At the closing bell today, a cocktail of worrying signals plagued the market today as the FOMC looms rather ominously. More jitters in the regional banks, in the US, did nothing to allay the fears spreading among investors about how this would affect the Federal Reserves interest rate policy.
Some of today’s key closes were as follows;
DXY -0.18%
VIX +3.90%
WTI -5.29%
BRENT -5.24%
EURUSD +0.23%
CADJPY -1.31%
What’s up with the US Dollar?
The US Dollar shed some of the gains it garnered over the last two weeks during today’s trading session on a negative Job Openings and Labor Turnover Survey number. A forecast of 9.74M missed as the number of openings came out at 9.59M.
The daily structures include a bearish structural break which occurred on the 15th of April, hence 102.00 could be a resistance that takes price to 100.600.
The weekly chart on the dollar shows a failed attempt at breaking below the low of 2023 followed by a bullish narrow range week. This shift could be the first signs of demand that could cause a markup to 104.000.
The US 10Y treasury had a torrid day against it’s peers with the exception of the Canadian 10Y. We can expect the yield to close the spread and a possible decline on the USDCAD currency pair, although this would be counter to the weak oil narrative.
What to make of the volatility surge
One of the key occurrences during the session was the retest of last week Thursday and Friday’s highs on the $VIX. The market structure at the close of the day left the likelihood of a drop to the lows of May open, due to the fact that we now have a liquidation as well as a break of structure.
The spike in volatility was instantly felt in $SPX as the index was marked down into Tuesday’s lows, however the break of structure and inability to close below Friday’s low means price will likely rally to retest Monday’s high.
Similar price action occurred on $DOW and $NDAQ, although the latter managed to close below Friday’s low.
What to make of the drop in the oil benchmarks
The oil benchmarks continued their downward trajectories inline with the contango in the gasoline and crude oil futures market, as well as a dropping refiner’s margin.
The break and close below the lows of 2023 before the sharp gap up on OPEC supply cuts, was bound to cause resistance, especially with the inability to close above the highs. The same structure can be found on WTI, despite more than one unexpected crude oil draw out of the Cushion facility over the last 2 weeks.
Morgan Stanley slashed its forecast for Brent crude prices in the third quarter by $12.50 to $77.50 a barrel, saying Russian supplies remain high enough and that much of the demand boost from China’s reopening has likely already played out.
More US regional banks join First Republic’s journey south.
It will be interesting to see what happens with the FOMC tomorrow. The US debt ceiling debacle and the ailing banks add some toxic variables into an equation that was already complex in the Fed’s battle with inflation and the dream of a soft landing.
