Market Overview
With the summer holiday season approaching. there is a sense of quiet that is taking over forex markets of late. However, there may be something in the first Congressional testimony from Fed chair Jerome Powell that could provide traders with some direction today.
With the US 10-Year yields subdued and yields at the shorter end rising, there will likely be a focus on the ever flattening shape of the US yield curve. The 2s/10s spread is at 26 basis points. How Powell fields these questions could be telling for the speed of tightening. Already Minneapolis Fed member Neel Kashkari (who is broadly the most dovish member on the FOMC but is also a non-voter in 2018) is calling for a slowing of the speed of tightening for fear of inverting the yield curve (something that historically will come before a recession).
The dollar strength that has been a feature of recent months has look more uncertain in recent weeks and this is leading to more ranging look to major pairs. If Powell starts to flinch and talks about the potential impact of the curve flattening then the dollar could begin to correct.
Wall Street closed slightly lower (S&P 500 -0.1% at 2798) and the reaction to the disappointing subscriber volumes on Netflix (NASDAQ:NFLX) will be a key driver today, as will Goldman Sachs' (NYSE:GS) results today. Asian markets were mixed session (Nikkei +0.4%) whilst European markets are mixed to mildly lower in early moves.
In forex pairs, the dollar slip of the past couple of sessions is continuing early today but it is also interesting to see the ongoing yen underperformance.
In commodities, gold has ticked slightly higher with the dollar weakness, but oil continues to be under pressure from yesterday’s sharp losses on the back of possible concessions for Iranian oil suppliers form the US.
Traders will be keeping a keen eye on the UK’s inflationary developments in the coming days. Today there is focus on the UK employment situation for May, with UK unemployment to be announced at 09:30 BST which is expected to remain at 4.2% (4.2% in April). However the important component here is Average Weekly Earnings (ex-bonus) which is expected to slip a touch to 2.7% (a shade down from +2.8% in April).
Into the afternoon we get a look at the US Industrial Production at 14:15 BST which is expected to grow by +0.6% on the month (-0.1% in May) with Capacity Utilization expected to improve further to 78.3% (77.9% in May).
Chart of the Day – USD/CHF
An “Evening Star” candlestick pattern is a powerful reversal signal. Although the uptrend has not been especially strong of late (having been broken in early July), the price hit a 14 month high with the 1.0068 peak (on Friday) before a bearish shooting star formed, to be then followed by yesterday’s sharp bear candle (the third candlestick of the multi-day bearish formation). Effectively this is a pattern that reflects a now growing corrective outlook on the dollar. It also leaves the market open for a correction back to 0.9855 which was a recent low but is also around the 23.6% Fibonacci retracement of 0.9185/1.0068 (which is 0.9860). Momentum indicators have slipped back in a similar fashion as to the corrective slips in mid and late June. The key support is 0.9785. The hourly chart shows initial support is at 0.9945 and then 0.9900. The hourly chart also shows initial resistance just above parity with 1.0010.
The euro has now been trading in a range between $1.1505 and $1.1850 for the past two months. There have been some fluctuations higher and lower in that time, but the medium term trend direction has come out of the chart. This has come as market is increasingly now fluctuating around a pivot around $1.1720. Momentum indicators are increasingly neutrally configured now and there is little real direction of note. Latterly there has been a mild upswing after a bull hammer candlestick formation on Friday was confirmed by a slightly positive candle in yesterday’s session. This has brought the market once more up to the $1.1720 pivot and has left near term support at $1.1610. Hints of another slightly positive session come today but with little early conviction. A move above $1.1720 would open last week’s high at $1.1790 again. On the hourly hart there is the confirmation of a mild positive outlook on momentum but again, little real conviction. Initial support is at $1.1675.
There is still a weak feel to the attempts by the bulls to put together some sort of sustained recovery on Cable. Although the selling pressure that was a feature of a ten week period between mid-April and the end of June, this is still a recovery that is moving very much with the hand brake still applied. Although the market ticked higher in the wake of Friday’s bull hammer candlestick, there has been little real conviction in the move, characterised by a disappointingly weak candlestick yesterday. There is still a sense that the market needs to make a decisive move above $1.3315 and a close above here would need to be the first aim now. There is a mixed feel to momentum, with the RSI still struggling under 50 and MACD lines edging slowly higher towards neutral. Stochastics are more positive but again lack conviction. The bulls would be really gaining ground should there be a move above $1.3360 but for now this seems some way off given yesterday’s failure at $1.3292. The hourly chart shows that there is support between $1.3200/$1.3215 that needs to hold to build for the recovery.
The bull run higher has stalled in the past few sessions, however, that is not to say that this is the end. A couple of mild negative candles have curtailed some of the exuberance of the rally without signalling its end quite yet. Momentum is still running fairly hot, with the RSI above 70 and Stochastics strongly configured. There is still a strong feel to this market following the decisive breakout above 111.40 and any weakness back towards the breakout will be seen as another chance to buy. This is likely to simply be a consolidation in the market as the medium to longer term technical indicators are all pointing positively, with the bulls in control. A slip back below yesterday’s low at 112.20 could see the market begin to drift a touch backwards, but any renewed buy signals would be an opportunity.
Gold
The renewed selling pressure from last week now means there is consistent pressure on the key December low at $1236. The concern is that the prospects of a recovery look small as the RSI failed to close back above 40, the Stochastics are again moving back into strongly negative configuration and the MACD lines have lost their recovery and are already threatening to cross back lower again. The very long term uptrend (that dates back to December 2015) continues to be pressured also. The bulls will be concerned as a break below $1236 is a 12 month low and opens the July 2017 key support at $1204.50, however, more importantly it would also be a key higher low broken and a trend changing event. The hourly chart shows resistance at $1245.50 below the main near term resistance at $1248.50 whilst hourly momentum is negatively configured with the RSI failing under 60 and MACD lines consistently under neutral. With the positioning of the momentum, this looks to be an important day in the outlook as the pressure on $1236 grows. Above $1248.50 is needed to shift the outlook, near term at least.
WTI Oil
The corrective momentum has really built up after last week’s break below $74.15 and with another huge bearish candle yesterday the market has quickly unwound to once more eye an old pivot at $67.15. The medium term bulls will be looking at this as another chance to buy, however care must be taken as the near term corrective is still in progress. Momentum signals have turned increasingly negative with the Stochastics sell signal and MACD lines crossing lower. The near term reaction around this $67.15 pivot will be key as it protects the key support of the June low at $63.60 which is a key higher low. Resistance is at $69.25/$70.00 and is a gauge for the prospects of renewed recovery as the hourly chart unwinds from oversold.
The Dow is currently on a swing higher as an uptrend for the past week and a half has pulled the market back above the 50% Fibonacci retracement at 24,980. Another positive candlestick has taken the market back to a four week high and momentum indicators are pulling higher. This all points towards a continued recovery and should there be another decisive positive session, the prospects of a move towards the 61.8% Fibonacci retracement at 25,367. Certainly, for now the bulls are in control, but care must be taken as the history of moves on the Dow in the past few months is that once the trend reversals set in, it brings the market right back to where it has come from again. The medium term sideways range remains in play and this is all part of the oscillations within the range.
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