Market Overview
The dollar is back under pressure after Trump’s disappointing result in the Senate on voting down Obamacare. This comes as markets look forward to a first look at Q2 US growth. The FOMC seems to be adding extra focus on the US data releases in the coming weeks. The balance sheet reduction will begin “relatively soon” as long as the economic recovery continues as expected. That means data surprises will be pounced upon.
Inflation is a concern for the Fed and that helped to drive the dollar weakness on Wednesday. But there has been a bounce back on the better than expected headline durable goods orders. This has helped to pull Treasury yields back higher again and supported the dollar yesterday. The big focus therefore today will be the first reading of US Q2 growth. GDP is expected to have been stronger than the 1.4% Q1 (the first quarter is historically difficult) but there is often a bounce back in Q2. The closely watched Atlanta Fed’s GDPNow forecast has been dropping away in recent weeks as the US data has underwhelmed but interestingly ticked up to expecting 2.8% GDP today, which could mean an upside surprise to the 2.5% consensus. This would have been one of the reasons behind the dollar rebound yesterday. But can it be sustained? Surprises will be pounced upon either way, but Treasury yields are back lower again early today and there is pressure on the dollar again.
Donald Trump’s reform of Obamacare was dealt another blow overnight with a late vote in the Senate that lost by 49-51.
Wall Street closed mixed with the Dow higher, but the S&P and Nasdaq lower. The S&P closed -0.1% at 2475, whilst Amazon (NASDAQ:AMZN) dropping after hours has put a negative spin on Asian markets (Nikkei -0.6%) and European markets are also looking weaker in the early moves.
In forex, the dollar has come back under a little pressure as Treasury yields have dropped. The yen is a decent performer after Japan CPI was in line with expectations at +0.4% (+0.4% YoY exp, +0.4% YoY last).
In commodities, gold remains stable as it tests $1260 again, whilst oil is just consolidating a touch after strong gains in recent sessions.
Growth in North America is in focus today, with GDP for both the US and Canada announced. US Q2 Advance GDP is at 13:30 BST and is expected to be an annualised +2.5%. This is an improvement on the first quarter’s upwardly revised +1.4%, whilst the Atlanta Fed’s GDPNow is also suggesting +2.5% although this has been steadily declining over recent weeks. Canadian GDP for May is also released at 13:30 BST which is expected to be +0.2% for the month.
Chart of the Day – USD/CHF
Dollar/Swiss rallied hard yesterday, forming a strong bull candle that added over 140 pips on the day. The strong bull candle has brought about a key moment for the market, and the bulls are running with it again today. Already a move above a near term pivot at 0.9600 has been an important step, but now, not only have the bulls broken a downtrend channel which has been forming over the past eight weeks (today around 0.9670), but it has also broken through the medium term pivot at 0.9700. This has been a key pivot for several months, initially being a key low in May and then subsequently a key high throughout much of July. Momentum indicators have reacted higher, with the RSI having pushed out decisively above 50 for the first time since mid-May. The next day following such a strong candle can often bring a retracement, but the bulls are pushing on. A closing breakout above 0.9700 would open the late May high at 0.9808, but more importantly the old big floor at 0.9850. The bulls will be disappointed not to hold on to the breakout of the channel (at 0.9670) and a failure would mean that the pivot at 0.9600 is back in play. Holding to this support will be key for the bulls.
The euro has pulled back from a breakout to a new multi-year high that it saw in the wake of the FOMC statement on Wednesday. Yesterday’s negative candle has just tempered the bulls a touch but the technicals remains very strong and corrections will continue to be seen as a chance to buy. Momentum may remain stretched across the studies with the RSI around 70 and Stochastics above 80, but this predominantly reflects the strength of the trend, with the Stochastics above 80 for the past month. There is support at $1.1610 that was Wednesday’s low prior to the Fed and this will be a gauge of how the market looks at US GDP today. A breach of $1.1610 would open a near term correction back towards the $1.1490 key breakout, however, this is likely to be met with buying pressure. The market remains stable for the euro bulls who are again eying the move back above the $1.1711 August 2015 high. Yesterday’s peak of $1.1775 is the key resistance near term after the negative candle.
Sterling continues to hold on to its now five week uptrend (which comes in today at $1.3015). It was interesting to see that although yesterday’s candle posted a new high dating back to September 2016 at $1.3157, the market has unwound back to find support at the old pivot at $1.3050 again. With the strength across the momentum indicators, this support will be watched for today’s US GDP announcement. There is a near term support also at $1.3000 which other than being psychological was also Wednesday’s low prior to the FOMC announcement. The bulls will therefore be looking to hang on to this band $1.3000/$1.3050 in the event of better than expected US GDP. A failure of $1.3000 would re-open the low at $1.2930. Corrections have continued to be seen as a chance to buy on Cable and the hourly chart shows momentum has unwound to levels where the buyers have tended to resume control.
There is a sense that the sellers may just be biding their time for the next move lower again. Tuesday’s strong bull candle was the first in over two weeks, but for now looks rather isolated as the market has once more posted a strong bear candle (on the FOMC) and then yesterday back to the neutral almost “long-legged doji” candle. Coming with the RSI and Stochastics momentum indicators retaining negative configuration, whilst the MACD lines continue to fall into negative territory, in addition to trading below a clutch of moving averages, the outlook remains under pressure. The early decline today (with Japanese inflation in line with expectations) is adding to that pressure ahead of the US GDP announcement. The hourly chart shows overhead resistance remains key with the 111.55 Fib retracement still a pivot factor, whilst 112.20/112.40 is key resistance. A breach of 110.60/110.80 would open 110.00 but little real support until 109.35, the 50% Fib level.
The pivot at $1260 has come under renewed threat in the wake of the FOMC announcement. The last two sessions have made intraday breaches of the pivot (as often has been seen in the past) but there is still yet to be a decisive close (Wednesday’s close was $1260.60). Momentum indicators remain positively configured with the RSI above 60 and Stochastics holding above 80, whilst the MACD lines are rising close to above neutral. History of recent months tells us that $1260 tends to be a consolidation within the prevailing trend and that means an upside break remains the most likely. However even if there is a drop back on stronger US GDP today, the other pivot at $1240 is a basis of support. Corrections within this now three week rally are a chance to buy. This is reflected on the hourly chart with the positive momentum configuration. Resistance intraday is at $1265 and a decisive close breach above $1260 re-opens the 2017 range highs at $1296.
WTI Oil
The rally continues. The bulls have now posted four consecutive positive candles with a break above $48.40 the rebound is pushing higher to eight week highs. This has opened $50 again and the next resistance is $50.30. The momentum indicators are increasingly positive with the RSI now at the highest since April into the mid-60s and the MACD lines rising well above neutral and the Stochastics into bullish configuration. Intraday corrections are a chance to buy and the hourly chart showing yesterday’s low at $48.25 being an important gauge for the rally to continue today. There is an interesting negative divergence on the hourly RSI and this could be a sign of slowing momentum. This will be a concern for the bulls. A breach of support at $48.75 would change the outlook.
The market has broken into all-time high ground and continues to push higher. The solid bull candle yesterday shows a strong session with a close at the day high. Momentum is strong with the RSI at 67, MACD lines ticking higher and Stochastics strongly configured. The breakout above 21,681 completed a small 210 tick range breakout and implies a move towards 21,890. The hourly chart shows that the old resistance at 21,681 has become supportive and corrections remain a chance to buy.
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