European Open: Cautious optimism ahead of Wednesday’s FOMC meeting

Global index futures were ticking higher overnight as investors remained optimistic that an economic recovery may arrive sooner than originally expected.

FED 1

Asian Indices:

  • Australia's ASX 200 index rose by 6.2 points (0.09%) to close at 6,773.00
  • Japan's Nikkei 225 index has risen by 31.67 points (0.1%) and currently trades at 29,747.54
  • Hong Kong's Hang Seng index has fallen by -13.47 points (-0.05%) and currently trades at 28,726.25

UK and Europe:

  • UK's FTSE 100 futures are currently up 34 points (0.5%), the cash market is currently estimated to open at 6,795.47
  • Euro STOXX 50 futures are currently up 11 points (0.29%), the cash market is currently estimated to open at 3,844.36
  • Germany's DAX futures are currently up 28 points (0.19%), the cash market is currently estimated to open at 14,530.39

Friday US Close:

  • The Dow Jones Industrial rose 188.57 points (0.58%) to close at 32,485.59
  • The S&P 500 index rose 4 points (0.11%) to close at 3,943.34
  • The Nasdaq 100 index fell -115.61 points (-0.89%) to close at 12,937.29


Equities were mostly higher last week with the Russell 2000 leading the Wall Street pack and closed to a record high. As data has been strong overall since the last Fed’s meeting, hopes have been raised that the Fed will increase their staff forecasts on Wednesday. Check out Matt Weller’s FOMC preview and that to watch out for.

The Nasdaq had a wobble on Friday to close -0.9% lower as US 10 and 30-year yields hit fresh highs. Yet this is not a particularly bad close for the Nasdaq all things considered.

It’s an action-packed calendar this week but the highlight is likely to be Wednesday’s Federal Reserve meeting. So price action appears to be cautiously optimistic, but of course expectations to be fulfilled to avoid disappointment, so time will tell.


Indices: S&P bulls are within reach of 4,000

The S&P E-mini futures are treading water beneath its record high of 3959.25. But due to the bullish structure on the four-hour chart we suspect buyers may seek to return to the table upon any minor retracement, and look for prices to break higher and target 4,000.

At the time of writing the four-hour chart is on track for a bearish engulfing candle and, if bond yields continue to rise we may find equities move lower and the S&P E-mini-index retraces. But there is hope for equity bulls as we note that 10 and 30-year bonds are approaching key levels of support which, if they are to hold, could suggest yields may be capped. And this would likely be bullish for the stock market.

  • If H4 closes with a bearish engulfing candle, a break beneath it assumes a minor retracement. Under this scenario our bias remains bearish beneath the record high.
  • However, the 20-bar average continues to support and may be a level which bullish ‘dip’ buyers intend to return to the table.
  • A break above 3959.25 assumes bullish continuation with 4,000 making a likely resistance level.

China’s factory output rushes out the gates

China’s industrial output surged by 35.1% YoY in February, both significantly higher than the 30% expected and prior read of 7.3%. Retail sales also beat expectation by rising 33.8% YoY, up from 4.6% in January. Whilst the ‘basing effect’ is clearly taking hold, it still shows an impressive rebound in key data sets from the world’s second largest economy.


Forex: RBA’s Lowe doubles down on dovish stance

AUD and NZD pairs were stronger on the back of decent data from China. Yet comments from RBA’s governor Dr Philip Lower saw AUD/NZD roll over below 1.0800 after he reiterated their dovish stance. Stating that Australia remains a long way from full recovery and highlighting a lack of business investment, Dr Lowe refuses to blink in the face of rising bond yields as investors bet on a stronger economic rebound to happen sooner.

  • EUR/USD produced a bearish candle in the 1.1951 – 1.2000 resistance zone. This could be of interest to bearish swing traders (and set and forget / end of day traders). A break above 1.2000 invalidates this idea.
  • USD/JPY is sniffing at its 9th March high, seemingly eager to extend its multi-month high on its way to 110.
  • USD/CHF printed a bullish outside candle on Friday and stopped short of testing the 0.9207 support level. Perhaps the corrective low is in place and prices will now try and break above 0.9380.
  • GBP/USD trades around 1.3920 near Friday’s close, after printing a bearish engulfing candle below 1.4000 resistance. Whilst 1.4000 caps as resistance, the near-term bias remains bearish.
  • EUR/GBP spiked higher on Friday and tested the 0.8596 resistance level. A break above 0.8690 suggests a deeper correction against its dominant, bearish trend is underway. Whilst a break beneath its 0.8537 low assumes its bearish trend is set to resume.

Commodities:

Brent has nudged its way to a new high and currently trades around 69.73, and WTI made a minor attempt to break above Friday’s high. Yet volatility is sorely lacking. And the longer is hangs around current levels on low volatility the greater the probability of a bearish retracement or spike of sorts.

We had hoped to see copper prices rising by now, as they closed above a corrective trendline last week. Yet today’s minor break lacks conviction and now traders lower for the session. The weekly chart also provided a weekly bearish hammer candle, so its plausible price may still be within a correction from its multi-year high and price action may remain choppy. Stay nimble.


Weekly candlestick pattern scan

Indices:

  • Morning star reversal on S&P 500
  • Bullish Marabuzo candle on Russell 2000 (no upper or lower wick)
  • Bullish opening marabuzo on STOXX 50 (no lower wick)

Commodities:

  • Piercing pattern on gold
  • Bullish engulfing on platinum
  • Doji’s on WTI and brent
  • Bearish hammer on copper

Forex:

  • Rikshaw man Doji on USD/CHF
  • Bearish outside week on USD/MXN
  • Small bullish engulfing week on AUD/USD and GBP/USD

Up Next (Times in GMT)

You can view all the scheduled events for today using our economic calendar, and keep up to date with the latest market news and analysis here.

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