USD unimpressed by Consumer Confidence data

US Consumer Confidence Index rose to 104.2 from 102.9 in March (revised to 103.4). Today’s reading came in above analysts’ estimates of 101.

Present situation index 151.1 vs 153 prior
Expectations index 73.0 vs 69.7 prior
1 year inflation 6.3% vs 6.3% prior
Jobs hard-to-get 10.3 vs 10.5 prior
14.9% expect their incomes to increase, up from 14.4% last month

Conference Board Confidence index moved higher in March, however inflation expectations still remain high, which is not what FED would like to see.

Simultaneously, Richmond manufacturing index for March was released. The index unexpectedly fell less than expected to -5 from-16 in February, while analysts’ expected -10.0 pointing to a modest improvement in business conditions. Of its three component indexes, shipments saw the largest change (up to 2 in March from -15 in February) and both the employment (-5 vs -7) and new orders (-11 vs -24) indexes improved but remained in negative territory. Firms continued to report easing of supply chain constraints as the indexes for backlogs and lead times remained negative. The average growth rate of prices paid decreased moderately, while the average growth rate of prices received changed little in March. Firms remained pessimistic about local business conditions and the index for future local business conditions edged down slightly.

EURUSD saw relatively small reaction to today’s data releases. The most popular currency pair continued to trade around 1.0820 level.

AUDUSD

US indices finished yesterday's trading slightly lower. S&P 500 dropped 0.16%, Dow Jones moved 0.12% lower and Nasdaq plunged 0.45%. Small-cap Russell 2000 index dropped 0.06%

Indices from Asia-Pacific are trading higher today. Nikkei gained 1.1%, S&P/ASX 200 traded 0.2% higher, Kospi traded flat and Nifty 50 gained 0.1%. Indices from China traded 0.1-0.2% higher while Hong Kong's Hang Seng gains over 2%
DAX futures point to a slightly higher opening of the European cash session today

US Energy Secretary Granholm said that refilling of strategic petroleum reserve may start this year

Shinichi Uchida, deputy governor of Bank of Japan, said that if 10-year Japanese yield climbs to 2%, BoJ will experience an unrealized loss of 50 trillion JPY on its bond portfolio (currently 10-year yield sits at 0.3%)

United States said that China shouldn't overreact to Taiwan president's visit to the United States. This comes after China warned that meeting between US officials and Taiwan president would be seen as provocation

Lee Bokhyun, head of South Korean financial regulator, said that South Korean authorities will consider lifting the short-selling ban this year. Ban was imposed early in the Covid pandemic

Australian CPI inflation decelerated from 7.4 to 6.8% YoY in February (exp. 7.4% YoY). Core inflation dropped from 7.6% in January to 6.9% YoY in February

API report pointed to a 6.08 million barrel draw in US oil inventories (exp. +0.2 mb)

Cryptocurrencies trade higher - Bitcoin gains 1.3%, Ethereum adds 1.1% and Dogecoin jumps 2.4%

Energy commodities trade mixed - oil gains slightly while US natural gas prices drop

Precious metals pull back amid USD strengthening - gold drops 0.5%, silver trades 0.7% down and platinum dips 0.6%

NZD and USD are the best performing major currencies while JPY and AUD lag the most

AUD is pulling back after a lower-than-expected CPI reading for February. AUDUSD failed to break above the 0.6710 resistance zone and is now pulling back towards the 200-hour moving average (purple line).

EURUSD ticks lower after Kazimir remarks

Peter Kazimir, member of the European Central Bank governing council, said that the ECB is closely monitoring the situation in the banking sector and that it is ready to step in to ensure price and financial stability in the euro area. However, his remarks relating to the monetary policy show that ECB is somewhat concerned by the uncertainty caused by recent banking failures in the US and Europe - Kazimir revealed that ECB members agreed not to provide guidance for the May meeting. On the other hand, Kazimir said in the very same speech that he thinks that inflation is too high for too long and that further rate hikes are needed, although possibly at a slower pace, which is a kind of guidance on its own. Speaking about future decisions he said that core inflation developments and trends will be key in determining the next move.

EUR ticked lower during Kazimir's speech but the move was very small and has been completely erased by now. The pair is trying to recover from an overnight drop that was launched after repeated failures to break above the 1.0850 swing area.

OIL

Can oil prices fall further? What does it mean for inflation?

Brent price dropped around 9% since the beginning of 2023 but price decline over the past 12 months is already exceeding 30%. Taking a look at the whole post-pandemic recovery move, crude prices currently trade near a midpoint. While it looked like undersupply and increasing demand could be a problem, those concerns turned out to be unnecessary. A strong bearish trend can be observed on the oil market since June 2022 and the latest issues in the banking sector may have resembled the 2007-2009 financial crisis when crude prices quickly plunged from $150 to less than $40 per barrel. Could history repeat itself? Will cheap oil turn out to be a remedy for a number of current issues? Are we set for further price drops in the later part of the year or will oil recover?

Is oil cheap already?

Brent and WTI are currently trading in a $70-80 per barrel range. Taking a look at the 5-year moving average, oil seems to be priced in-line but a look at the 1-year moving average shows that it is trading around 2 standard deviations below mean, which may hint at oil being oversold in the short-term. On the other hand, looking at a longer horizon, there is still some room for prices to fall. Bloomberg points out that the current price is still too high given the relatively high probability of US recession. According to the news agency, there is a high chance of barrel price dropping below $50 should a recession indeed arrive in the United States.

Oil looks to be oversold in the short-term but longer-term measures hint that it is priced in-line.

Taking a look at seasonal patterns, oil seems to be significantly oversold, especially when we take a look at 5-year and long-term patterns. On the other hand, taking a look at the worst year in terms of performance in the past 5 years or even longer, oil still has some room to fall, especially in the first 4 months of the year (January-April period). It is often the case that when the first third of the year is bad for prices, the second third is usually significantly better (May-August).

Seasonality for the oil market. Oil is having a bad start to the year but it does not mean that the worst is already behind.

Will cheap oil be a remedy for current global issues?

Spare for the Ukraine war and ongoing banking crisis, cheaper oil could actually be a remedy for a number of global issues. A further drop in oil prices would accelerate a drop in inflation, which not only would limit future rate hikes, but may also bring forward rate cuts. US producer's inflation reacted quickly and steeply to a year-over-year decline on the oil market. Lower oil prices may help avoid some of the economic issues but at the same time they may be driven by a potential economic crisis that is currently unfolding.

Change in oil prices suggests that PPI inflation may continue to drop to as low as 0% YoY!

Is there a chance for further price declines?

Oil has recovered a bulk of the losses triggered by the recent banking crisis. Nevertheless, a look at fundamentals suggests that price declines may resume and continue. Supply did not drop as much as feared as Russia managed to find markets for its oil. China continues to use its own stockpiles and does not increase imports. This may also lead to a further build-up in US oil inventories. Comparative inventories (nominal change in inventory level over 1 year) could be an important indicator here. It is currently pointing to possibility of further price declines and "strongly oversold" signal will not surface until inventories climb to 80-100 million barrels above year ago levels. Unless an economic crisis arrives, there is a chance for price recovery in the second half of the year - oil drilling rigs data suggests that US production is nearing peak output and inventories in China will run out at some point.

Comparative inventories suggest that oil prices may continue to drop. Contrarian signal would surface once inventories climb to 80-100 million barrels above year ago levels.

Oil recovered noticeably but continues to trade in a downtrend. A break above 50- and 100-session moving average, and a break above the upper limit of Overbalance structure later on, would brighten the outlook for oil bulls. However, the outlook for oil remains bearish for now.

US100

US indices finished yesterday's trading higher with all major Wall Street indices adding 1% or more. S&P 500 gained 1.42%, Dow Jones moved 1.00% higher and Nasdaq jumped 1.79%. Russell 2000 gained 1.08%

Nasdaq gained over 20% off December low and has entered a technical bull market.

Indices from Asia-Pacific trade mostly higher. S&P/ASX 200 gained 1%, Kospi added 0.6%, Nift 50 moved 0.8% higher while Nikkei dropped 0.6%

Indices from China traded 0.2-0.5% higher

DAX futures point to a higher opening of the European cash session today

Fed Chair Powell has reportedly told Republican Representatives that Fed expects 1 more rate hike in 2023

ECB Schnabel said that banking troubles may have a disinflationary effect. On the other hand, she warned that labor costs indicate possibility of second round inflationary effects

Fitch noted that there were 14 sovereign default events since 2020, compared to 19 sovereign default events in whole 2000-2019 period

Chinese premier Li Qiang said that his country will strengthen macro policy adjustments and act to boost consumption and investments

UK car production increased 13.1% YoY in February as supply chain pressures eased. This was the first monthly increase in output in three months. 81% of all cars produced in UK were exported, with EU being main destination

New Zealand's building permits slumped 9% MoM in February. On annual basis drop reached 29.2% YoY

Major cryptocurrencies trade mixed - Bitcoin gains 1.2%, Ethereum adds 0.1%, Dogecoin drops 0.7% and Ripple trades 3.6% lower

Energy commodities trade mixed - oil gains around 0.3% while US natural gas prices drop 1.7%

Precious metals trade mostly higher - silver adds 0.7%, platinum trades 0.8% higher and palladium gains 0.6%. Gold trades flat

AUD and JPY are the best performing major currencies while USD and EUR lag the most

Nasdaq-100 (US100) trades around 20% above the December 2022 low and therefore has entered a bull market, at least from a technical point of view. However, for any larger upward move to be delivered, a break above a psychological, mid-term resistance zone in the 13,000 pts area would be required.

AUDJPY

US indices finished another trading day higher. S&P 500 gained 0.57%, Dow Jones moved 0.43% higher and Nasdaq jumped 0.73%. Russell 2000 was a laggard and dropped 0.18%

Indices from Asia-Pacific followed into footsteps of US peers and traded higher. Nikkei and S&P/ASX 200 gained around 0.8% each, Kospi added 0.9% and Nifty 50 traded 1.0%. Indices from China traded up to 0.8% higher

DAX futures point to a slightly higher opening of the European cash session today

Reuters reports that Japan will set up a panel to discuss possibility of implementing digital yen backed by Bank of Japan
Turkey has approved Finland's NATO membership bid, clearing the final hurdle for the Nordic country to join the alliance.

Sweden is still waiting for approval from Turkey and Hungary

According to Reuters report, OPEC+ JMMC is most likely to recommend leaving output cuts unchanged at a meeting on Monday

The Japanese trade and industry ministry announced that it will impose export controls on semiconductor manufacturing equipment. While it was stated that restrictions do not target any specific country, most take it as a step against China
Official Chinese manufacturing PMI dropped from 52.6 to 51.9 pts in March (exp. 51.6). Services gauge jumped from 56.3 to 58.2 pts (exp. 55.0)

Japanese industrial production increased 4.5% MoM in February (exp. 2.7% MoM)

Japanese retail sales increased 1.4% MoM in February (exp. -0.3% MoM)

Australian private sector credit increased 0.3% MoM in February (exp. 0.4% MoM)

Major cryptocurrencies are trading higher - Bitcoin gains 0.3%, Ethereum and Dogecoin add 0.6% each and Ripple trades 1.4% higher

Energy commodities are trading little changed - oil drops around 0.1% while US natural gas prices climb 0.2%

Precious metals trade mixed - gold and silver drop while platinum gains slightly

NZD and AUD are the best performing major currencies while JPY and CHF lag the most

AUDJPY is trading higher following better than expected readings of official Chinese PMIs for March. A key near-term resistance to watch can be found in the 90.25 area, where the downward trendline and 50-session moving average (green line) can be found.

EURUSD climbs back above 1.09 mark after French CPI beat

French flash CPI data for March was released today at 7:45 am BST. Report, just like reports from other European countries, was expected to show a significant deceleration in year-over-year reading. However, actual data showed a smaller than expected slowdown, just as it was the case with German data yesterday. French CPI slowed from 6.3 to 5.6% YoY in March, while the market expected a slowdown to 5.5% YoY. On a monthly basis, CPI reached 0.8% MoM, above 0.6% MoM expected by the market but below 1.0% MoM print from January.

Market reaction was small - DE30 ticked lower in a knee-jerk move before recovering losses while EURUSD moved higher and climbed back above 1.09 mark.

US100

It seems that we may be ending the downward phase on Wall Street, given the more than 20% rebound from the bottom. The US100 is having its best quarter since Q2 2020! In fact, if it weren't for the high inflation problem in February and then the banking crisis in March, then the US100 could even be above 14,000 points. Currently, the goal of investors will be to break through the area of 13450 points, where the range of the previous similar correction is located, and 13700 points, which are the peaks of the previous correction as well.

EURUSD

Today we are going to analyze the EUR/USD for a longer period of time, in order to get a broader view of the major currency pair. Over the last few months the euro has been recovering against the US dollar, but recently the bullish momentum has slowed down.

But could the current rally be compromised?

On the weekly chart, we can see that the price continues to be supported relatively well by the 50-period EMA, although it continues to struggle to break above the recent highs reached this year.

Dollar Index - Weekly Time Frame

On the other hand, when we look at the dollar index chart, we can see that there is room for further declines in the USD. Above all, when we identify the chart pattern - head and shoulders which could support further declines if the price breaks below the neckline of the pattern.

Furthermore, the improvement in market sentiment also supports this bearish  USD scenario.

AUD leads the gains this morning.

Oil

OPEC+ members announced massive voluntary oil output cuts over the weekend, triggering a spike in oil prices at the beginning of new week's trade. A total cut of 1.157 million barrels was announced by 8 OPEC and non-OPEC countries. Those cuts will take effect from May and will remain in force until the year of the year. On top of that, Russia announced that its 500 thousand barrel output cut, which was set to end by the end of June 2023, will be extended until the end of 2023. This is a massive reduction in supply, amounting to more than 1% of global output, and it should not come as a surprise that oil prices jumped over 5% at the beginning of a new week. However, it should be noted that such massive oil output cuts may also hint that OPEC has some serious concerns about demand outlook. Having said that, this may not be bullish for oil prices in the long-term. OPEC+ Joint Minister Monitoring Committee is meeting today and will provide recommendations on policy. It was widely expected that recommendation will be for no change in the output but weekend announcements created uncertainty.

OPEC: 1,079k bpd

Saudi Arabia: 500k bpd
Iraq: 211k bpd
United Arab Emirates: 144k bpd
Kuwait: 128k bpd
Algeria: 48k bpd
Oman: 40k bpd
Gabon: 8k bpd

OPEC+: 578k bpd

Kazakhstan: 78k bpd
Russia: extension of 500k bpd cut until end of the year (was set to end in June)

Brent (OIL) launched this week's trading with a big bullish price gap but those gains started to be erased later on. Nevertheless, oil continues to trade around 5% higher on the day. A point to note, however, is that price did not manage to reach a key resistance zone in the $87 area, marked with previous price reactions and the upper limit of the Overbalance structure. This means that the outlook remains bearish and an attempt to fill the bullish price gap cannot be ruled out. The $80 area is the first support to watch in such a scenario.

Dogecoin - Chart of the Day

Dogecoin saw massive moves yesterday in the evening, with the coin rallying around 30% in less than 2 hours. While other cryptocurrencies also saw some gains, none experienced as big a jump as Dogecoin. It should not come as a surprise as a trigger for the move higher was Dogecoin-specific. Elon Musk changed Twitter's logo to Shiba Inu dog, a 'logo' of Dogecoin and its supporters. The move triggered an instant rally in Dogecoin, sending it to the levels not seen since early-December 2022. Musk himself explained that he is simply delivering onto promise he made in a tweet some time ago that he will buy Twitter and change its logo to Dogecoin logo.

Taking a look at the Dogecoin chart at the D1 interval, we can see that the strong upward move launched yesterday in the evening is continuing today. While price erased some of initial gains yesterday, Dogecoin bulls regained ground today and are pushing the coin towards the 0.10 area. A point to note is that the price of cryptocurrency managed to break above a mid-term support zone in the 0.0890 area, marked with previous price reactions as well as the downward trendline. A break above this area brightened technical outlook for the bulls and a test of the resistance zone ranging below 0.11 handle cannot be ruled out in the coming days.

Morning Wrap - TNOTE

Wall Street indices ended yesterday's session mostly lower. Investor sentiment was weighed down primarily by macro data readings and comments from the Fed's Mester, which point to a slowdown in the US economy.

The S&P 500 fell 0.25%, the Dow Jones gained 0.24% and the Russell 2000 small-cap index lost 0.99%. The Nasdaq index of technology companies was the weakest performer, losing 1.07%.

With the specter of a global recession widening, US 10-year government bond yields are under particular scrutiny by investors, having fallen to their lowest level since September 2022 (3.29% zone). Currently, the money market sees a 48% chance of a 25 basis point hike by the Fed at its May meeting and a 52% chance of keeping rates unchanged.

Asia-Pacific indices traded mostly lower - the Nikkei fell 1.3%, the S&P/ASX 200 lost 0.4%, the Kospi lost 1.32% and the Nifty 50 traded 0.15% higher.

In the FX market, we are seeing capital outflows to safe haven currencies, i.e. the US dollar and the Japanese yen, among others. The EURUSD pair is recording slight declines and breaking out below the support zone at 1.09. At the moment, pairs linked to the currencies of the antipodes are recording the biggest declines.

China plans to cut tax burdens and fees totaling CNY1.8 billion for the corporate sector.

China's Caixin PMI index for services recorded an increase and came in at 57.8 (55 was expected, previously it was 55).

Former BOJ banker Kazuo Momma commented that the Yield Curve Control mechanism may be terminated this month.

China may ban exports of technology used to produce high-performance rare earth magnets.

Energy commodities are posting moderate declines this morning. WTI crude oil is losing 0.5%, while natural gas is down 0.4%.

Gold is slightly decelerating from its recent upward impulse and is currently consolidating in a zone near 2013 USD. UBS raised its target price for gold at the end of March (2024) to $2200 (previously $2100)

There is mixed sentiment in the cryptocurrency market. Bitcoin is currently losing nearly 0.5%, while Ethereum is down 1.16%. On the other hand, smaller projects such as Maker and Iota are gaining more than 3.5%.

Weak macroeconomic data and in-between comments from Fed bankers, which indicate that given the high economic and systemic uncertainty, the rate hike cycle may be coming to an end, are bolstering sentiment in the debt market.