Market Insight for the Week Ending 21 April

There is plenty to get our teeth into this week.

The minutes from the latest RBA meeting is scheduled to be released on Tuesday in the early hours of trading (2:30 am GMT+1), offering a comprehensive record of the central bank’s recent rate decision, which saw the RBA increase the Official Cash Rate to 3.6%. The next RBA meeting will be on 2 May.

This is followed by UK employment figures and inflation data out of Canada. Regarding UK jobs data, the jobs market appears to be gradually slowing. Of note for Canada, the Bank of Canada (BoC) hit the pause button on rates for a second straight meeting on Wednesday 12 April, holding the benchmark Overnight Rate at 4.5%. STIR markets are also currently pricing in a 90% probability of another hold at the next meeting in early June, with cuts priced in as we near the year-end.

Wednesday will also be a key watch for the UK at 7:00 am GMT+1, as the ONS release the latest UK inflation data for March, which you may recall unexpectedly jumped to 10.4% in February. Economists estimate that consumer prices will dip back into double digits, a rate not seen since August 2022. Interestingly, STIR markets are pricing in a near-70% probability of another 25 basis-point hike at the next meeting on 11 May, which would bring the Bank Rate to 4.5%. However, this may well change after this week’s data.

Finally, the week concludes with a look at the latest manufacturing and services PMI data across Europe, the UK and the US on Friday.

In addition to economic data, earnings season changes gear this week; the spotlight will focus on key banking giants, such as the Bank of America (BAC) on Tuesday and American Express (AXP) on Thursday. Also notable to watch are some major technology companies, like Netflix (NFLX). Given that tech stocks have been the best-performing sector behind communication services (YTD), it’ll be interesting to see how these companies perform.

Tuesday 18 April:

Reserve Bank of Australia (RBA) Meeting Minutes at 2:30 am GMT+1

Following the RBA hiking rates by another 25bps on 7 March, the RBA Minutes will be watched for insights regarding further rate hikes, particularly following upbeat Aussie jobs data last week.

UK Claimant Count Change for March at 7:00 am GMT+1

The change in people claiming unemployment benefits in the UK is expected to be higher at -9.5k in March, up from -11k in February.

Annual Headline Inflation Rate for Canada for March at 1:30 pm GMT+1

Annual inflation eased to 5.2% in the twelve months to February, its lowest rate since early 2022. The current median consensus forecasts a fifth consecutive decline to 4.1%.

Wednesday 19 April:

Annual Headline Inflation Rate for the UK for March at 7:00 am GMT+1

Annual inflation remains in double digits after an unexpected jump to 10.4% in the twelve months to February, lifted by an increase in food and non-alcoholic drinks.

The consensus heading into the event calls for a drop to 9.8%.

Friday 21 April:

Eurozone, UK and US S&P Global (Flash) Manufacturing and Services PMIs for April at 9:00 am, 9:30 am and 2:45 pm GMT+1, respectively

Expectations for the respective Manufacturing events are mixed: 47.0 (Previous: 47.3), 48.5 (Previous: 47.9) and 48.0 (Previous: 49.2).

• Technical Markets to Watch for the Week Ahead

Currencies

Fifth Straight Losing Week for the Buck

The US dollar concluded another week on the ropes, shedding 0.5%. MTD, nevertheless, the US Dollar Index is 1.0% in the red, following a 2.3% drop in March. Those who read my previous Weekly Market Insight may recall that I highlighted the likelihood of further downside unfolding, which, as you can see, has indeed materialised.

Friday, however, concluded the session in the shape of a bullish outside day (a two-candle formation where focus is on the upper and lower shadows rather than the real bodies), a move that snapped a three-day bearish phase just north of daily demand from 100.27-100.77. While the aforementioned technical observations could motivate a bullish presence this week, the daily timeframe is trending south. Additionally, the monthly timeframe exhibits scope to press as far south as support around 99.67. Consequently, although the monthly timeframe has been trending higher since 2008, sellers continue to have the upper hand, it would appear.

Concerning the Relative Strength Index (RSI), the monthly timeframe shows that the indicator remains on the doorstep of its 50.00 centreline, which happens to be shadowed by a trendline resistance-turned-support from the high 82.87. However, the RSI on the daily chart is nestled comfortably beneath its 50.00 centreline (telling market participants that average losses exceed average gains: negative momentum).

So, where does this leave the greenback in the final two weeks of April?

Sellers, as noted above, are technically in the driving seat. Yet, before sellers attempt to overthrow the 100.27-100.77 demand on the daily scale, chartists—given the demand—may want to pencil in the possibility of a pop higher. Nevertheless, this will unlikely be anything to write home about and is unlikely to move beyond the 50-day simple moving average at 103.46: a sell-on-rally scenario will likely be on the watchlist for many going forward.

Commodities

Spot Silver (XAG/USD) at a Critical Juncture

Daily Timeframe.

Following a 15.0% gain in March, MTD, April is 5.0% higher. The question, therefore, is whether bulls have enough gas in the tank to take on higher levels after refreshing YTD pinnacles on Friday just north of $26.00.

Regarding trend direction, it is plain to see that there is a clear upside bias in this market right now. However, while the trend faces northbound and we’re crossing swords with yearly highs, resistance made a show at the tail end of last week at $25.85, and Friday snapped a three-day winning streak by way of a dominant bearish outside day. Adding to this, I see that the upper Bollinger Band (2 standard deviations) put in an appearance, and the Relative Strength Index (RSI) recorded an overbought signal.

As you can see, to the downside, a daily decision point at $24.56-$25.00 resides nearby, which will be a key watch for me this week. Recoiling from the noted zone would tell me that buyers remain interested and could prove to be an area dip buyers may be drawn to for an approach to the $26.95 high formed on 8 March. On the flip side, voyaging below $24.56-$25.00 implies further selling could be on the table for silver, targeting trendline resistance-turned-support taken from the high of $30.14.

With the above in mind, the decision point at $24.56-$25.00 may be of interest this week and, for me, at least, will be a key zone to determine subsequent price movement.

Equities

European Equity Indices Refresh YTD Highs

Daily Timeframe.

Aside from the FTSE 100—which gauges the performance of 100 blue-chip UK-listed companies on the LSE weighted by market capitalisation—Germany’s DAX 40, France’s CAC 40 and the Euro Stoxx 50 refreshed YTD highs last week.

The trend is clear in all four markets, presented through a series of higher highs and higher lows.

Consequently, more so on the DAX 40, the CAC 40, and the Euro Stoxx 50, given each index forged YTD highs, dip-buying opportunities could be seen in the coming weeks.

The three aforementioned indexes boast trendline supports taken from the lows 11,796, 5,704 and 3,251, respectively, should a notable correction unfold. In the nearer term, however, the week ahead shows clear support levels could also be brought into the fight at 15,280, 7,380 and 4,314, respectively.

Bonds

5-year US Treasury Yield Working with Long-Term AB=CD Support

Weekly Timeframe.

For Harmonic traders, you may acknowledge the long-term harmonic equivalent AB=CD bullish structure offering this market a technical floor since mid-March, denoted by the 100% projection at 3.264%.

Adding weight to the aforementioned technical formation is a 61.8% Fibonacci retracement ratio at 3.314%, and that price has been trending higher since August 2020.

3M/10Y Inversion

Monthly Timeframe.

This is an interesting chart in magnitude and duration (we are at record lows).

What does it mean?

It means that since early October 2022, the yield on the benchmark 10-year US Treasury note has been lower than the 3-month US Treasury bill (essentially, a proxy for yield on cash), which tends to be viewed as a recession indicator with a remarkable hit rate. I have marked two key events on the chart: the financial crisis in 2007/2008 and COVID-19 in 2020, which forecasted a recession.

So, with the spread now at record lows, this expresses growth concerns between 3 months and 10 years. This could, therefore, eventually weigh on risk assets as it may be more attractive to remain in cash than invest in capital markets.

Some food for thought!

Cryptocurrencies

BTC/USD: Holding North of $30,000

Versus the US dollar, Bitcoin wrapped up the week higher by 7.0%. MTD, we are also higher by around 7.0%, following a 23.0% gain in March.

From the weekly timeframe, last week punctured resistance at $28,844 in dominant fashion (now support), potentially clearing the runway for an approach to resistance from $32,933, in line with the chart’s EARLY uptrend. Potentially knocking some wind out of recent upside momentum this week is the Relative Strength Index (RSI), recently testing the overbought threshold (70.00 [circled]).

Across the page on the daily timeframe, I see a clear uptrend: a series of defined higher highs and higher lows, bolstered by a Golden Cross (the 50-day simple moving average [$26,129] crossing above the 200-day simple moving average [$21,066]). Support is also clear on the daily scale at $28,651 (nearby the weekly support noted above), with resistance calling for attention at $31,404. The latter is particularly interesting as the RSI is seen forming early negative divergence within overbought territory.

Therefore, the bigger picture exhibits scope to navigate higher this week until at least resistance around $31,404.

Shorter term, I see the unit touching gloves with the underside of resistance around $30,586 on the H1 timeframe, following a to-the-point rebound from $30,000 (set just north of support at $29,859). Overhead, $31,000 is seen as the next port of resistance.

As a result of the above chart studies, further upside is perhaps in the offing. This means short-term offers defending H1 resistance at $30,586 are possibly vulnerable, and a breakout to the upside is likely towards $31,000, followed by daily resistance at $31,404.

Charts: TradingView

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