Market Overview
Market sentiment has taken a sizeable jolt following the move from President Trump to increase tariffs on Chinese imports. Whilst this move increases trade tensions between the world’s two largest economies, there is still a feeling that open dialogue could yet still solve the issue. However, with talks in recent days not able to break any deadlock, it seems that the US/China trade dispute will now drag on for weeks and perhaps months. It is likely that the two leaders, Trump and Xi, will meet at the G20 summit, but that is not until the end of June. So, markets will likely be left in limbo for the coming weeks.
Positive risk sentiment that had built in the early months of 2019 is now questionable. Safe havens have benefited from all of this. Treasury yields have fallen, whilst the yen and Swissy have been the main winners in the forex space. The dollar had initially slipped on the shock, however, in the past couple of sessions has begun to build support again.
The key volatility is being seen still in equity markets. Wall Street bounced back on Friday but futures are not looking so rosy today. There looks to be a rather risk negative sentiment reflected through forex markets too. As traders had been steadily pricing in a resolution to the trade dispute previously, the positivity is seeping away. Looking on Aussie/Yen, a gauge of risk appetite and our chart of the day, it seems that this move is yet to completely play out.
Wall Street bounced strongly into the close to end Friday with the S&P 500 +0.4% higher at 2881. However, US futures are lower today by -1.1% and this is dragging Asian markets lower. The Nikkei is -0.8% and Shanghai Composite -1.1%. In European markets the losses are seemingly being contained initially, but there is still a slightly cautious look with FTSE futures and DAX futures -0.1% lower. In forex, there is a risk negative bias, with the commodity currencies, AUD, NZD and CAD all weaker, whilst JPY is the main outperformer.
In commodities, once more gold is unable to hold any positive traction, with silver also lower. The consolidation on oil continues.
There are no key economic releases due today.
Chart of the Day – AUD/JPY
Aussie/Yen is a forex assessment of risk appetite. With elevated fears of the escalation in trade tensions, the yen has performed strongly, whilst the Aussie has been under pressure. AUD/JPY has already been corrective recently, but the technical breakdown below 77.42 has been a key move. This area of old support now becomes new resistance, whilst a three week downtrend comes in at 77.25 today. This is a key moment for the pair as the RSI is stretched in the mid-20s. Is this a trending move, or set up for a technical rally. Friday’s session showed a bull disappointment into the close as a rebound failed at 77.25. A continued move lower today looks to be confirmation of continued downside. Initial support is at 76.34, but if this is broken on a closing basis it would open downside potential potentially even towards the January lows. Resistance is mounting at 77.25/77.50 as a near term sell zone.
The tick higher at the end of last week found a couple of positive daily candles in a row in a move that has broken a seven week downtrend. However, the market is now reaching areas where previous rallies have failed in recent months. The four major rallies in 2019 have all failed between 54/60 on the RSI. The 55 day moving average (currently $1.1260) has consistently been a basis of resistance. Resistance at $1.1265 capped the late April rally, whilst the multi month downtrend channel resistance is falling at $1.1295 today. The hourly chart shows a market edging higher, with a positive bias, but broadly within a range. How the bulls respond around $1.1210/$1.1220 initial support will be a gauge. Support at $1.1175 is also increasingly important.
The unwinding move on Cable may have come as the UK political outlook has taken something of a negative drift again. However, the market has unwound back to gravitate around $1.3000 again. This looks to be a chart now looking for a catalyst. The momentum indicators have become increasingly benign in recent sessions, with the RSI flat and a shade under 50, whilst MACD lines are flat and a shade under neutral. On the hourly chart the market has ranged in an 80 pip band for the past few sessions and lost direction. A near term pivot resistance around $1.3035 is capping the upside, but $1.2965 is supportive. Closing consistently below $1.3000 would increase the negative pressure, but the bulls are hanging on for now. Below $1.2965 opens $1.2800 area again.
The corrective slide has just lost traction in the past session or so. A move back to the key March low has broadly managed to be contained and despite the negative configuration on momentum indicators, the bulls are still hanging on. A decisive closing breach of 109.70 would signal a real shift in the market outlook. It would be confirmation of an end to the bull move of the past few months. It could also signal the beginning of a new bear leg too. Considering the RSI is sitting around 30, it would also suggest that the market is forming a trending move. The hourly chart could hold the key. Resistance at 110.05 has capped the gains in recent days, but a pivot at 110.25 is growing as resistance. Hourly momentum indicators are also suggesting that the basis of support is a move to renew downside potential. So watch the hourly RSI failing under 60 and MACD lines failing under neutral. Continuation of this would increase the likelihood of a downside break.
Gold
A very slight positive bias within the consolidation of the past few weeks is now on the brink of breaching the 11 week downtrend. However, it is still difficult to see this as a bull move in the making. The market has been stuck in a range between $1266 and $1291 for almost four weeks now. Whilst the RSI has edged to 50, rallies of recent months have tended to dissipate between 55/60. Even if $1291 were to be breached, there is key resistance of the long term pivot band overhead between $1300/$1310. Another lower high under $1310 (the April high) would still likely be the next move. On the hourly chart there is still a ranging configuration albeit with a near term positive bias. However, the hourly RSI is struggling for traction, as is the MACD. A move above $1291 would open $1300 as the next resistance area. There is still a pivot around $1278/$1280 supportive initially.
WTI Oil
It has been a consolidation, more than any buying pressure which has now broken the two week downtrend. This consolidation is leading to a questionable outlook now. There is a top pattern under $62.30/$63.00 which implies a target of $58.00, however, the support is holding at $60.00 and momentum indicators are settling. RSI has barely budged off 45 in recent days, whilst Stochastics are similarly flat. The past week of trading has contained a mixed bag of daily candlesticks for which it is very difficult to read anything definitive into. So until there is a move below $60.00 or above $63.00 it is very difficult to take a view on WTI.
Is it a case of sell on rumour buy on fact for the Dow? The corrective move of the past week may have turned a significant corner on Friday as a bullish engulfing candlestick (bull key one day reversal) formed. Coming after a run of negative sessions, perhaps the selling pressure is now set to turn positive again? The candlestick which is also effectively a bull hammer has left a 25,470. MACD lines are looking to bottom around neutral and Stochastics edging higher. The reaction in today’s session could be crucial as to whether there is a follow through on this encouraging candle, or whether this is a false signal. Hourly indicators are looking more positive now, and the resistance at 26,118 is a key gauge near term. A move above this lower high would suggest the bulls are gaining recovery traction. However, futures are looking lower initially today and the initial support 25,790/25,885 will be more in concern. A bear candle follow up would be a disappointment now.
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