving average (3,935), referred to as a Golden Cross and is a bullish trend reversal signal. This is further evidenced by the RSI crossing above its 50.00 centreline.

In the short term, the technical pendulum swings in favour of buyers until the daily resistance structure at 4,141 and weekly resistance from 4,177 enters the fight. Therefore, drilling down to lower-timeframe structure to seek bullish scenarios may be on the watchlist for day traders in early trading this week, targeting 4,140ish as an initial upside objective.

S&P 500: Short-Term Buyers in Control; Resistance Eyed at 4,141

Cryptocurrencies:

ETH/USD: Key Resistance Vulnerable  

Beginning with a look at the daily timeframe, ETH/USD has been consolidating between support and resistance at $1,713 and $1,848 since mid-March. Of technical note, alongside the week ending with price testing the aforementioned resistance, I also see the unit testing the upper limit of what is referred to as a broadening pattern drawn from the high of $1,680. Trend structure favours buyers on the daily chart, with prices remaining above the 200-day simple moving average ($1,437) since early 2023.

Against the backdrop of the bigger picture, Friday tested resistance at $1,840 on the H1, and remains south of the limit on Saturday. Downside support targets are seen at $1,808, which joins with ascending support pencilled in from the low of $1.687. Beyond here, I also see support residing at $1,793.

The daily and H1 timeframes show the Relative Strength Index (RSI) holding above its 50.00 centrelines, indicating positive momentum on both charts. Daily and H1 charts also depict uptrends; buyers are technically favoured in this market. As such, should H1 support from $1,808 welcome price (particularly where the level merges with H1 ascending support), this could be a location dip buyers emerge from this week to eventually dethrone H1 and daily resistances at $1,840 and $1,848, respectively.

ETHUSD-FPMARKETS

Charts: TradingView

DISCLAIMER:

The information contained in this material is intended for general advice only. It does not take into account your investment objectives, financial situation or particular needs. FP Markets has made every effort to ensure the accuracy of the information as at the date of publication. FP Markets does not give any warranty or representation as to the material. Examples included in this material are for illustrative purposes only. To the extent permitted by law, FP Markets and its employees shall not be liable for any loss or damage arising in any way (including by way of negligence) from or in connection with any information provided in or omitted from this material. Features of the FP Markets products including applicable fees and charges are outlined in the Product Disclosure Statements available from FP Markets website, www.fpmarkets.com and should be considered before deciding to deal in those products. Derivatives can be risky; losses can exceed your initial payment. FP Markets recommends that you seek independent advice. First Prudential Markets Pty Ltd trading as FP Markets ABN 16 112 600 281, Australian Financial Services License Number 286354.

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