Market Overview
There have been key breakouts across major markets in recent days. The one recurring theme linking it all together seems to be one of selling pressure on the dollar. The puzzle pieces appear to have all fallen into place for selling the dollar. There are daily headlines of COVID-19 infection rates, accompanying increasing number of US states re-introducing lockdown procedures. This is coming just as the EU-27 have agreed on a fiscal stimulus package that involve the joint issuance of debt, a move that shapes a far more stable union moving forward, boosting the euro. Furthermore risk appetite has had a shot in the arm too from a series of positive COVID-19 vaccination/treatment tests. In the background too, tit for tat moves between the US and China (this time over shutting consulates) continue to play out. Subsequently we see a rare event where the market is buying US equities (on the risk positive lean) and buying US Treasuries (on fear of the impact on the US economy in the coming months). The dollar is getting hit across major currency pairs, and commodities are pulling sharply higher. The question though becomes whether there begins to be a bout of profit taking on these moves.
Wall Street closed higher once more, with the S&P 500 +0.6% at 3276. US futures are marginally higher once more, with the E-mini S&Ps +0.3% this morning. Asian markets were mildly lower overnight, with the Shanghai Composite -0.4%, whilst the Nikkei was shut for a Japanese public holiday today. In Europe, a mildly positive early move with FTSE futures +0.4% and DAX futures +0.5%. In forex, there is an ongoing risk positive, USD negative theme as we see USD underperformance across major pairs, with AUD and NZD performing well. In commodities, perhaps an early sign of stalling (or maybe reversal) with silver -0.7% lower, and gold +0.2% higher. The oil breakout is holding, another +0.5% higher today.
It is another quiet morning for the economic calendar. Into the US session, the US Weekly Jobless Claims are at 1330BST with another 1.300m claims expected in the past week (after 1.300m previously). Eurozone Consumer Confidence is at 1500BST and is expected to show a recovery in July to -12.0 (from -14.7 in June).
Chart of the Day – AUD/USD
As risk appetite has taken off and the dollar has sagged, a raft of major markets broke through key levels earlier this week. One key major which has confirmed its breakout was the Aussie. For the past month the market has effectively been in a consolidation range between 0.6775/0.7060. A shallow uptrend has been tracking the move higher since May, but Tuesday’s decisive move above 0.7060 confirms the market is pushing forward once more. Taken as a rectangle breakout or an ascending triangle, the implied target is similar, a move higher by around +285 pips towards 0.7350 in the coming weeks. Standing in the way is historic overhead resistance around big figure levels, with 0.7205 (April 2019 high), 0.7285 (January 2019 high) and 0.7395 (December 2018 high). However, momentum is strong still with the breakout, with RSI above 70, Stochastics above 80 and MACD lines rising off a bull cross. There is strong breakout support now between 0.7000/0.7060 which is a good are to look for opportunities on a pullback.
Following the breakout above key resistance of $1.1490/$1.1500, the euro just continues to climb. Another strong bull candle yesterday and the momentum with this bull run is still strong. There have now been four strong bull candles in a row, and eight of the past nine sessions too. The market seems to really have taken a view, and this is coming with both EUR strength and USD weakness. Given the strength of the bull run and clearance of such important resistance (even minor resistance at $1.1570 has also been cleared), we are happy to continue to back this bull run higher. The market has once more started well today and there is an appetite to continue to buy into even intraday weakness. The next key resistance is not until around $1.1800. However, even though momentum is strong we must also be mindful that the daily RSI is into the mid-70s now, a position which tends to be consistent with exhaustion. So, we must be on alert for potential exhaustion signals and profit-taking. There is initial support at $1.1560 today, whilst $1.1505/$1.1545 houses near term support from yesterday. Support is good in the band $1.1490/$1.1500 and further back at $1.1350/$1.1420.
Backing a sterling rally should still come with a health warning. Yesterday’s session reflects this, with an intraday drop of -90 pips, only to entirely retrace those losses and rebound +90 pips off the day low into the close. An almost perfect doji candle does serve as a warning for the run higher, but for now the bulls still have control as the market has opened marginally positively today. The move above the big seven month downtrend and resistance at $1.2670 was a key moment earlier this week, which effectively opens the door to a test of $1.2810. Given the ongoing dollar weakness, this is a move that still seems to be on. Momentum is positive, and for now, weakness is being bought into still. We prefer a test of $1.2810 but at this stage are wary of calling an upside break from the medium term trading range. The support of $1.2640/$1.2670 is growing in importance for the bulls to maintain momentum to put pressure on for a medium term breakout.
Despite the selling pressure that the dollar has been experiencing across the major pairs in recent days, there is still an appetite to support the dollar between 106/107 on Dollar/Yen. It also shows that the yen is really struggling recently too. Yesterday’s positive candle on Dollar/Yen all went a long way towards unwinding the selling pressure of the previous session and has helped to stabilise the market once move above the 106.60 lows. We continue to note that the RSI remains stable and perhaps even encouraging the bulls as it rebounds back towards 50 again. Once more the buyers are happy to return with the RSI in the low 40s, which suggests that this is only a mild negative bias within what is still a medium term trading range 106.00/109.85. It suggests that we continue to play this as a range. Resistance at 107.40/107.50 needs to be overcome for the bulls to gain any realistic traction, but for now there is still little drive for a downside break. Hourly chart indicators sow a mini trading range playing out between 106.60/107.40.
Gold
Another strong bull candle formed yesterday as gold continues to accelerate higher. The breakout is through all of our breakout targets, both near term ($1848 from 2 week range) and medium term ($1868 from a two month range). The next barrier is a round number of $1900 and then the all-time high of $1920. The strength of the bull run is significant, with momentum indicators extremely strong. However, with RSI into the high 70s, there will begin to be questions over just how much further the run can go. Given the strength and lack of resistance, this key move could easily continue towards the all-time high. However, a correction could also be swift too, so we must look for exhaustion signals. On the hourly chart we note that the rising 21 hour moving average (currently $1865) has become a good basis of support in the past four sessions, tracking the move higher. We still see the buyers continuing to push gold higher early today, but there are starting to show some near term negative divergences on hourly RSI and hourly MACD lines. Whilst these are not outright sell signals, they are a warning that momentum in the run higher could be slowing. If the RSI drops below 50, this would add to a warning of correction. There is near term support at $1860 which has become a pivot in the last couple of days too. A breach of $1860 would also be another potential corrective signal. Confirmation would be below yesterday’s higher low at $1845. An unwinding retreat into $1789/$1818 support area would still be medium term bullish and likely become another chance to buy.
Although it may not be unrestrained buying pressure, Brent Crude is holding on to the break above recovery resistance to now trade at levels not seen since March. The breakout above $43.95 (the late June high) has taken a few weeks to be achieved, but the bulls are now slowly and surely getting control back after a period of consolidation. Upside pressure is mounting for a move to finally “close” the big gap at $45.20. This would be a key moment in the rally and be a move that would open the way for the next stage recovery. With a succession of higher lows, along with improving momentum once more, the bulls are moving into position. Throughout the consolidation, we have seen momentum indicators unwinding to help renew upside potential (especially on MACD), but with eh RSI moving to multi-week highs into the mid-60s there seems to have been a shift into a more positive outlook in the past few days. We still look to buy into weakness, but a close above $45.20 would open a move into the $50s. Initial resistance is $48.40 but little really standing in the way until $50/$53. Support comes in at $42.35 initially with $41.30 growing in importance.
After weeks of struggle, is the Dow finally starting to break free? The recovery from the island reversal of June has bumped up against resistance for weeks, but now a positive candlestick to “close” the big gap at 26,940 has been achieved. The bulls may not be storming forward but steady progress has been made in the past few sessions and an uptrend of the past two weeks has developed. Momentum has been improving as the daily RSI has confirmed the near term bull move, now into the 60s, whilst Stochastics are strong above 80. Initial resistance from last week’s 27,070 high stands in the way of a test of the key rebound June high of 27,580. We continue to note the all time highs on NASDAQ and S&P 500 breaking its equivalent June high already, so the Dow bulls will certainly be hoping to follow suit now. Hourly chart indicators show a market primed to buy intraday weakness and to push on now. The importance of the support band 26,300/26,610 is growing as the market builds well from Monday’s low of 26,505.
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