European Open: EUR/USD eyes break of 1.06, potential bull flag on gold

Asian Indices:

• Australia's ASX 200 index rose by 73.9 points (1.05%) and currently trades at 7,138.40
• Japan's Nikkei 225 index has risen by 318.1 points (1.2%) and currently trades at 26,720.94
• Hong Kong's Hang Seng index has risen by 368.95 points (1.83%) and currently trades at 20,489.63
• China's A50 Index has risen by 237.18 points (1.8%) and currently trades at 13,439.25

UK and Europe:

• UK's FTSE 100 futures are currently up 95.5 points (1.31%), the cash market is currently estimated to open at 7,398.24
• Euro STOXX 50 futures are currently up 41 points (1.13%), the cash market is currently estimated to open at 3,681.55
• Germany's DAX futures are currently up 157 points (1.13%), the cash market is currently estimated to open at 14,039.30

US Futures:

• DJI futures are currently up 211 points (0.68%)
• S&P 500 futures are currently up 135.75 points (1.14%)
• Nasdaq 100 futures are currently up 33 points (0.85%)

Asian market in the green thanks to PBOC lending rate cut

China cut their 5-year mortgage reference rate for the second time this year, and by mech more than expected, to support the housing sector. The 5-year loan prime rate (LPR) was cut by -15 bps from 4.6% to 4.45%. Earlier this week Chinese Premier Li called for policy adjustments and Xi Jinping’s top economic advisor publicly supported helping the tech sector. Major benchmarks across Asia were all in the green, led by China.

EUR/USD pulls back into support overnight

The US dollar retraced against some of yesterday’s losses overnight, which pushed the Australian dollar down to 70c (a key level to monitor this session) and EUR/USD down to a key zone of support. But it likely won’t be enough to help the US dollar escape breaking a 6-week running streak by the close of today.

We can see on the hourly chart that a strong bullish trend is forming on EUR/USD. Yesterday’s rally petered out around 1.0600 before pulling back to the 38.2% Fibonacci retracement and weekly R2 pivot. The market is now trying to form a base and we suspect it can rally from current levels and have another crack at 1.0600. A break or hourly close beneath 1.0550 invalidates the near-term bullish bias and suggests a deeper correction is underway.

Potential bull flag on gold

I noted yesterday how yields were looking toppy, which itself was based on an observation that the 10-year bond had rallied form a key support level and bears had closed out gross longs. This proved to be beneficial for gold yesterday which closed at a 10-day high. For the rally to advance today, we’d like to see the US dollar and yields continue to weaken.

As for gold, a bullish trend has developed on the hourly chart and probed trend resistance. A potential bull flag is forming above the weekly pivot point and 100-hour eMA, and the pattern projects a target around 1875. Although 1858 and 1865 make likely interim targets.

FTSE: Market Internals

FTSE 350: 4070.24 (-1.82%) 19 May 2022

• 57 (16.29%) stocks advanced and 287 (82.00%) declined
• 3 stocks rose to a new 52-week high, 39 fell to new lows
• 23.14% of stocks closed above their 200-day average
• 98.29% of stocks closed above their 50-day average
• 10.86% of stocks closed above their 20-day average

Outperformers:

• + 10.16% - HomeServe PLC (HSV.L)
• + 5.20% - Darktrace PLC (DARK.L)
• + 4.50% - Ferrexpo PLC (FXPO.L)

Underperformers:

• -12.38% - Royal Mail PLC (RMG.L)
• -11.03% - 3i Group PLC (III.L)
• -7.81% - Pagegroup PLC (PAGE.L)

Up Next (Times in BST)

• BOE’s Chief economist speaks at 08:30.
• ECB member Lane speaks at 11:00.

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