Market Overview
Despite the geopolitical tensions that have been elevated in Turkey in the past few days following the failure of an attempted political coup, there is still a degree of mild optimism through financial markets today. There is a risk positive outlook on forex markets with the yen underperforming and the US dollar also mildly weaker, whilst other safe haven plays such as gold are also underperforming. Furthermore, despite a mixed session in Asian hours, the European traders are starting the week looking at the glass as being half full today. Whether this move can last or not remains to be seen though, with such a significant rebound on several risk related plays in recent days, the temptation to start to lock in some profits could be elevated.
The forex markets show that the dollar is under pressure against most majors other than the yen which is weakening on a Japanese public holiday. The dollar is paring some of Friday’s gains which were seen in the wake of the stronger retail sales that were announced. Sterling and the euro have rallied subsequently, whilst the higher risk commodity currencies, the Aussie and Canadian dollar are also supported, despite the oil price which is trading around the flat-line. Precious metals are looking corrective with the more positive sentiment for the market.
There is little on the economic calendar today, although traders will be looking at the NAHB Housing Market Index at 1500BST which is forecast to stay at 60.0
Chart of the Day – DAX Xetra
The latest recovery on the DAX is yet another remarkable move that has formed on a chart that has become incredibly messy in recent months. There is a constant sell-off and then retracement that has been a feature over the past three months, and despite the strength of this latest move, I see little reason to believe that this current rally will be any different. The momentum indicators have a consistent swing outlook to them, with the RSI again back to around 60 which is where rallies in May and June failed. The rally last week was finding resistance again around 10,120 and although the opening moves have taken the DAX through 10,120 initially, this is still a basis of resistance that will be watched today. On the DAX, the old Fibonacci retracements of 8355/10390 and key pivots such as 10,120 have consistently acted as key turning points. Is this rally close to running out of steam then? In this way I would be looking for the next sell signal around here, or at least between 10,120 and the 50% Fib retracement at 10,373. The hourly chart shows support at 9922 whilst the hourly RSI and MACD lines are negatively diverging again which suggests a loss of impetus on the run higher. A move below 9922 would open next support at 9809 and then 9690.
The dollar strength on Friday resulted in a strong bearish candle that has pulled euro/dollar to its lowest close in almost three weeks. The closing price was also below the $1.1050 support level of the long term pivot and continues to hint at further downside to come. Once more though as has been a feature of trading ni the past few weeks, the move has not been decisive and the early rebound today is questioning the bearish intent. The next factor to watch would be an intraday breach of $1.1000 support. All the while though the momentum indicators are negatively configured but more of a bearish drift than anything precipitous and suggest that whilst I favour further downside, the bears may have to be content with a move of attrition. The resistance is being ever more bolstered at $1.1188, with Friday’s high at $1.1148. There is an interim band of resistance now $1.1085/$1.1100.
Once again there has been some significant volatility and a significant swing on cable that questions the outlook. A turnaround of around 350 pips from high back to the low on the day on Friday reflects that there is still a nervousness about backing a recovery on sterling and that the profit-takers are not far away. The daily chart shows that resistance has been posted at $1.3480 and although the daily momentum indicators are reflecting the recovery still there is a perception that the recovery is still simply unwinding an oversold position and that rallies will be another chance to sell. The RSI is not into the low 40s and the more sensitive Stochastics are rising strongly still. The hourly chart shows a rebound up off $1.3130 but now the resistance around $1.3270/$1.3300 needs to be broken back above to regain the upside initiative. Hourly momentum is more considered and this support at $1.3130 and resistance at $1.3300 could be seen as triggers for the next direction.
The recovery on dollar/yen has been impressive in the past week, with the pair bouncing over 600 pips to Friday’s high of 106.30. However, the pace of the recovery is beginning to slow as the negative candles are starting to come through, and this could begin to weigh on momentum. The RSI has consistently topped out under 60 in the past few months during the recovery phases and the MACD lines around neutral. This is where we see the momentum now building towards and means that with the overhead resistance of the pre-Brexit high of 106.80 also close, the pair is moving towards a crossroads once more. Looking on the hourly momentum, the recovery seems to be losing steam now as a series of negative divergences are coming through which could curtail the move higher. There is a high posted at 105.95 today which will be watched, whilst the initial support at 104.60 could also be seen as a trigger to the downside. Confirmation of a loss of bull control in this move would come with breaking support at 103.90.
Gold
The slide in gold over the past week has formed a technical correction that has put the brakes on the medium to longer term bull run, however I continue to see this as a temporary break for the bulls rather than the beginning of renewed selling pressure. There still seems to be an appetite to support even during a corrective phase, with the long downside tails of the past couple of days reflecting this. The daily momentum indicators are still in corrective mode though with the RSI falling back towards 50, the Stochastics in decline and the MACD lines just having crossed lower. However, the longer this support in the low $1320s holds up the bulls may be tempted to return again. The hourly chart shows that the pace of the declines has slowed in the past couple of days and that a consolidation is forming. The pivot around $1335 is increasingly being seen as a near term ceiling (aside from a brief spike through on Friday), whilst resistance at $1346.50 is now key. The potential for a retreat back towards the medium to longer term breakout at $1306 is still possible, but for now the support is in place at $1319.80.
WTI Oil
The recent trend lower is still intact over the past 5 weeks and the outlook is corrective, however the bulls are still hanging on in there. There is more of a negative outlook on WTI than there is on Brent Crude but the band of resistance between $45.83 (the neckline of the top) and $46.93 which was last week’s rebound high is again being tested. With momentum indicators still correctively configured, the bulls need to aim for a break above $46.93 to really begin to harbour serious thoughts of a recovery. The pivot band at $48.00/$48.50 would then come back into play, with the downtrend that links the recent lower highs today coming in at $48.65. Interestingly, there is also support building in importance now between $44.40/$45.00 which built throughout last week and will be seen as a staging post now for the bulls. The hourly chart also shows the hourly momentum indicators are starting to become less negative.
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