Market Overview
Although there are uncertainties of ongoing trade disputes/discussions centering around the US, a ranging look to major markets which has taken hold earlier in the week is beginning to turn more risk positive again. The US/China talks seem to be showing little sign of breakthrough and there was suggestion yesterday that the US could peel off NAFTA discussions between Mexico and Canada into two bilateral relationships. However, traders are looking past these issues today as Australian GDP came in surprisingly positive overnight. Furthermore, there have also been reports that the ECB could be ready to discuss the end of its asset purchase programme at its June meeting next week.
ECB chief economist Peter Praet has been discussing the APP today and the euro is catching a bid and moving through near term resistance this morning. There is a slightly positive bias to risk appetite forming on forex majors, with the underperformance of the yen the main factor here, but also the outperformance of the commodity currencies. Treasury yields are ticking higher, but the dollar is struggling which looks to be the markets giving a nod to concerns over US trade policy as much as the impact of the euro rebound today. The rebound of commodity prices is also playing into this, with a decent rebound on oil today.
Wall Street struggled for traction yesterday with the S&P 500 just 2 ticks higher +0.1% at 2749, whilst with Wall Street futures rising this morning, Asian have ticked higher overnight (Nikkei +0.4%). European indices are slightly positive in early moves.
In forex, the jump in the Australian dollar of around 0.5% in the wake of growth data overnight. Australian Q1 GDP was stronger than expected with a rebound of +1.0% (+0.9% exp, +0.4% in Q4 2017), whilst the year on year was at +3.1% (+2.8% exp). Commodity prices rising has helped the New Zealand and Canadian dollars find support.
In commodities, there has been a move away from the dollar which is helping gold test the key $1300 level once more, whilst oil is over 0.5% higher after API inventories showed a surprise crude drawdown.
It will be a quiet morning on the data front for European traders with little of any note until the US Trade Balance at 1330BST which is expected to remain at -$49.0bn (-$49.0bn last month).
The EIA oil inventories are at 15:30 BST and are expected to show that crude stocks were in -3.0m barrels of drawdown last week, whilst distillates are forecast to have been building by 1.0m barrels and gasoline building by +0.5m barrels. Aside from the data, UK watchers will be looking out for the comments of one of the two hawkish dissenters on the Bank of England MPC, Ian McCafferty, who is speaking at 17:00 BST.
Chart of the Day – EUR/CAD
The Canadian dollar has been under pressure over the past week and there has subsequently been a recovery on EUR/CAD that is now testing key technical levels with the market at a near term crossroads. Is this a recovery ready to take off? The downtrend that has been intact since the March high, but it is interesting to see the momentum indicators have already broken their respective downtrend as they have improved significantly in the past week. The Stochastics accelerating higher, whilst the RSI is also at a six week high and most importantly of all, the MACD lines have posted a bull cross. The market tested the initial key reaction high at 1.5225 yesterday but failed to achieve a closing breakout which would not only break the downtrend (which comes in at 1.5200 today) but also complete a double bottom base pattern. There would subsequently be a 230 pip upside recovery target. However, “the trend is your friend until it ends” and has not yet been broken. The current move also needs further confirmation on momentum as this has a very similar look to it as the late April rally which saw the RSI flounder at 50, Stochastics roll over around 60 and MACD bull cross failure. The next resistance above 1.5225 is at 1.5315 which also coincides with the underside of the old long term uptrend channel which is now a barrier to upside. The bulls need to hold on to Friday’s reaction low at 1.5080 in order to continue the potential recovery otherwise it will simply be a continuation of the trend lower.
The euro continues to test the initial band of resistance as the prospects of a recovery grow. A fourth positive candle in the past five sessions was completed yesterday as the bulls reacted well into the close. Yet again we therefore see the market putting pressure on the resistance between $1.1715/$1.1750 which comprises of a series of day highs in the past eight sessions and the 38.2% Fibonacci retracement. The improvement on the momentum indicators continues, with the Stochastics rising decisively, MACD lines rising following a bull cross and also the RSI at a six week high. The hourly chat show that this has been a relatively stable period on the pair within around 100 pips of range, however a decisive move above $1.1750 would complete a base pattern breakout. The support of the spike low at $1.1615 following Non-farm Payrolls last week needs to hold for the bulls to retain the prospect of a recovery.
Sterling bulls reacted strongly to the UK Services PMI yesterday to continue the recent run higher. Considering the corrective implications of Monday’s negative candlestick, this was an important reaction and maintains the prospect of a sustained rebound. However, the market is now approaching the first real test in this recovery, the resistance around $1.3450 which was the old early May range low and a source of overhead supply. The daily momentum indicators are well set up for the test though, with the RSI rising into the 40s (a six week high), the Stochastics also showing good improvement and even some traction in the MACD recovery. The hourly chart shows a near term uptrend channel formation but also initial resistance at $1.3420 which may lead to a slip back intraday today. The reaction to this slip back will be key for the near term outlook. Would the bulls continue to support the correction above the $1.3345 pivot then this would be a strong indication of continued recovery for a move above $1.3250. A breakout above $1.3450 opens $1.3615. The higher reaction low at $1.3290 is now key near term.
The improvement in risk appetite continues to reflect on Dollar/Yen which is once more testing the five week pivot at 110.00. Yesterday’s small doji candlestick which could not breach 110.00 reflects the consideration the market is giving to this pivot, and once more today this is still a factor. However the momentum indicators are hinting at further improvement, even if the impetus in the run higher has just waned slightly. A decisive closing move above 110.00 would be a key move. This is shown on the hourly chart which reflects positive near term momentum configuration with intraday corrections being bought into. The basis of support is at 109.40 which is growing in importance. Above 110.00 there is minor resistance around 110.50 but the next real resistance is at 111.40/50.
Gold
The bulls are not giving up easily on gold as a rebound from around $1290 threatens the seven week downtrend once more. The resistance of the long term pivot band between $1300/$1310 remains a key factor and is prohibitive to any sustained recovery. However, despite the medium term implications of the key breakdown below $1300, the sellers just cannot get a grasp on this market. There is a corrective medium term configuration but the near term outlook is becoming ever more choppy around $1300. A positive candle yesterday has eft support at $1289 and is testing $1300 again this morning. The uncertain near term outlook is reflected on the hourly chart too, with momentum indicators oscillating within ranging bounds. The highs of the last couple of weeks come in at $1307/$1308.
WTI Oil
The market managed to hold a positive session into the close and with continued gains today, an eight session downtrend has been broken. There is much to do before this can be considered a sustainable turnaround, but the posting of a second consecutive positive candle would certainly help today. Holding back above the 89 day moving average (today at $65.43) would also help. However momentum indicators are correctively configured, with the Stochastics in negative territory, whilst the MACD lines are still accelerating lower. There is now an increasingly important band of resistance with the old pivot around $66.65 which will be key to this recovery, as rallies have been seen as a chance to sell. Key resistance is at $68.65 and another lower high below here would be a continuation of the selling pressure. Support is at yesterday’s low at $64.22.
Although the S&P 500 has already broken out above its equivalent May high (which on the Dow is at 25,086), the Dow is still struggling to form a decisively positive outlook. The market has followed a couple of positive sessions only to have the reins pulled on the recovery again. There is a gap still unfilled at 24,674 which could continue to act as a drag on the bulls, and whilst there is a mild positive bias to the momentum configuration, the bulls just cannot find the upside traction to really breakout. Despite this though, weakness continues to be bought into and this suggests that the gap at 24,674 would be an opportunity for the bulls. Initial resistance is now at 24,859 but this is unlikely to be much of a barrier, as a retest of 25,086 is still likely in due course. The question is whether the bulls would be able to generate any sustainable momentum in a breakout. Right now the signs are that the struggle will continue in this choppy market.
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