Regime: Risk-on, fuelled by falling US yields and hopes of de-escalation in the Middle East; VIX is elevated but failing to hold gains.
Today’s market themes:
- Geopolitical relief rally: Equities and gold gain on reports of a potential US-Iran deal, sending oil sharply lower.
- Dovish ECB spillovers: European yields are sharply lower after ECB commentary and stable wage data, supporting European equities.
- Crowded short squeeze: Risk assets supported by potential short squeeze with CFTC data showing traders are heavily short JPY and Nasdaq.
The setup: Oil’s sharp decline is the key driver today, prompting a rotation into risk assets, and supporting gold. The trade is to fade the rally in gold as real yields remain positive. Key risk is a breakdown in the US-Iran deal, which would send oil prices sharply higher again and reverse the risk-on tone.
Watch list (native time per event):
- 08:15 ET USD: ADP Non-Farm Employment Change (118K vs 62K)
- 10:00 ET CAD: Ivey PMI (49.9 vs 49.7)
- 16:15 ET CAD: BOC Gov Macklem Speaks
Bias by asset:
- DXY:
- Direction: Down
- Domestic (US): US data will be crucial in determining the next direction.
- Cross: Risk sentiment and falling US yields are weighing.
- Levels: Support at 97.50, resistance at 98.00.
- EUR/USD:
- Direction: Up
- Domestic (EU): Lower Bund yields are supporting as ECB turns dovish.
- Cross: Weaker DXY and positive risk sentiment are supportive.
- Levels: Support at 1.1700, resistance at 1.1800.
- GBP/USD (Cable):
- Direction: Up
- Domestic (UK): No fresh domestic catalyst — sensitive to US response.
- Cross: DXY weakness and risk appetite are key drivers.
- Levels: Support at 1.3550, resistance at 1.3650.
- USD/JPY:
- Direction: Down
- Domestic (JP): Intervention risk remains, limiting JPY weakness.
- Cross: Falling US 10Y yields and a weaker DXY are pressuring.
- Levels: Support at 155.00, resistance at 157.00.
- USD/CAD (Loonie):
- Direction: Neutral
- Domestic (CA): BoC speakers watch to see if rate cuts are coming.
- Cross: USD weakness offset by lower WTI, US-CA 10Y stable.
- Levels: Support at 1.3580, resistance at 1.3650.
- AUD/USD (Aussie):
- Direction: Up
- Domestic (AU): No fresh domestic catalyst — sensitive to US response.
- Cross: Copper price rise and DXY weakness, China growth hopes aiding.
- Levels: Support at 0.7200, resistance at 0.7280.
- NZD/USD (Kiwi):
- Direction: Up
- Domestic (NZ): RBNZ speakers in focus, impact on kiwi to be assessed.
- Cross: DXY weakness and risk-on, limited by US yield impact.
- Levels: Support at 0.5900, resistance at 0.6000.
- USD/CHF (Swissy):
- Direction: Down
- Domestic (CH): No fresh domestic catalyst — sensitive to US response.
- Cross: DXY weakness and haven demand waning.
- Levels: Support at 0.7770, resistance at 0.7830.
- EUR/GBP, EUR/JPY, GBP/JPY:
- Direction (per cross): Mixed
- Domestic: Relative CB divergence is a driver today.
- Cross: EUR/GBP ranges. JPY shorts are exposed.
- Levels: Monitor key levels from overnight session.
- XAU (Gold):
- Direction: Up
- Domestic (asset-specific): Hopes for de-escalation are driving.
- Cross: Weaker DXY, fading risk-off, positive momentum.
- Levels: Support at 4650, resistance at 4700.
- XAG (Silver):
- Direction: Up
- Domestic (asset-specific): No fresh domestic catalyst — sensitive to US response.
- Cross: Follows Gold’s trend, industrial demand boost.
- Levels: Support at 7600, resistance at 7800.
- WTI / Brent:
- Direction: Down
- Domestic (asset-specific): Deal chatter is main driver.
- Cross: Weaker DXY isn’t sufficient to lift with Iran headlines.
- Levels: Support at 90, resistance at 100.
- Copper:
- Direction: Up
- Domestic (asset-specific): No fresh domestic catalyst — sensitive to US response.
- Cross: Aided by optimism.
- Levels: Support at 610, resistance at 620.
- SPX:
- Direction: Up
- Domestic (US): Boosted sentiment supports outlook.
- Cross: VIX regime shift, global risk-on fueling.
- Levels: Futures 7300, cash support at 7250, resistance at 7350.
- NDX:
- Direction: Up
- Domestic (US): Mega-cap resilience and lower rates helpful.
- Cross: Rate sensitivity supporting.
- Levels: Monitor intraday resistance and support levels.
- US30 (Dow):
- Direction: Up
- Domestic (US): Broader market lift aids cyclicals.
- Cross: Lower yields benefit outlook.
- Levels: Monitor intraday resistance and support levels.
- UK100 (FTSE):
- Direction: Up
- Domestic (UK): No fresh domestic catalyst — sensitive to US response.
- Cross: Riding the positive global wave, GBP drag offset.
- Levels: Monitor intraday resistance and support levels.
- DAX:
- Direction: Up
- Domestic (DE): Lower Bund yields, EU tone aiding DAX.
- Cross: Taking cues from US tech.
- Levels: Monitor intraday resistance and support levels.
- Nikkei:
- Direction: Neutral
- Domestic (JP): JPY weakness and earnings are important.
- Cross: Risk tone and US tech performance play a key role.
- Levels: Monitor intraday resistance and support levels.
- BTC:
- Direction: Up
- Domestic (asset-specific): ETF flow stable, and funding rate stable.
- Cross: Risk sentiment.
- Levels: Support at 81000, resistance at 83000.
Positioning watch: JPY is the most crowded short (0th percentile) and Aussie is most crowded long (96th percentile), per CFTC. A dovish surprise from the Fed or a hawkish BoJ shift could trigger a significant squeeze in JPY.
The pain trade: A surprisingly strong ADP print would reignite inflation concerns and send yields higher, triggering a sharp reversal of today’s risk-on move and hurting gold longs.