Market Overview
It looked as though traders were set to take a pause for breath on the recently renewed dollar strength, but that does not seem to have lasted too long as the dollar bulls have quickly regained the initiative as European traders have taken over this morning.
Supportive comments for the US economy in the two days of testimony from Fed chair Jerome Powell have bolstered expectation that the FOMC is set to increase interest rates another two times more this year. With Powell also moving to play down the perceived negative impacts of the escalating conflict over US trade ties, this has given a boost to the dollar. This also comes amid weakness in the Chinese yuan which has fallen to a 12 month low against the dollar again today as focus of the fears of the impact of the dispute remain on emerging markets. In this scenario, the dollar still seems to be the main winner.
Powell’s comments may have impacted more on the shorter end of the yield curve as the curve has flattened further in recent days (reflects the Fed’s stance on interest rates but with the caveat that the market is wary of the longer term implications to growth). However, this morning we see the US 10-Year yield finally starting to edge higher again too. How far the longer end of the curve goes could though be dependent on the direction of the trade dispute. Within this, how it impacts on the outlook statements on US corporate earnings could be a key factor in the coming weeks.
Wall Street remains on the move higher as positive earnings from the big banks (this time Morgan Stanley(NYSE:MS) (NYSE:MS)) are helping to pull markets higher. The S&P 500 closed +0.2% higher at 2815, although with limited direction on futures today there is a mixed look to Asian markets (Nikkei basically flat) and European markets look to be drifting lower in early moves.
In forex, there is a mild dollar strength taking hold once more, with sterling still under the selling pressure of the past couple of days. The Aussie dollar is a mild outperformer across the majors after Australian unemployment remained steady at 5.4% (5.4% exp) but the economy added almost 51,000 jobs (+17,000 exp) and the participation rate picked up.
In commodities there seems to be little respite though for gold as the sellers continue to drag the market lower (another -$3 today) whilst oil is edging only slightly lower after yesterday’s decent rebound.
Traders need to keep an eye on the third key UK economic data release of the week, with UK Retail Sales at 09:30 BST which expected to show adjusted retail sales ex-fuel falling by -0.3% in June (after a really strong +13% in May) leaving the year on year data slipping back to +3.5% (from +4.4% in May).
US Philly Fed Business Index is at 13:30 BST and is expected to improve to +21.5 from +19.9 last month. Weekly Jobless Claims are also at 1330BST and are expected to once more be around the levels of recent weeks at 220,000 (from 214,000 last week).
Chart of the Day – EUR/NZD
A corrective outlook seems to be developing as the broad performance of the euro seems to be slipping again. This is reflected in the small top pattern that was completed on Euro/Kiwi with the moves in the past couple of sessions below the early July low of 1.7140. Yesterday’s strong bear candle and close below 1.7140 completed a two week top that now implies downside of around 180 pips towards 1.6960. The momentum indicators are really calling for a corrective move now, with the RSI and especially Stochastics showing negative near term triggers, whilst the MACD lines have also crossed lower with a sell signal. The hourly chart shows corrective configuration on hourly momentum too, with upside limited to 60 on the hourly RSI and neutral on the MACD lines. This morning’s little rebound looks to be a chance to sell, with a band of initial resistance between 1.7175 and a lower high at 1.7235. The key high is at 1.7320. There is initial support at 1.7115 from this morning’s low before 1.7060 and then the more significant support around 1.6950.
After the two negative candles of the past couple of days there is now a slightly negative bias to the range between $1.1505/$1.1850. This is reflected in the Stochastics falling below 50 again, whilst the RSI drops back to 45. The MACD lines are plateauing around neutral and are perhaps more reflective of a market that has settled on a medium term basis after a significant sell-off. There was a slight breach of support at $1.1610 yesterday only for the market to rebound from $1.1600, so this is now the gauge initially for whether the drift lower of the past week continues back towards the medium term range lows. The hurly chart reflects a slight negative bias but without a decisive bearish outlook. Initial resistance at $1.1665 capped the intraday rebound yesterday and this is an initial gauge for whether the bulls can reclaim some lost ground. Resistance does though become more sizeable around $1.1720/$1.1745.
The underperformance of sterling becomes more apparent as the market breached the key October/November lows at $1.3025 yesterday. Although there was an intraday rally into the close, a deterioration in the momentum indicators does not bode well. The MACD lines are crossing back lower, with the RSI falling back below 40 and Stochastics accelerating lower. These have also all got further downside potential. The hourly chart shows that the intraday rally yesterday is simply unwinding the overstretched momentum and is already beginning to struggle. There is resistance between $1.3100/$1.3200 now that will make it difficult for the bulls to build on a sustained rally. Further weakness to retest the low at $1.3008 and the psychological $1.3000 is likely, with $1.2770 the next key support of any note.
A doji candle from yesterday’s session signifies a degree of caution with the prevailing trend higher, but at the moment this looks to be little more than a pause for breath again. Leaving a higher low at 112.20 means that until this support is broken this move sideways is an opportunity for the bulls to catch their breath. Momentum indicators remain strongly configured and weakness is a chance to buy. The hourly chart shows that the move has unwound momentum indicators to levels where the buyers have been returning in recent sessions. There is minor resistance at 113.15 from yesterday’s high which comes ahead of the resistance band 113.35/113.75. A move below 112.50 would begin to be a touch more concerning but until there is a close below 112.20 there is little to be too worried about for the bulls.
Gold
Since the decisive breakdown of the key support at $1236 there has been barely a hint of recovery, with the market seemingly validating the move. This comes with momentum indicators confirming the break but also with further downside potential for a move back towards the next key low at $1204.50 (the July 2017 low). The old support is now overhead supply beginning at $1236, but the hourly chart shows resistance initially now building at $1229. Hourly momentum is also suggesting that intraday strength is a chance to sell, with the hourly RSI failing at 50/60 and MACD lines consistently under neutral. A move below yesterday’s low at $1221 re-opens $1204.50.
WTI Oil
After a selling phase of the past week, the market has posted a decisively positive candle and this now leaves the market at a key crossroads. How although the rebound candle is slightly larger this time around, but the sequence of candles in the wake of the huge bear candles of the past week have been remarkably similar. Subsequently can the bulls build on this recovery? It is interesting to see the market pulling higher in both of the past two sessions at just above $67.00, whilst the RSI has just picked up again from 40 again. The resistance at $69.25 will be first to tackle for the bulls and will be key for the reaction today. The hourly chart shows momentum indicators having unwound and again if the bulls can sustain a move higher this would be a change to the recent corrective move and could be part of a sustained recovery.
Another bullish candle with a positive close sees the market pulling the uptrend recovery of the past two weeks ever higher. The market is now clear above the 50% Fibonacci retracement which opens the 61.8% Fib at 25,367 which was the consolidation area for the June highs at 25,402. Momentum indicators remain positively configured with the RSI into the mid-60s, Stochastics strongly configured and the MACD lines accelerating above neutral. There is a band of initial support now 24,980/25,050.
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