Market Overview
The US dollar has given a muted reaction to the FOMC minutes. Although the Fed voiced concern over the impact of continued loose monetary policy on financial stability, there was a lack of timetable and split on the committee over over when the balance sheet reduction should begin. However, the Fed seems to be unconvincing in its expectation of inflation running higher in the longer run.
Market reaction has been limited, with the run higher on Treasury yields seen earlier in the week on stronger data, just pausing again. This has fed through to a consolidation on the dollar. It seems that data is more of a driver of Treasury yields now than the Fed and is perhaps a sign that the market still does not entirely back the Fed’s assessment on inflation. The ISM Non-Manufacturing today will be a key mover, as will tomorrow’s non-farm payrolls report.
Wall Street closed mixed yesterday with the S&P 500 +0.1% at 2432 whilst Asian markets were broadly weaker with the Nikkei -0.4% and European markets are all but flat in early moves.
Forex majors are showing little real direction today as markets look ahead to key US services data from the ISM. In commodity markets, gold and silver are mildly weaker whilst it is interesting to see oil rebounding from yesterday’s sharp 4% declines.
Today is all about the US data. Due to Independence Day public holiday on Tuesday, the key data that should have been on Wednesday has been delayed until today. The ADP Employment change at 13:15 BST is expected to be +185,000, down from +253,000 last month. ADP can often be seen as a harbinger for Friday’s payrolls but this spectacularly failed last month, so the number may be viewed with a pinch of salt today. The Weekly Jobless Claims are at 13:30 BST and are expected to stay around recent levels at 243,000 (last week 244,000).
The big focus will be on the ISM Non-Manufacturing data at 15:00 BST which is expected to dip slightly to 56.5 (from 56.9 last month). It would be consistent with the European services surveys which saw a mild dip back yesterday. The EIA inventories are at 16:00 BST and are expected to be -3.0m barrels for crude stocks, with distillates of +0.5m barrels and gasoline stocks down -0.5m barrels.
Chart of the Day – USD/CAD
The key breakdown at 1.3000 was a significant move as the Canadian dollar strengthened on a hawkish shift in rhetoric from the Bank of Canada. However the market has never entirely broken the shackles of the support and throughout the past four sessions the market has tested the overhead supply. Clearly this 1.3000 level is something that traders are very keen to keep an eye on. The recent consolidation move continues but the weakness in oil yesterday and stronger dollar has been building up pressure for a technical rally.
The momentum indicators are subsequently beginning to threaten near term recovery signals which could pull a technical rally back above 1.3000 once more. The RSI having been below 30 for over a week has now broken back above to give a basic bull signal, whilst the Stochastics have also started to track higher. A second consecutive strong bull candle today would confirm the technical rally and open for a near term rebound. The propensity for the rallies to be sold into over the past two months would suggest that there is still a lot for the bulls to do to suggest control, however a near term unwinding rally could easily set in if 1.3000 can be decisively breached. There is a significant band of overhead supply starting around 1.3165 with a series of key lows around 1.3200 which is an old pivot.
The hourly chart shows an improved outlook would confirm above 1.3045 resistance. However, holding below 1.3000 increases the likelihood of 1.2820 and 1.2760 in due course.
The correction on EUR/USD has continued to unwind back towards the old breakout. Old resistance becomes new support and the reaction around the June highs $1.1285/$1.1295 will be interesting. Yesterday’s candle came within touching distance of the support before bouncing again. It is also interesting to see the bearish intent within the daily candles reducing by the day, resulting in yesterday’s positive candle. The momentum indicators have more of an unwinding configuration with the RSI drifting back below 60 and MACD lines tailing off rather than deteriorating sharply. This would still all be consistent with a buy into weakness strategy which I continue to subscribe to.
A higher low around $1.1300 would be ideal but there would still be room for a further correction back into the old range and it still be positive. The hourly chart shows a near term corrective outlook still but the bulls are now ready to eye their opportunity. The spike low support at $1.1290 remains intact. Resistance is around $1.1370/$1.1385 initially.
The selling pressure is already starting to settle as a positive candle was posted yesterday. Trading above all the moving averages retains a positive outlook within the $1.2600/$1.3050 range and momentum indicators look to be just taking the steam out of a near term bull move rather than positioning for a significantly corrective bear move back lower again. The main pivot within the range is around $1.2775but yesterday’s low at $1.2890 will become an initial gauge to watch.
The longer this level holds, the more confidence the bulls will develop. The corrective look to the hourly chart is becoming increasingly benign now as the market has settled in the past few days. However there is still room for a correction as a small top pattern continues to target $1.2860. There is a near term resistance at $1.2860 however a breach would suggest the bulls were gathering momentum again.
Dollar/yen often seems to see a few days of consolidation in the wake of the strong breakout moves in recent weeks. Once more, following Mondays sharp bull candle there has been a run of mild negative drift in response. This stepped advance seems to give another chance to buy as the market drifts back into support. The pair has consolidated the break clear of the old pivot resistance band 111.60/112.20 and the next upside target of the key May highs at 114.35 are within range.
The frequency of long lower shadows during the consolidation candles suggests that intraday weakness is still a buying opportunity. The hourly chart shows a consistent retreat to find support in the range 112.45/112.90 now and with hourly momentum indicators beginning to turn higher from levels of historic buying opportunity, the bulls look ready again. A move below 111.70 would be needed to materially change the outlook.
Having broken the five month uptrend, gold has an increasingly concerning medium term outlook. The key May low at $1213.80 remains intact, but for how long? Well, the bulls put a recovery together yesterday and formed a bullish engulfing candle which has improved the outlook. However this is effectively one signal in a sea of negative indicators and certainly needs to be followed with further buying pressure. The resistance of the four week downtrend comes in at $1240 today, around the old pivot support which is now resistance also at $1240.
Momentum remains negatively configured and suggests that rallies are a chance to sell. The hourly chart also reflects this with the hourly RSI failing around 60 and MACD lines back around neutral. Initial resistance is at yesterday’s high of $1228.80 with a band of resistance overhead $1236.50/$1240 to be sold into. Expect rallies to be short lived before the market retreats once more to test the recent low at $1217.10 and $1213.80. Below these supports is $1194.50 and $1180 support.
WTI Oil
The run of eight consecutive positive sessions has been spectacularly ended with a significant bearish engulfing candle posted yesterday. This move has completely changed what looked to be a strong recovery outlook. The fact that the market had rallied back to find resistance around an old key pivot at $47.00 should also be of note.
There is a recovery uptrend from the run higher at $44.10 today which could be a target for the retreat. It is also interesting to see how significant a role the Fibonacci retracements of the June sell-off from $52.00 to $42.06 play. Key resistance at $47.00 is added to by the 50% Fib at $47.03, whilst the 38.2% Fib at $45.85 is also a support turned resistance now. The hourly chart shows there is a band of support $45.00/$45.50 which if breached will accelerate the corrective outlook now. The EIA inventories will add to volatility today.
The recent range on the Dow continues with the market once more seemingly unable to sustain the upside traction. The run of higher lows suggests that corrections continue to be bought into and this should help to drive an upside breakout, however there has been a more corrective outlook to momentum. However, could this once more be ready to breakout again, with the RSI holding up above 50, the Stochastics turning up and the MACD lines slowing in their slide.
For now this is a range play with the support at 21,197 up to the resistance of yesterday’s all time high at 21,563. The sheer force of the trend would favour an upside break but there is a consolidation forming in the meantime. Initial support is yesterday’s low at 12,404.
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