Market Overview
Markets are lacking decisive direction this morning, despite the improved sentiment of geopolitics on the Korean peninsula. Into the new week, the dollar has just lost some of the momentum in its recent recovery. Although Q1 GDP data on Friday may have beaten expectations, it also contained a surprisingly low read of consumer spending (at just +1.1%, the lowest since Q2 2013, and much lower than the +4.0% of Q4), with the 10-Year Treasury yield dropping back further below 3.00% again.
The dollar slipped on the back of this and the bulls have yet to regain momentum this morning. There is a positive mood for trading sentiment today as the market continues to digest the historic developments over potential peace, de-escalation of tensions and potentially even de-nuclearisation of North Korea (although admittedly there is a long way to go for all this).
Furthermore, a couple of significant corporate merger deals were revealed at the weekend, with US third and fourth largest telecoms companies Sprint and T-Mobile agreeing to come together, whilst in the UK the prospect of two of the major supermarkets, ASDA and J Sainsbury (LON:SBRY) to merge. However, it will be interesting how UK traders respond this morning to the resignation of UK Home Secretary Amber Rudd over the Windrush immigration scandal, a move that has potentially wider ramifications on the power struggle within the Conservative Government over Brexit.
On Wall Street it was a relatively quiet session on Friday, with little real direction as the S&P 500 closed +0.1% higher at 2670. Asian markets have ticked mildly higher today with China and Japan on public holiday. In Europe there are also slight gains being seen.
In forex, there is little real direction on the dollar, although it is interesting to see the commodity currencies all under a little pressure today, with the Aussie, Kiwi and Canadian dollar all weaker, whilst sterling is also beginning to come under pressure as the Europeans take over.
In commodities, gold is around $3 lower whilst oil is just under half a percent lower as the market ticks lower following an increase in the US rig count last Friday by five rigs to 825.
There is a significant data for traders to watch for this afternoon, as the US core PCE (the Personal Consumption Expenditure is the Fed’s preferred inflation measure)is at 13:30 BST and is expected to tick strongly higher. Inflation expectations have been elevated in recent months but the core PCE has remained relatively stubborn however, it is expected to increase to +1.8% (from +1.6%) which would suggest it is really beginning to gain traction. In other US data, the Pending Home Sales are at 15:00 BST and are expected to increase by +0.6%.
Chart of the Day – EUR/JPY
The euro made a significant downside break against the dollar last week, and with the yen consolidating, this has helped to drive a corrective move also on EUR/JPY. The question is whether this is the end of the four week recovery? With a failure to decisively make the breakout above the pivot around 133, the outlook has deteriorated to break a four week recovery uptrend. The momentum indicators have also gone into reverse, with the Stochastics confirming a sell signal, and the MACD lines are now crossing lower too. Another old pivot at 132.000 has been used consistently as a turning point and has supported the market in the past couple of weeks, and has rebuffed an initial test. Will this support hold though? The hourly chart shows a minor recovery again with the market at a near term crossroads. A pivot at 132.40 is being tested with the hourly RSI having recovered to 60 and MACD lines unwound to neutral. This could be make or break for the recovery, as a failure will heap pressure back on 132.00 again.
It was a significant shift in the medium term outlook for EUR/USD when the market broke below the key March low at $1.2155 last week. It confirmed the breakdown of a multi-month trading range and confirmed the run of higher lows in the recovery had come to an end. The immediate impact is that the old support becomes a basis of new resistance now with an overhead supply of old buyers who will now be nervous of the implications of the breakdown. Following an intraday rebound into the close, there is a positive candle to put into the mix though, leaving support at $1.2055. Near term momentum indicators have subsequently ticked slightly higher in response with the Stochastics crossing higher. However in the past two weeks there have been a run of lower highs as resistance has formed at lower levels. There is a resistance $1.2155/$1.2210 now in place to capture an unwinding move. The hourly chart shows the hourly RSI has unwound to 60 which is an area where the bulls have struggled during the corrective move. A retest of $1.2055 is likely in due course before further downside to towards $1.2000.
With EUR/USD breaking its equivalent March support last week, pressure is mounting on the key low of $1.3710. There has been wave after wave of negative factors driving sterling lower and it will be interesting today how the European traders respond to UK Prime Minister Theresa May losing a top minister over the weekend but also a soft-Brexit advocating balancing force in the Cabinet. It is unlikely to be met well today and early signs are that sterling is pressured. Friday’s sharp bear candle (in the wake of terribly weak UK growth data) means that Cable has now lost around 600 pips in less than two weeks. The market is now also testing the long term uptrend that dates back to 2016, however momentum is now negatively configured with RSI, MACD and Stochastics all bearishly positioned. The momentum indicators on the hourly chart chow that any rallies are a chance to sell, with the first resistance of any note at $1.3895 under the burgeoning $1.4000. Friday’s low at $1.3745 tentatively protects $1.3710 which would be a huge breakdown if seen.
The run higher on Dollar/Yen has taken a break as the bulls have taken a step back in recent days. However, this seems to be more of a pause for breath than the precursor to renewed yen strength. A run that took the RSI over 70 has now just formed a couple of negative candles in the last two sessions, but the strength of the medium term momentum remains firm for now. The hourly chart shows that whilst the support at 108.55 remains intact there is no higher low within the recovery that will have been broken and this is not a correction yet. On the daily chart the five week uptrend rises at 108.00 today and the bulls will be quite content with proceedings as the market has ticked higher in early moves today. Resistance at 109.55 from Friday is preventing a test of 109.80 and the 110.00 but with the trend remaining intact this could be for the coming days.
Gold
Although breaching the initial support at $1321 had opened the $1300/$1310 key long term pivot band, the selling pressure has never been overly decisive in gold during this run towards the bottom of the medium term range. Friday’s session was positive but also showed a balance to the previous negative session and has broken the corrective downtrend of the past week. The market is stable this morning which is helping to bolster the new support at $1315. Momentum indicators continue to reflect the medium term range, with the RSI again ticking higher above 40. However in order to improve the outlook for the bulls, the hourly chart shows resistance at $1326.50 which would be a first lower high within the recent move lower needs to be broken and then to move towards $1333 which is a pivot around the mid-point of the medium term range.
WTI Oil
The run of consolidation continues on WTI with another very small bodied candle that gives little indication of a breakout of the recent range. For the past seven sessions the market has traded between $67.10 and $69.55 as the breakout to new multi-year highs has taken a breather. Momentum indicators remain positively configured if a touch stretched and even though the impetus in the move higher has slipped a touch, there is still an expectation that corrections will continue to be a chance to buy in due course. There is though a growing concern that the momentum is now rolling over which could be a precursor to the next corrective move, but whilst continuing to close above $67.75 the outlook will remain positive. Support at $65.55 is key near term. A closing break of this recent range would mean a c. $2.40 move in the direction of the break.
Is it that the bulls have once more lost the impetus of a recovery with the market continuing to build a near term downtrend? The rebound from the support around 23,825 is threatening to falter under the old pivot at 24,450 but also the nascent seven session downtrend (which comes in at 24,435 today). The concern is that this now looks to be a reverse of the early April recovery uptrend whilst momentum indicators are also turning lower at medium term selling zones. The rebound has left resistance at 24,402 whilst the latest reaction high is at 24,580. All of these levels coming within (or just below) the old pivot band 24,450/24,650 is a concern now.
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