Market’s concerns for US outlook intensify

The USD weakened, while we had also a sharp correction lower of US stock markets yesterday, as all three major US equities indexes dropped uniformly. Market worries for the US economic outlook intensified driving the markets, as US President Trump’s new tax and spending bill seems to be passing a critical hurdle at the US Congress. Overall, the issue is expected to widen any budget deficit thus increasing the US national debt, which in turn has to be served with high interest costs. At the same time, there was low demand for the US 20-year bond yesterday, indicative of the situation, causing the relative US treasury yield to rise substantially while gold’s price benefited from safe-haven inflows. Finally we note that bitcoin’s price has reached new all time highs, yet that may also be related to new US crypto legislation which tends to find bipartisan support. Should we see market worries intensifying further we may see the market moves being enhanced as investors may turn to alternatives to US assets.

On a technical level, S&P 500 corrected lower yesterday breaking the 5900 (R1) support line now turned to resistance. In its downward motion the index broke the upward trendline that has been driving its price action since the 7th of April while the RSI indicator has also dropped, remaining though between the readings of 50 and 70, implying an easing of the bullish sentiment of the market. Hence we switch our bullish outlook for a sideways motion bias for the time being. Should the bulls regain control over the index we may see it breaking the 5900 (R1) resistance line forming a new, higher peak as it aims for the 6140 (R2) resistance hurdle, which is also the record high level of the index. Should the bears take over, we may see the index breaking the 5710 (S1) support line, thus paving the way for the 5520 (S2) support level.

Today we get the preliminary PMI figures for France, Germany and the Euro Zone, a key release for the common currency, as it is to indicate the level of economic activity in the area. Should we see the indicators’ readings rise, we may see the common currency getting some support as it could imply an improvement of economic activity and thus brighten the macroeconomic outlook of the area. We intend to focus on France’s services sector, Germany’s manufacturing sector and for a rounder view, Euro Zone’s composite PMI figure. Main market focus is expected to be placed on Germany’s manufacturing sector indicator which is considered as the economic powerhouse of Europe, but at the same time as the “problem child” of the area.

EUR/USD edged higher yesterday for a third consecutive day placing some distance between its price action and the 1.1210 (S1) support line. Yet despite the upward movement RSI indicator remains close to the reading of 50 implying a possibly indecisive market while the 20 MA which is also the median of the Bollinger bands shows no bullish intentions. Hence we tend to maintain a bias for a sideways motion for the pair at the current stage. Should the bulls take over, we may see EUR/USD breaking the 1.1480 (R1) resistance line and start aiming for the 1.1690 (R2) resistance level. On the flip side should the bears take over, we may see the pair breaking the 1.1210 (S1) support line and start aiming for the 1.0940 (S2) support level.

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Today we get the preliminary PMI figures of May for the UK and the US, while we also note the release of Germany’s Ifo indicators for May, UK’s CBI industrial orders also for May, the US weekly initial jobless claims figure, Canada’s business barometer for May and PPI rates for April, as well as the US S&P global manufacturing PMI figure for May. On a monetary level, we note the planned speeches of RBA Deputy Governor Hauser, BoE Deputy Governor Breeden, BoE MPC member Dhingra, BoE Chief Economist Pill, NY Fed President Williams and BoC Deputy Governor Gravelle. In tomorrow’s Asian session, we get and Japan’s inflation metrics for April.