Market Overview
With Independence Day in the US, Markets have continued a somewhat cautious recovery on Monday morning as the settling period in the post-Brexit world continues to play out. Sterling has bounced slightly early today, however there is still a sense that safer haven plays will retain a bid with gold pushing higher and the yen also supported. Treasury yields also remain under pressure as markets factor that the Federal Reserve will be unable to hike rates in 2016 now. However equity markets are also holding up well after an incredible recovery in the past few days. The mixed outlook will not be helped today as the US is on public holiday for Independence Day, so expect reduced trading volumes and the potential for thinner markets impacting on price moves. Asian markets have been cautiously positive with the Nikkei +0.6%, whilst European indices are mildly higher in early moves.
In forex majors there are few decisive moves other than the mild gains for sterling after comments from UK Chancellor Osborne suggesting a possible 5% cut to corporation tax, whilst there are also gains for the Canadian loonie as the oil price has been supported early today. Stalemate in the Australian election looked to put pressure on the Aussie earlier but it has since pared its losses, with traders now more interested in the Reserve Bank of Australia decision tomorrow morning. No change on the 1.75% rates is expected but there could be signals of further easing ahead. Gold is looking to breakout above its post-Brexit high of $1358 whilst silver is on a seriously strong run higher again. Oil is around +0.5% higher after supportive comments from the Saudi oil minister.
Traders have little to anticipate on the economic calendar today with just UK Construction PMI at 0930BST which is expected to drop to 50.5 (from 51.2).
Chart of the Day – Trade Weighted Dollar Index (USD)
The dollar is expected to be a winner out of the Brexit vote and the initial technical move would suggest this to be the case. The long 6 month downtrend channel was broken on the day of Brexit but the days since have just been unwinding some of the move. However there has been a consistent pivot around 95.2 which is now approaching and this could be used as the next opportunity to buy. The falling 89 day moving average (currently 94.97) had also been seen as a resistance and could now become supportive. There is also the potential that if the bulls can regain the impetus there would be a nice bull flag formation. Momentum indicators look to still be positively configured and support the likelihood of another opportunity to buy. The hourly chart shows the near term resistance is at 96.42 and this is the level above which would open the prospect of a bull flag in the coming days. Key resistance is at 96.70 which was twice sold into post-Brexit. Above this the bulls would be eying 97.06 and 98.57.
The gradual creep higher on the euro continues amid the continued post-Brexit settling period plays out. However there is still a sense that this is a move that is setting up for the next leg lower. The momentum indicators retain a bearish configuration and appear to be unable to find any real traction in a recovery with the RSI below 50 and MACD lines still falling below neutral and little real improvement on the Stochastics. I am still looking for the next sell signal that I expect to see in the range $1.1100/$1.1200. The hourly chart is showing a minor recovery and a slight poke above the initial resistance at $1.1155 but $1.1188 remains intact and there is little real strength even in the hourly momentum. There are higher lows supporting the near term bounce with $1.1069 and subsequently $1.1022 looking key now to protecting $1.0968.
Cable is hanging on despite the late dip back last week. The key level of support that will be watched is still $1.3118 which has so far been the key reaction low, posted last Monday. The weakness on the back of dovish comments from Mark Carney last week have not driven too much sterling weakness, posting a low at $1.3202 on Thursday which as yet remains intact. Clearly the daily momentum indicators remain very weak with bearish configuration across the RSI, MACD and Stochastics, with an outlook that suggests rallies are a chance to sell. The hourly chart also reflects this and that the pivot at $1.3360 is currently the initial resistance. This is now protecting resistance around $1.3492 and the key overhead band $1.3533/$1.3555. I favour further weakness in due course.
The yen continues to be the strong currency of the forex majors, and I believe that rallies should be seen as a chance to sell. The daily chart shows a big overhead area of supply starting around 103.60 which is effectively a sell zone and the price pulled back from just under there on Friday as the recent recovery just began to lose momentum. The hourly chart shows that the four day uptrend broke on Friday whilst this could now become the basis of resistance. The hourly momentum has also rolled over. Despite this though until the near term support band 102.15/102.32 has been broken, the recovery bulls will be hanging on. I expect a retest of 101.37 in due course before further weakness to test the psychological 100 again.
Gold
The bulls are on a roll again. Set running again following dovish comments from the Bank of England’s Mark Carney last week the safe haven play is once more in favour. The daily chart shows strength of momentum with the RSI pushing towards 70, a level that has not phased the bulls on the run in February when the indicator hit 86. MACD lines are strong and also the Stochastics are showing further upside potential. Pressure on the Brexit day’s reaction high at $1358.20 is underway, a breakout opening the highest level on gold since March 2014 when the gold price peaked at $1391. The hourly chart shows a steady run of higher lows and higher highs in the past few days with today’s low at $1338 above the 23.6% Fibonacci retracement of the Brexit gains at $1333.
WTI oil
The consolidation on WTI continues after the huge volatility candles seen in the wake of Brexit began to calm down with only minor gains on Friday. This means that WTI remains rangebound above the big support at $45.83. The resistance though is beginning to form a series of lower highs within the consolidation, under the key high at $51.67 comes $50.54 and last week’s high at $50.00. The momentum indicators are far more neutrally configured with the RSI now between 40/60 and the suggestion is that until there is a move through these levels then the consolidation will surely continue. The hourly chart shows the bottom of the $48.00/$48.50 pivot band (all but) remained intact on Friday and this maintains a positive bias within the band still and today’s early gains could be set to pressure initial resistance at $49.60 and then $50.00 again.
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