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Germany Gfk consumer sentiment for April dropped sharply from -8.5 to -15.5. In March, economic expectations dived from 24.1 to -8.9, lowest since May 2020 during the first lockdown at -10.4. Income expectations tumbled from 3.9 to -22.1, hitting the lowest value since 2009, which was at -22.9. Propensity to buy dropped slightly from 1.4 to -2.1.

"In February hopes were still high that consumer sentiment would recover significantly with the foreseeable easing of pandemic-related restrictions. However, the start of the war in Ukraine caused these hopes to vanish into thin air. Rising uncertainty and sanctions against Russia have caused energy prices in particular to skyrocket, putting a noticeable strain on general consumer sentiment," explains Rolf Bürkl, GfK consumer expert.

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Markets

The violence to which bonds sold off in Asian dealings yesterday eased a bit in European and US trading hours. The Japanese 10y yield stayed marginally above the 0% + 25 bps upper limit for most of the day still, even as the BoJ offered unlimited bond buying twice. Front end yields in the US jumped almost 14 bps at some point before paring gains as the session evolved to about 6 bps (2y, 3y). Bidding metrics of the dual ST bond auction eased. The $50bn 2y auction tailed while both the 2y and the $51bn 5y were awarded the biggest yield since early 2019. Yields further down the curve finished the day up to 4.5 bps lower. There was similar flattening in Germany with changes ranging from +1.8 bps (2y) to -1.9 bps (30y).

In FX space, commodity currencies including the NOK and kiwi dollar were under pressure as the broad commodity rally went in reverse for the day (e.g. Brent oil down 7%). None of the G10 peers did worse than the JPY though. USD/JPY surged to an intraday high of more than 125. The pair closed at 123.86 eventually, still the highest since end 2015. DXY (trade-weighted dollar) tested the YtD highs but was unable to force a break higher. The USD also ruled over the euro for a large part of the day. But the common currency straightened up and capped EUR/USD losses to just below 1.10. EUR/GBP jumped from 0.833 to near 0.84. BoE governor Bailey explained the softened rates guidance against the backdrop of increased uncertainty. Hiking bets were marginally pared back. UK yields dropped as much as 10 bps at the long end.

A new round of ceasefire talks between Ukrainian and Russian negotiators starts today in Turkey. An FT report yesterday suggesting Russia is dropping some demands helped shape sentiment in late US dealings and may also explain the fairly optimistic equity mood this morning. Core bonds are being shed relentlessly. US short term yields rise more than 6 bps. FX markets trade quiet. The Japanese yen strengthens slightly to USD/JPY 123.55. Japanese Minister of Finance Suzuki received orders from PM Kishida to come up with measures to cushion the impact of high energy prices which are being amplified by the slumping yen.

The economic calendar only gets moderately interesting today. US Conference Board consumer confidence is expected to fall to the lowest since February last year (107). The indicator is strongly influenced by the currently excellent shape of the labour market. However, war- and inflation-driven uncertainty will probably have affected the March reading more. We don’t expect it to materially affect reigning market trends though. Markets have fully embraced the idea of the Fed frontloading policy action, supporting both yields and the USD. While they also expect the ECB to fall in line (four 25 bps hikes discounted by Q1 2023), uncertainty about the war is keeping the euro at bay. This may remain the case for the time being.

News Headlines

US president Biden yesterday proposed a $5.79 trillion budget plan to Congress for the fiscal year that will start on October 1. The final approval is with Congress lawmakers. The proposal seeks a record in military spending of $813 bln in 2023. At the same time, in a effort to rein in the budget deficit, the proposal aims to raise taxes for the wealthiest individuals and companies. According to the White House, the budget deficit would decline to 5.8% of GDP this year and remain below 5.0% the next decade. The budget sees the debt held by the public declining to 101.8% at the end of 2023. However, debt is still expected to rise further over the following years to reach 106.7% of GDP by 2032.

The ECB and the National Bank of Poland agreed to set up a new swap line that will stay in place till 15 January 2023. Under the new swap line, the NBP will be able to borrow up to €10 bln from the ECB in exchange for zloty. The ECB also extends existing temporary repo lines with non-euro central banks to the same date. Euro liquidity lines address possible liquidity needs in non-euro area countries given uncertainty from Russian invasion of Ukraine and regional spill-over risk. Those liquidity lines were scheduled to expire end of March 2022 as they were originally aimed at addressing possible euro liquidity caused by dysfunctions due to the coronavirus (COVID-19) pandemic.

EUR/USD

At the time of writing, the currency pair is consolidating just above the support level at 1.0974 after several unsuccessful attempts to breach that level. Currently, the most likely scenario for the currency pair is for it to maintain the range movement in the narrow channel of 1.0974 – 1.1044, but in the event of bullish predominance, the first significant resistance would be the level at 1.1126. There is no economic news planned for today that could affect the market.

USD/JPY

At the local high from yesterday's trading session, one U.S. dollar was trading for 125 Japanese yen – a level last reached in 2015. The subsequent depreciation does not put an end to the upward movement at the moment, with the more likely scenario being a corrective move in order to find better market entry levels. According to the higher time frames, the level at 125.00 is also the main resistance for the currency pair. The first significant support is the area at around 122.00.

GBP/USD

The support zone at 1.3100 was overcome during yesterday's session, but at the time of writing the analysis, we are seeing a consolidation just below the mentioned level, which currently plays the role of first resistance. This could put an end to the downward move and a successful breach of the resistance could pave the way for an upward move and an attack towards the next resistance at 1.3185.

EUGERMANY40

At the time of writing, the German index is still trading in the range of 14135 – 14555. However, it is possible to see a breach in the upper boundary at 14555, if the positive sentiment persists. On the other hand, if the bulls fail to gain the necessary momentum to secure a breach of this level, then this could initiate a downward movement, leading to a depreciation towards the support area at 14135.

US30

The U.S. blue-chip stock index continues its recovery, as at the time of writing, the trading activity is sitting just below the 35000 resistance area. Sentiments remain positive, but the resistance is fundamental and the bears may narrow the appreciation around this level. A hesitation on behalf of the buyers could give the bears the necessary incentive to establish themselves on the market and lead the price back towards the range move, and then towards the first significant resistance zone at 34343.

Growth stocks rose amid a sell-off in the bond market. Short-term sentiment remains bullish after a series of higher lows which indicates sustained buying interest.

The Nasdaq 100 is heading to the daily resistance at 15050. A bearish RSI divergence suggests a deceleration in the rally, foreshadowing a potential retracement.

14600 is the support and its breach may trigger a sell-off towards 14200 which sits at the base of the recent breakout. A close above the said hurdle may put the index back on track in the weeks to come.

The Australian dollar stalls as caution prevails ahead of major economic data. The rally slowed down at last October’s peak at 0.7550.

A combination of profit-taking and fresh selling weighs on the Aussie. The bulls may see a pullback as an opportunity to accumulate in hope of a new round of rally.

0.7400 from the latest bullish breakout would be key support should this happen. On the upside, an extended rally could propel the pair to last June’s highs around 0.7770 and pave the way for a reversal in the medium-term.

The Japanese yen recouped some losses after a drop in February’s unemployment rate. The pair surged to August 2015’s high and the psychological level of 125.00.

An overwhelmingly overbought RSI may cause a pullback if short-term buyers start to unwind their bets. As the market mood stays upbeat, trend followers could be waiting to jump in at a discount.

122.20 is the closest level if the greenback needs to gather support. A break above the current resistance would propel the pair to new highs above 127.00.

US equities kicked off the week with gains; the Big Tech led gains, as oil stocks slumped following an almost 10% slump in crude oil prices.

Shanghai lockdown combined with the rising Covid cases in China boosted worries that the fresh health crisis could extend and further weigh on Chinese oil demand – but the temporary fall in Chinese demand should do little to the demand-supply dynamics in the medium-term, which remains in favour of bullish market conditions.

Many oil traders predict that the price of a barrel could reach $200 by the end of the year. Goldman Sachs warns that the barrel of crude at $200 would send the economy into recession as it would ‘produce an income shock similar in magnitude to those that precipitated the 1974 and 1979 recessions.’

But we are not there yet. The barrel of US crude is still capped below the $130 level, and the global demand is expected to reach a record in the second half of the year. The actual fall will likely remain short-lived, and limited above the critical 50-DMA support, which stands just a touch below the psychological $100 mark. Many oil traders see the price pullbacks as interesting opportunities to strengthen their long positions.
Big tech leads rally

Nasdaq led gains on Monday. The tech-heavy index gained 1.30%, while the S&P500 progressed 0.70% and the Dow followed with a 0.27% advance. As such Nasdaq recovered more than half of losses it made since the November selloff, when the Federal Reserve (Fed) hinted at steeper rate hikes and quantitative tightening. The index is preparing to step above the 15000 mark for the first time since before the Ukrainian war, and to test the 200-DMA, near 15120 level.

The Big Tech is, of course, pulling the index higher, as big tech companies, along with other big cap stocks, are now perceived as safe haven investments when bonds tumble on expectation of a steeper monetary policy normalization.

The Bank of America even warns that the global debt weighted by world GDP is on course for its worst year since 1949. So, it’s not a surprise that Joe Biden wants deficit reduction that would be financed by the biggest tax increase in history in dollar terms.

Daily Pivots: (S1) 1.0226; (P) 1.0263; (R1) 1.0307; More....

Intraday bias in EUR/CHF remains neutral at this point and outlook is unchanged. On the downside, break of 1.0814 will indicate that rebound from 0.9970 has completed at 1.0400, ahead of 38.2% retracement of 1.1149 to 0.9970 at 1.0420. In this case, intraday bias will be turned back to the downside for retesting 0.9970 low. On the upside, break of 1.0400 will resume the rebound to 1.0610 key structural resistance.

In the bigger picture, long term down trend from 1.2004 (2018 high) is still in progress. Next target is 100% projection of 1.2004 to 1.0505 to 1.1149 at 0.9650. In any case, sustained break of 1.0505 support turned resistance is needed to be the first sign of medium term bottoming. Otherwise, outlook will remain bearish.

Daily Pivots: (S1) 0.8341; (P) 0.8371; (R1) 0.8419; More...

Intraday bias in EUR/GBP stays neutral at this point. On the downside, below 0.8294 will resume the fall from 0.8456 to retest 0.8201 low. Firm break there will resume larger down trend. On the upside, however, break of 0.8456 will resume the rebound from 0.8201 to 0.8476 structural resistance.

In the bigger picture, the down trend from 0.9499 is expected to continue as long as 0.8476 resistance holds. Sustained trading below 0.8276 support will argue that the whole up trend from 0.6935 (2015 low) has reversed. Deeper fall should be seen to 61.8% retracement of 0.6935 to 0.9499 at 0.7917 next. However, firm break of 0.8476 will indicate medium term bottoming at least. Focus will be back on 55 week EMA (now at 0.8523) for more evidence of bullish reversal.

Daily Pivots: (S1) 1.4567; (P) 1.4632; (R1) 1.4729; More...

Intraday bias in EUR/AUD is turned neutral, as it recovered after failing to sustain below 1.4561 low. Further fall is still in favor with 1.4084 minor resistance intact. Firm break of 1.4561 should confirm larger down trend resumption. Next target is 1.3623 projection level. On the upside, above 1.4804 minor resistance will delay the bearish case, and turn bias back to the upside for another recovery first.

In the bigger picture, fall from 1.9799 is seen as a long term impulsive move. Next target is 61.8% projection of 1.9799 to 1.5250 from 1.6434 at 1.3623, which is close to 1.3624 long term support (2017 low). Some support could be seen there to bring interim rebound. But overall, break of 1.5354 support turned resistance is needed to be the first sign of medium term bottoming. Otherwise, outlook will stay bearish in case of recovery.