Market Overview
Suddenly, after looking so assured, the dollar bulls are having a wobble. The question is whether this is a wobble that it just a pause for breath or whether it begins to derail the dollar bull run. A turn in the tide seemed to come yesterday with the Bank of England and a hawkish tilt in the MPC voting, which drove a sterling rally. However this was then exacerbate by a sharp fall in the Philly Fed Business Index which could be a harbinger for a peak of the trend in the US economic surprises index. US yields have dropped and the dollar has pulled sharply lower.
The Dollar Index has completed a bearish key one day reversal. At least for now, this looks to be a reversal lower on the dollar as profit taking is setting in. Traders are still concerned over the implications of escalating negative rhetoric surrounding the US/China trade dispute and equities remain pressured.
The OPEC meeting will also be a crucial factor in volatility for oil traders today. Much to ponder moving into the weekend.
Wall Street came under further corrective pressure into the close with the S&P 500 -0.6% at 2750 with US equities futures calling for a mild bounce at the open. Asian markets have been mixed to lower overnight with the Nikkei -0.7%, whilst European markets are set to track the US futures with a degree of support coming in early today.
In forex, the dollar looks corrective across the majors, with the yen also a slight underperformer, whilst sterling and the euro continue to track their rebounds from yesterday.
In commodities the weaker dollar is gold supportive today, whilst oil is making gains as traders move on news that the Iranian oil minister walked out of a meeting last night and puts a deal in doubt. Today will be a volatile day for oil though.
Much of the market focus will be on the OPEC meeting in Vienna today. In the run up to the meeting, there seems to be an general agreement that production limits will be lifted, but by how much is the key. Markets reacted earlier this week to suggestions of a lift of around 300,000 to 600,000 barrels per day spread across OPEC countries. So anything more than this would be oil negative and Saudi are pushing for as much as 1 million barrels of increase. Iran seem to be the main barrier to a significant increase in the production limits, but this is likely to be an OPEC meeting that could be difficult to predict.
On the economic calendar, the flash PMIs will also have the potential to be market moving. Eurozone Flash Manufacturing PMI is at 09:00 BST and is expected to slip further to 55.0 (from 55.5 last month) which would be a six consecutive month of decline and the lowest since December 2016, whilst the Eurozone Flash Services PMI is expected to drop to 53.7 (from 53.9 last month) and would be a fifth month of deterioration and the lowest since January 2017. This all means that the Eurozone Flash Composite PMI is expected to drop to 53.9 (from 54.1) and would be the lowest since November 2016.
Later in the day, the US Flash Manufacturing PMI is at 14:45 BST and is expected to dip very slightly to 56.5 (from 56.6) whilst US Flash Services PMI is expected to improve to 56.4 (from 55.7).
Chart of the Day – EUR/CAD
Since the “dovish taper” from the ECB, the relative performance of the euro across the majors has been recovering slowly but surely. Against the Canadian dollar there has been a decisive turnaround in the outlook on the chart. Moving back above 1.5360 was a key move earlier this week. This is a historic pivot at was a resistance throughout last week and also capped the recovery prior to the ECB and moving decisively through this level continues a recovery uptrend channel of the past few weeks. The momentum indicators are gaining strongly now, with the RSI above 60 and MACD lines now rising above neutral. There is a minor pivot resistance at 1.5445 that is now being negotiated but there is a clear recovery in process now and the next key resistance comes in at 1.5715. The pivot at 1.5360 is now supportive with yesterday’s lw of an “outside day” at 1.5330, whilst further back the rising 21 day moving average is supportive around 1.5235 along with the trend channel today at 1.5230.
The dollar bulls have once more failed to break the support of the key May low at $1.1505 as another intraday test of the support has been bought into. This comes as the market has actually formed a bullish key one day reversal session to close above the high of the previous session. However, the danger is not yet over for the bulls as there is resistance of a near term pivot around $1.1640 that needs to be breached for the rally to continue. There is though an interesting tick higher on momentum indicators, with the RSI moving back above 40 this morning and the Stochastics settling. The hourly chart reflects this mild improvement as the price trades above all the moving averages now and momentum is ranging. A decisive move above $1.1640 would imply a near term breakout of around 130 pips of additional upside. It would also suggest the euro will be dragged back into the resistance band above $1.1725.
Cable has been smashed in the past two months, but one dissenting and hawkish vote on the Bank of England monetary policy committee has potentially now begun the recovery. A huge bullish engulfing candlestick pattern (bullish key one day reversal) has been posted yesterday to leave a key low at $1.3100 and has already pulled the market 175 pips higher. This looks to be a decisive trend reversal signal. The RSI has picked up and is into the low 40s, also leaving what looks to be a bullish divergence, whilst the Stochastics have also give a cross over buy signal. The market is trading higher now this morning again to continue the move. The hourly chart shows the next resistance is around $1.3300 and the old near term support at $1.3345 is now a basis of resistance. There is a far more positive configuration now on the hourly momentum too, and near term slips will be seen as a test of the demand to buy now. There is support initially at $1.3235 with a pivot around $1.3200.
The dollar strength that had been impacting across major pairs recently has not managed to impact on Dollar/Yen and once more another negative candle is questioning the ability of the bulls to continue to drag the pair higher. Failing yesterday at 110.75 has left a lower high under 110.90 and the market is now eyeing a test of an uptrend that (following Tuesday’s sharp bear candle) can now be draw back to the March lows three months ago. The momentum indicators have been tailing off recently to reflect what has been a fairly tepid run for the dollar against the yen recently and with the market again trading around the pivot at 110.00 the bull run is certainly in the balance. Tuesday’s low at 109.53 is near term key support but eh market does not look on the brink of a move to burst higher that would prevent a breach of this three month uptrend. Te horly chart looks ranging and there is resistance at 110.25.
Gold
Another close lower on gold yesterday suggests that the bears are still in the driving seat, however there are signs that this run lower is maturing, at least in the near term. A small bodied candle fell just over $1 on the day but closed $6 off the lows and the market today has hinted at a degree of stabilisation forming. Gold has been increasingly stretched on momentum indicators recently, with a move on the RSI below 30 which is very rare (the last time being December 2016). This would suggest that once the selling pressure of the bear run begins to exhaust there is the fuel for a technical rally. The hourly chart shows that for now, the run of lower highs and lower lows, with old supports becoming new resistance is still intact. We first look at $1270 and then $1274 as resistance levels today. Breaching these could trigger a bout of profit taking and pull the market recovery into $1280/$1290. Key support is at $1260.80 initially now. This does look to be a market still unsure of a recovery, but the prospects are increasing. A closing breach of $1260 re-opens the move towards $1236 but exhaustion may not be long in coming.
WTI Oil
A choppy phase of trading around newsflow surrounding OPEC will come to a head today as the cartel holds its biannual meeting and a decision on production limits will be announced. The market has been ranging between $63.60 support and resistance at $67.15 for three weeks now. Subsequently, it will be a closing move outside these limits which looks to drive the next direction. Technical indicators have become somewhat more benign in the past week or so as the market has become less willing to take a decisive view on oil, but if anything they are tempting to point higher. However all can change on today’s OPEC announcement. A breach of $63.60 would imply around $3 of downside and a test of the $61.80 key April low, whilst a move above $67.15 would be an outlook changer for the bulls and imply a move back towards $70 again.
After consolidating briefly around the 38.2% Fib retracement at 24,595, the Dow has again closed strongly lower as the market has continued to correct. Closing clear of the 38.2% Fib level now means that a retreat towards the 23.6% Fib at 24,117 becomes the next target area for the move. The sellers are also gathering momentum once more with the Stochastics accelerating lower and the RSI moving to 11 week lows. The market is now busy building a sharp downtrend which tracks the move lower, with the downtrend coming in today at 24,580. Subsequently, intraday rallies are a chance to sell. With the momentum indicators moving below their late May lows, the support at 24,248 could now be tested. The reaction high at 24,805 is now a near term key resistance.
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