Market Overview
The dollar rally seems to have lost its way already as the greenback has come under some selling pressure which is impacting across forex and commodities. Weak US productivity data has again questioned the ability of the Fed to hike interest rates any time soon. Q2 productivity fell by -0.5% which was much worse than the improvement of +0.4% the market had been forecasting. Traditionally this is a little watch indicator but the degree of the disappointment has hit markets. This is another data point that adds to the mixed recent releases that would suggest the Fed seems destined to hold off from its next rate hike at least until December.
Equity markets are looking far more cautious today after Wall Street struggled into the close (S&P 500 +0.1%) and Asian markets have been mixed to lower overnight. European markets are mildly lower today as recent gains look to be an opportunity to take a little profit off the table. Forex markets are showing a decisive move against the dollar which is underperforming across the forex majors today. The yen is predictably one of the strongest currencies, whilst the Kiwi is also strong despite the market anticipating a 25 basis points rate cut by the Reserve Bank of New Zealand this evening. Sterling has also bounced back. The weaker dollar has allowed gold and silver to shoot higher again with both over a percent higher again today. Oil has been in focus with the calls for an OPEC meeting to discuss production limits.
There is little European data of any note this morning so traders will look towards the US JOLTS jobs openings at 1500BST which are expected to improve back to 5.57m (from 5.50m). The EIA oil inventories at 1530BST are expected to show a drawdown of 1.5m barrels (last week an increase of 1.4), but also look out for the gasoline stocks which was the entry that caused the stir last week with a surprise draw of 3.3m, this week expecting a draw of 1.3m. The RBNZ monetary policy decision is at 2200BST and is expecting a cut of 25bps to 2.00%.
Chart of the Day – GBP/JPY
The negative outlook on Sterling/Yen is still intact as the stepped decline over the past three weeks continues. There is actually a downtrend that has its origins with the first move following the Brexit decision and this continues to track lower, with the decline over the past couple of weeks tracking this downtrend well. Intraday or small rallies continue to be sold into and yesterday there was another bear candle that has again re-opened the 128.80 low. The concern for sterling is that the momentum indicators a negatively configured but also show further downside potential with the RSI only in the mid-30s, the MACD lines just turning lower again, whilst the Stochastics remain extremely bearish. The hourly chart shows near term resistance at 133.15, with Tuesday’s reaction high at 134.00 increasingly important, whilst the 23.6% Fib retracement of the Brexit sell-off from 160.10/128.81 at 136.20 is also a near term key pivot. Using any intraday rally as a chance to sell remains the strategy.
The relative strength of the euro has been showing in recent days as even amidst the dollar strength, the euro has been holding firm. This is now beginning to bear fruit as a bull candle yesterday is being followed by further gains today. The daily chart shows once more that the support of the long term pivot around $1.1050 has once more proved a key turning point as the move higher has resumed. The technical momentum indicators are also turning to reflect this improvement. I feel that this shows how neutral or uncertain the medium term outlook is becoming as in the past few weeks there has been a sequence of bull and bear runs, none of which have managed to change the real trend, with the pivot band $1.1050/$1.1100 playing a key role once more. The push back above $1.1100 reflects the improving near term outlook and today the bulls are eying $1.1162 which was the high just before the Non-farm Payrolls sell-off. The hourly chart shows the importance of the resistance around here with an old pivot level around $1.1150 but with hourly momentum increasingly strong this will come under sustained pressure. A decisive push above opens $1.1233 which was the recent key near term high. There is a small band of support now $1.1100/$1.1120.
Sterling has managed to bounce over 100 pips already since yesterday’s low of $1.2954 but the move still has a look of a bear market rally. Trading against the trend tends to be a risky way to trade and having broken below the key support at $1.3060 the bears are in control. This comes despite the rebound overnight. However, the rally is on for now and it will be giving another opportunity to sell. There is a near term sell zone now between $1.3060/$1.3100 as shown by some old pivot levels on the hourly chart, whilst the hourly chart has also now unwound the overstretched momentum. Watch for the next sell signal today as there should be further weakness in due course to retest yesterday’s low at $1.2954 and beyond. Key near term resistance is at $1.3160.
The dollar rally in the wake of the payrolls report does not appear to have lasted too long as the yen strength has resumed to pull the pair back lower to test supports once more. The reaction low at 100.65 is once more back under pressure. The daily momentum indicators reflect the deterioration with the Stochastics rolling over, the RSI back below 40 and the MACD lines still falling. The resistance at 102.80 has been strengthened as the latest mini rally has rolled over at 102.65. The hourly chart shows there is now a near term pivot around 101.65 which adds to the resistance and that any rallies will be seen as a chance to sell once more.
Gold
I discussed yesterday about the support forming and that the bulls were close to a recovery following the uncertainty of the doji, and this now seems to be the case as the price has now broken back higher again. Resistance had formed around $1338 but this was broken sharply to the upside yesterday only to then be used as the basis of support for the bulls. The daily chart shows a minor bullish candle but importantly the momentum indicators are reflecting the improvement with the Stochastics turning up and RSI pulling higher again. Today’s bullish open is continuing the improvement and the hourly chart shows a move above the technically important pivot at $1346 to re-open the resistance around $1365/$1367 whilst hourly momentum is far more positively configured now. The bulls will now look to bolster their control by using the support between $1338/$1346 as a near term buy zone. The support at $1330 has become important now.
WTI Oil
The bulls continue to fight to hold on to the rally. A mixed session yesterday has formed a mildly corrective candle (very small bearish body to the candle that is almost a doji) has not derailed the recovery although there are a few questions now to be asked. The bulls may have managed to pull a move back inside the old downtrend channel (which is positive), whilst the momentum indicators are showing some significant improvement with the Stochastics rising and now the MACD lines crossing higher for the first time since the corrective move began in early June. However the daily chart shows the falling 21 day moving average which has so often acted as key gauge in the past and is currently falling at $43.02 is again being resistance. The hourly chart shows the near term base pattern that targets $45.00 is still intact but the momentum in the recovery is beginning to wane. This may just prove to be a near term consolidation but the neckline of the near term base pattern at $42.10 which is supportive is now increasingly important. Corrections are now being seen as a chance to buy and this outlook could be tested soon. The outlook remains uncertain for the medium term but the near term recovery is still in play for nowd. Key support is at $41.05.
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