Market Overview
Despite the eye wateringly high levels of unemployment for the US in Friday’s Non-farm payrolls (which will also be even worse in next month’s data), the outlook for recovery on risk has picked up again. Coming into Monday morning, the glass remains half full as risk appetite edges positively once again. Suggestion is that China is at least holding up its end of the bargain over the US trade agreement, by delivering on its pledges over structural issues (although it needed to pick up on its purchase promises). Economies are also tentatively looking to re-open from their state of lockdown too. The UK now joining this move, with a “conditional” phased re-opening. Political opposition remains high, but such is the way of UK politics, there is visceral opposition to whichever path is taken. There is a risk positive bias to the moves on major markets. US Treasury yields are ticking higher, whilst US equity futures are holding up and in forex, the yen, US dollar and Swissy are underperformers. The key for the bulls will now be seeing consistent breakouts on these risk recoveries, back above their April highs. If this is seen then the glass will be more than half full once more.
Wall Street closed with strong gains on Friday, with the S&P 500 +1.7% at 2929. A positive bias with the E-mini S&P futures +0.2% higher has allowed Asian markets a decent session overnight, with the Nikkei +1.0%, although Shanghai Composite was -0.2%. In Europe, the positive vibe is translating to early gains on futures, with FTSE futures +0.8% and DAX futures +0.5%. In forex, JPY is the big underperformer, and whilst the earlier losses for USD are being pared slightly, the strength of AUD is a risk indicator. In commodities, there is a basis of support again forming for gold and silver, although oil is slightly lower with both WTI and Brent Crude both c. -1%.
There are no key economic releases due today.
Chart of the Day – German DAX
We have been far more cautious of the DAX rally in recent sessions. A broken recovery uptrend and faltering momentum in the move. However, Friday’s session has helped to improve the outlook slightly more. A downside gap at 10,840 has now been closed with a positive session. However, not only that, an old breakout support at 10,820 also held and this look to be building as an important level of near term support now. The bulls will be encouraged by the pick-up in positive momentum in recent sessions too, with MACD lines beginning to edge higher again, whilst Stochastics have crossed higher and RSI has again picked up off 50. The underside of the old uptrend still needs to be breached (as it is now a basis of resistance at 11,100 today), whilst 11,025 (the 50% Fibonacci retracement of 13,7985/8255) and 11,235 (the April high) are a barrier. Futures are looking decent in early moves today, but there is a lot of resistance overhead to overcome still. If the bulls can clear this though, it would be a strong signal once more. There is a more important gap from March at 11,445 that still needs to be closed in order for a medium term recovery to fully develop, but the bulls would be in a strong position to do so. The 11,820/11,840 band is now initial support as a pivot area, above a near term higher low at 11,600.
The ranging on EUR/USD of the past month has been re-affirmed in the past few sessions as the corrective momentum of early last week has dissipated once more. The wild swings of February towards early April have now begun to look a little more settled as the market ranged between $1.0725/$1.1015. This is being reflected on the momentum indicators where RSI has been oscillating in a range between 40/56 and MACD lines have held in a tight band just under neutral. A recovery candle from Thursday has held ground over Non-farm Payrolls and remains settled this morning. The hourly chart shows the market is now looking to hold above an old near term pivot at $1.0810 but the overhead resistance of $1.0890 is preventing recovery. A very slight negative bias is still present, but essentially the outlook is mixed in a market in need of the next catalyst.
We continue to see Cable trade within a range over the past six weeks. We have discussed on several occasions about the swings of sentiment throughout the range, with the market pulling higher for around a week, only to find resistance before swinging back lower again for around a week, to then build from support again. The latest move has picked up from $1.2265 to once more retrace back towards the mid-point area of the range, around $1.2400. With consistent swings higher and lower without any sustainable direction or trend, we find the momentum indicators becoming neutralised and lacking direction. The RSI is again ticking around neutral within the 45/58 band of the past six weeks. MACD lines are almost entirely flattened at neutral. The pick up on Friday and improvement in hourly momentum, leaves a slight positive bias but once more the market is consolidating around the mid-range pivot today. Initial resistance is $1.2480, whilst the bulls will be looking to hold on to $1.2360 to prevent a renewed slide back towards the lows. A with EUR/USD, we see Cable as a market in need of a catalyst.
For the first time in around three weeks, the bulls are looking to form a sustainable recovery from 106.00. With two positive closes in a row to end last week and a decent pull higher in early moves this morning, the move is threatening to change the complexion of Dollar/Yen. A move clear above the 50% Fibonacci retracement (of 112.20/101.20) at 106.70 is forming, whilst a breach of the five week downtrend is being seen whilst key overhead supply around 106.90 is being seriously tested. Closing with a 107 handle and ideally above the falling 21 day moving average (at 107.15 today) would be a real signal of intent. The bulls would still need a move above 107.50 to really be taken seriously, but given the considerable resistance that is being broken, they are already making good progress. The hourly chart suggests a move positive configuration trying to develop, but this needs to see hourly RSI holding above 40 and MACD above neutral today. Initial support is in the band 106.20/106.60. however, the bulls would be disappointed now with a close back under 106.50.
Gold
The near term outlook on gold has become increasingly uncertain and beset with mixed signals. Recent candlestick analysis has been throwing out wild and ultimately false signals. However, cutting through the noise, once more this morning, the market is gravitating around the old $1702 pivot. This is now the tenth session in a row where $1702 has been traded at some point in the session. This reflects the lack of direction on gold. Momentum indicators give out a mix of signals, with MACD lines still drifting lower, Stochastics drifting mildly higher (the aggregate of this suggests a very mild positive bias has taken). Whilst RSI is flattening a shade above its neutral 50 level. The range support of the past four weeks is at $1660, but consistently we see downside limited to $1680 before returning towards $1702 again. Resistance comes at $1721/$1722 below the range resistance extreme of $1746. It is all becoming a fairly uniform consolidation, with general moves around $20 either side of the pivot. We continue to expect an eventual upside break, but this near term range continues.
Brent Crude Oil
After hugely impressive recovery run throughout late April into early May, the bulls are just settling in a period of reflection now. Each of the past two sessions have been inside days of the previous. A sharp recovery trend may have been breached by this settling down, but the trend of consolidation has continued this morning and for now there is little real sign of corrective build up as it is taking place within the context of continued recovery. We have discussed previously about the band of support between $27.15/$29.00 and this is holding well. The daily RSI has now been above 50 for almost a week now and Stochastics are settled in positive configuration. Given the positive bias from daily (and hourly momentum) the bulls will be looking to challenge $31.80/$32.25 in the coming days and continue the recovery towards a test of the key April highs of $36.40 in due course. The support band $27.15/$29.00 continuing to hold will play into this outlook.
After a period of consolidation and uncertainty, Friday’s strong session has come as something of a release. A move to a one week high has helped to blow away some of the cobwebs of the recovery. The bulls are now looking towards another test of key April high of 24,765 again. It seems as though the bulls are now looking to emerge from a difficult patch, in which their resolve has been tested. Momentum indicators have been teetering on the brink in the last few sessions, but are now reacting positively. The RSI, MACD and Stochastics are all starting to tick higher again. With futures pointing to a decent open today, the prospect of upside pressure on 24,765 is growing. Initial support is at 24,095/24,170 with the potential now for 23,360 to become a key higher low (if 24,765 can be breached).
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