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WTI oil price fell nearly 5% on Monday, extending weakness well below psychological $100 level and hitting the lowest in two weeks.

Oil came under increased pressure on concerns that extended lockdowns in Shanghai and hawkish signals from the US central bank about stronger than expected rate hike would slow global growth and hurt oil demand, offsetting support from tight global supply, plans in the EU about imposing ‘smart sanctions’ against Russian oil imports and reduced supply from Libya.

Fresh drop weakens daily studies, with initial negative signal expected on close below $100 and next on sustained break below dented Fibo support at $96.45 (50% of $62.42/$130.48 upleg) that would expose key higher base at $96.90/$96.60 zone, loss of which would confirm reversal and signal deeper drop of oil price.

Broken $100 support reverted to solid resistance, which should keep the upside protected and maintain bearish bias.

Only rebound and close above broken Fibo support at $104.48 (38.2% of $62.42/$130.48) would ease downside pressure.

Res: 100.00; 101.33; 103.42; 14.48.
Sup: 96.45; 93.22; 92.92; 92.60.

Spot gold accelerated lower on Monday, losing more than 1.5% and probed below $1900 mark for the first time in more than three weeks.

Robust US dollar, which holds near the two-year high against the basket of major currencies, driven by strong safe-haven demand and signals of more aggressive policy tightening by the US central bank, deflate the yellow metal.

These factors so far offset the impact of soaring inflation which hit the record high in the EU and stands at the highest in four decades in the US, hurt gold’s appeal as a main hedge against inflation.

Fresh weakness pressures key support at $1890 (Fibo 61.8% of $1780/$2070 / low of the pullback from $2070 peak) with firm break here to signal an end of prolonged range-trading and open way for continuation of the bear-leg from $2070 (Mar 8 high).

Daily techs show the price establishing below daily cloud (cloud base lays at $1925) with converged daily Tenkan-sen/Kijun-sen about to for a bear-cross and 14-d momentum heading south and deeper into negative territory that adds to negative signals.

However, growing uncertainty over the conflict in Ukraine and all negative impact it produces, keeps the metal attractive as safe-haven asset, with deeper dips still to keep the price within the range between record highs at $2074/70 and the lower boundary at $1680 zone that keeps larger uptrend intact.

Res: 1925; 1935; 1942; 1953.
Sup: 1890; 1878; 1872; 1853.

Markets

Risk aversion haunts trading today, though markets are off worst/best intraday levels. The accelerating Chinese Covid-outbreak prompted authorities to close down parts of Beijing and adds to global growth worries. European equity markets currently cede up to 1.5%. The Chinese yuan is in freefall ever since last week’s publication of Q1 GDP numbers. USD/CNY today tested the 2021 top at 6.58. Last week around, the pair was still changing hands around 6.35. USD-strength remains part of the story as well in the tough risk context. Especially as the greenback has FOMC Chair Powell’s blessing. The trade-weighted dollar set a new recovery high at 101.75, the strongest level since March 2020. The spike during the early-Covid liquidity crisis at 102.98 serves as next resistance with the 2017 top at 103.82. The strong dollar showed in other FX pairs as well. EUR/USD fainted at the start of European trading, sliding to 1.0707 from an Asian high at 1.0851. The pair currently recovered towards 1.0742. JPY fails to really catch a break despite risk-off market sentiment and despite declining commodity (energy) prices. USD/JPY eases below 128. Brent crude falls from $106/b towards $101/b. Cable (GBP/USD) suffered a second straight beating, crashing to the low 1.27 area from 1.30+ levels early last week. The queen’s money is additionally vulnerable to the rapidly developing UK cost of living crisis, as proven by last week’s and this morning’s dismal eco data. It’s the lowest level for cable since September 2020. EUR/GBP slightly extends gains at 0.8430. Core bonds attract a safe haven bid, correcting higher after last week’s fierce sell-off. US yields drop by 7.3 bps (30-yr) to 12.7 bps (7-yr) with the belly outperforming the wings. The German yield curve shifts in similar fashion with yield declines ranging between 6.4 bps (30-yr) and 13.5 bps (5-yr). 10-yr yield spread changes vs Germany widen by 1 bp to 2 bps. Today’s eco calendar didn’t inspire trading. April German Ifo business sentiment stabilized from a steep drop in March, but didn’t surprise following last week’s PMI’s. The Belgian debt agency raised the maximum amount on offer (€3.8bn) at today’s regular OLO auction. The Kingdom tapped OLO’s 81 (€1.37bn 0.8% Jun2027), 94 (€1.54bn 0.35% Jun2032) and 95 (€0.9bn 1.4% Jun2053). The auction bid cover was mediocre at 1.71. They now completed 41% of this year’s €41.2bn OLO funding need.

News Headlines

According to the quarterly trends survey of the Confederation of British Industry, business optimism dropped from -9% in January to -34% in April, the sharpest pace since April 2020. Output growth in the quarter to April slowed to 19 from 27, but remained above the long term average of 3%. Orders slowed from 38% in January to 22% in April and firms expect a further deceleration in the next three months (6). Average costs in the quarter to April rose at the fastest pace since 1975 (+87%). Domestic costs (60% from 40%) grew at the fastest pace since 1976. Firms see the cost of raw materials as the most important factor behind expectations for cost growth in the next three months, followed by energy costs, transport costs and labour costs. More pessimistic forecasts also caused a setback in investment plans (6 from 26). Sterling already was in the defensive as markets pondered the consequences of the cost-of living crisis on growth and on monetary policy going forward. EUR/GBP touched a (minor) new ST correction top near 0.8440 after the CBI release.

Belgian April consumer confidence recouped ground lost in March. The overall figure rose from 0.4 to 2.4 in the first increase in five months. This was thanks to an improvement in all sectors but services where every subcomponent – though still positive – edged lower. The manufacturing industry turned less negative on their current level in order books and more optimistic on future employment while demand forecasts point downwardly. The latter was also visible in the building industry. But for the time being, it still enjoys a well-filled order book. Trade recovered the most visibly in April, with all components of the indicator improving, especially in demand forecasts and orders placed with suppliers.

Daily Pivots: (S1) 1.0763; (P) 1.0808 (R1) 1.0843; More...

Intraday bias in EUR/USD stays on the downside for the moment. Current down trend should now target 100% projection of 1.1494 to 1.0805 from 1.1184 at 1.0495. On the upside, break of 1.0935 resistance is needed to indicate short term bottoming. Otherwise, outlook will stay bearish in case of recovery.

In the bigger picture, the decline from 1.2348 (2021 high) is expected to continue as long as 1.1185 support turned resistance holds. Firm break of 1.0635 (2020 low) will raise the chance of long term down trend resumption and target a retest on 1.0339 (2017 low) next. Nevertheless, break of 1.1185 will maintain medium term neutral outlook, and extending term range trading first.

Daily Pivots: (S1) 0.9534; (P) 0.9564; (R1) 0.9599; More....

Outlook in USD/CHF is unchanged and intraday bias stays on the upside. Sustained break of 0.9591 medium term projection level will pave the way to next at 0.9864. On the downside, break of 0.9453 support is needed to indicate short term topping. Otherwise, outlook will remain bullish in case of retreat.

In the bigger picture, down trend from 1.0342 (2016 high) could have completed with three waves down to 0.8756 (2021 low) already. Rise from 0.8756 is likely a medium term up trend of its own. Sustained break of 61.8% projection of 0.8756 to 0.9471 from 0.9149 at 0.9591 will pave the way to 100% projection at 0.9864. This will now remain the favored case as long as 0.9193 support holds.

Daily Pivots: (S1) 127.83; (P) 128.47; (R1) 129.20; More...

Intraday bias in USD/JPY remains neutral and outlook is unchanged. Consolidation from 129.39 is extending and deeper retreat cannot be ruled out. But downside should be contained above 125.09 resistance turned support to bring another rally. On the upside, above 129.39 will target 130.04 long term projection level next.

In the bigger picture, the break of 125.85 resistance (2015 high) suggests that whole up trend from 75.56 (2011 low) is resuming. Further rise should be seen to 61.8% projection of 75.56 (2011 low) to 125.85 (2015 high) from 98.97 at 130.04. Sustained break there wave the way to 147.68 (1998 high). For now, this will remain the favored case as long as 121.27 support holds.

Daily Pivots: (S1) 1.2763; (P) 1.2899; (R1) 1.2976; More...

Intraday bias in GBP/USD remains on the downside as down trend continues. Next target is 100% projection of 1.3641 to 1.2999 from 1.3297 at 1.2655. Sustained break there will target 161.8% projection at 1.2258. On the upside, above 1.2822 minor resistance will turn intraday bias neutral and bring consolidation first, before staging another decline.

In the bigger picture, rise from 1.1409 (2020 low) has completed at 1.4248, ahead 1.4376 long term resistance (2018 high). Decline from 1.4248 could still be a corrective move, or it could be the start of a long term down trend. In either case, deeper decline would be seen back to 61.8% retracement of 2.1161 to 1.1409 at 1.2493. In any case, break of 1.3158 support turned resistance is needed to be the first sign of medium term bottoming. Otherwise, outlook will stay bearish in case of rebound.

Yen, Swiss Franc, and Dollar are trading higher today on overall risk off sentiment. Selloff was particularly steep in Chinese stock markets on risks of more lockdowns in major cities, in particular Beijing. While European markets and US futures are in red, downside is relatively limited for now. Australian Dollar is still the worst performing one. But it's hard to pick whether Euro, Sterling or Kiwi is the second weakest.

Technically, Gold also falls sharply today on Dollar strength and it's now eyeing 1889.79 support. Firm break there will resume whole decline form 2070.06 and target 100% projection of 2070.06 to 1889.79 from 1998.23 at 1817.96. In any case, risk will stay on the downside as long as 1936.63 minor resistance holds. Overall development is favoring more upside in the greenback in general.

In Europe, at the time of writing, FTSE is down -1.47%. DAX is down -0.91%. CAC is down -1.35%. Germany 10-year yield is down -0.099 at 0.873. Earlier in Asia, Nikkei dropped -1.90%. Hong Kong HSI dropped -3.73%. China Shanghai SSE dropped 5.13%. Singapore Strait Times dropped -0.64%. Japan 10-year JGB yield rose 0.0008 to 0.251.

Germany Ifo business climate rose to 91.8, shows resilience after initial shock of Russian attack

Germany Ifo business climate rose from 90.8 to 91.8 in April, above expectation of 88.1. Current assessment index rose from 97.0 to 97.2, above expectation of 95.0. Expectations index rose from 85.1 to 86.7, above expectation of 82.3.

By sector, manufacturing rose from -3.6 to -1.0. Services rose from 0.8 to 5.4. Trade dropped from -12.0 to -13.3. Construction dropped sharply from -12.3 to -20.0.

Ifo said, the improvement was "due primarily to less pessimism in companies' expectations. Their assessments of the current situation are minimally better. After the initial shock of the Russian attack, the German economy has shown its resilience."

Chinese stocks and Yuan on fear of lockdown spread

The markets in China were in free fall today on fears on the impact of the spread of coronavirus, and more importantly, imposition of strict covid zero policy and lockdowns. Beijing is the believed to be evolving into the next Shanghai, after the government ordered residents not to leave the Chaoyang district.

The Shanghai SSE dropped -5.13% to 2928.51, the first close below 3000 handle since 2020. In any case, near term outlook will remain bearish as long as 3140.89 resistance holds. Deeper decline lies ahead.

More importantly, based on current momentum, long term fibonacci support at 61.8% retracement of 2440.90 to 3731.68 at 2933.97 is unlikely to be defended. That is, the whole down trend from 3731.68 could extend in to 2440.90/2646.80 support zone before bottoming

The decline in Chinese Yuan also looks unstoppable, even after the worst week since 2015 last week. PBOC announced to cut foreign exchange deposit ratio of financial institutions by 100 basis point, from 9.00% to 8.00%. The move is to improve the ability of financial institutions to use foreign exchange funds, and thus help stabilize Yuan from recent free fall. But the impact is so far limited.

USD/CNH (offshore Yuan) surged through 6.6 handle today, breaking through another important medium term resistance at 6.5872 (2021 high). The next hurdle is long term fibonacci resistance at 38.2% retracement of 7.1961 (2020 high) to 6.3057 (2022 low) at 6.6458. Strong resistance is expected there to cap upside on first attempt. But overall, break of 6.5214 support is needed to indicate short term topping. Otherwise, outlook will stay bullish in case of retreat. That is, there would be more downside in Yuan then not.

AUD/JPY and NZD/JPY in deep correction to recent up trend

AUD/JPY is under some heavy selling today. The development should confirm that a short term top was formed at 95.73, on bearish divergence condition in 4 hour MACD. It's now correcting the whole rally from 80.34. Deeper fall should be seen to 38.2% retracement of 80.34 to 95.73 at 89.85. Break of 93.27 minor resistance is needed to indicate completion of the pull back, or risk will stay on the downside.

Similarly, NZD/JPY is also in correction to rise from 75.22 to 87.33. Deeper decline could be seen to 38.2% retracement of 75.22 to 87.33 at 82.70. Break of 85.85 minor resistance is needed to indicate completion of the pull back, or risk will stay on the downside too.

GBP/USD Mid-Day Outlook

Daily Pivots: (S1) 1.2763; (P) 1.2899; (R1) 1.2976; More...

Intraday bias in GBP/USD remains on the downside as down trend continues. Next target is 100% projection of 1.3641 to 1.2999 from 1.3297 at 1.2655. Sustained break there will target 161.8% projection at 1.2258. On the upside, above 1.2822 minor resistance will turn intraday bias neutral and bring consolidation first, before staging another decline.

In the bigger picture, rise from 1.1409 (2020 low) has completed at 1.4248, ahead 1.4376 long term resistance (2018 high). Decline from 1.4248 could still be a corrective move, or it could be the start of a long term down trend. In either case, deeper decline would be seen back to 61.8% retracement of 2.1161 to 1.1409 at 1.2493. In any case, break of 1.3158 support turned resistance is needed to be the first sign of medium term bottoming. Otherwise, outlook will stay bearish in case of rebound.

Economic Indicators Update

AUD/JPY is under some heavy selling today. The development should confirm that a short term top was formed at 95.73, on bearish divergence condition in 4 hour MACD. It's now correcting the whole rally from 80.34. Deeper fall should be seen to 38.2% retracement of 80.34 to 95.73 at 89.85. Break of 93.27 minor resistance is needed to indicate completion of the pull back, or risk will stay on the downside.

Similarly, NZD/JPY is also in correction to rise from 75.22 to 87.33. Deeper decline could be seen to 38.2% retracement of 75.22 to 87.33 at 82.70. Break of 85.85 minor resistance is needed to indicate completion of the pull back, or risk will stay on the downside too.

The British pound is sharply lower at the start of the week. In the European session, GBP/USD is trading at 1.2739, down 0.77% on the day.

Weak UK data, Fed sinks pound

The week ended with soft British data, and the pound took it on the chin, sliding 1.44% on Friday. Retail sales fell by 1.4% in March, following a -0.5% release in February. High inflation, which hit 7% in March, has dampened consumer spending and is putting a huge strain on household incomes. BoE Governor Bailey recently acknowledged the negative impact inflation is having, saying that real incomes would suffer a “historic shock”. The UK economy has almost completely recovered from the pandemic, but there are dark clouds hovering; namely, soaring energy prices and the spectre of stagflation.

The BoE has raised interest rates three consecutive times, but this hasn’t slowed down inflation. The Bank says the Ukraine war could push inflation as high as 8% in Q2 and even higher in the third quarter. It seems that double-digit inflation is a real possibility later this year, which would truly be a nightmare scenario for the central bank.

As well, UK Services PMI underperformed. The index slowed to 58.3 in March, down from 62.6 prior and shy of the consensus of 59.9. The PMI survey found that the cost of living crisis and the war in Ukraine were the main reasons for the slowdown.

Across the pond, hawkish talk from the Federal Reserve late in the week propelled the US dollar higher and added to the misery of the British pound. On Thursday, Fed Governor Powell hinted at a half-point rate hike in May, and Fed member Mester said on Friday that she favored one or more half-point hikes in order to boost the fed funds rate to 2.5% by the end of the year. The Fed is sending clear signals that it plans to move quickly on rate hikes, in order to contain surging inflation.

GBP/USD Technical

• GBP/USD faces resistance at 1.2917 and 1.3012
• There is support at 1.2745 and 1.2650