Market Overview
There is a sense of a more positive appetite for risk that has taken hold across the forex markets today. This has crept in as reports that the White House is preparing another meeting between President Trump and Kim Jong-un of North Korea.
There is also more positive rhetoric coming out from Brussels in the Brexit talks as the EU’s chief negotiator Michel Barnier suggested it was “realistic” and “possible” to have a deal on Brexit within six to eight weeks. This helps to reduced expectation of a “no deal Brexit” and has helped sterling higher. It will be interesting to see how sentiment on sterling is impacted by UK wages this morning, especially if there is a negative surprise.
In the broader markets, for now we see a broadly weaker dollar, with commodity currencies bouncing against the greenback, whilst the euro and sterling are also continuing to recover, whilst the main underperformer is the yen.
Equities are looking mildly positive whilst gold is also struggling for traction. These are all pretty classic improved risk moves. The one main caveat being that Donald Trump has been rather quiet on the potential $200bn of new tariff goods. There is plenty of time for him to scupper improved market sentiment, but for today (or at least this morning whilst Trump is still in bed) all is OK.
Wall Street closed mixed last night, with a mild bounce on tech helping the S&P 500 +0.2% (even as the Dow slipped by -0.2%) with Wall Street futures a shade higher again today.
In Asian markets, the Nikkei has been positive with +1.3% (although the China Shanghai B was -0.3% lower), whilst European markets are mildly positive in early moves.
In forex, the positive risk appetite is seeing the yen and Swissy underperform, with the dollar broadly also struggling across the majors. In commodities, the better risk appetite but also struggle for the dollar all equals gold being all but flat, whilst oil is also holding its ground early today.
Traders will be looking out for how July’s UK earnings growth is progressing today in the wake of the better than expected monthly growth data was recently announced. The UK unemployment is announced at 09:30 BST and is expected to show a stable rate of 4.0% (4.0% last month), whilst the UK average weekly earnings growth (ex-bonus) is expected to show an improvement to +2.8% (from +2.7% in June). German ZEW Economic Sentiment is at 10:00 BST and is expected to deteriorate back to -14.0 (from -13.7) which would supper a recent improvement.
Chart of the Day – USD/CAD
Dollar/Loonie has been throwing off some very mixed signals recently which is clouding the outlook. There are subsequently some key technical developments to watch in the coming days. The recent upside breakout frim the downtrend channel and above the 1.3100 pivot improved the outlook for the dollar. However last Thursday’s bearish engulfing candle adds a significant question mark over the improvement. Leaving a high at 1.3225 last week, the momentum indicators have threatened to turn lower again, with the RSI once more failing around 60, as it has done for the past 10 weeks, and Stochastics already turning lower. Although the pivot at 1.3100 was supportive again on Friday, a failure to close a break above 1.3225 would question the bull control again and threaten the market to turn lower again. Yesterday’s rather drab positive session has added little to the improvement and posting a negative candle in three of the past four sessions is also a concern. The pivot at 1.3100 is increasingly key as the hourly chart shows this is a neckline of a potential top pattern now. The early slip back again today is adding weight to the outlook of a failing recovery.
The bulls managed to steady themselves once more yesterday as the support of $1.1505/$1.1530 came back into view. A positive candle has pulled the market back higher again to maintain the outlook of consolidation that has formed over the past week or so. This is reflected in the RSI and MACD lines which remain around their neutral points. The Stochastics are a different story though, with a continued decline, something that reflects the negative bias. However, so far the support band remains intact and, with the 55 day moving average flat and the 21 day moving average actually now beginning to turn up, the outlook is subsequently increasingly neutral. This is reiterated on the hourly chart, with neutrally configured momentum and little real steer on moving averages. The main near term resistance is $1.1650/$1.1660.
In the past four sessions there has been a desire to buy Cable into weakness (certainly helped by supportive comments coming out of the Brexit negotiations). This culminated in yesterday’s strong bull candle which broke above the August high of $1.3045, but also above the 55 day moving average (currently $1.3015) for the first time since April). This is a recovery that is building nicely now and the next test is the shallow downtrend that can be drawn to link all the lower highs in place since May. This comes in at $1.3095 today. Yesterday’s close above $1.3000 is also an important move, even if it is only psychological. The next resistance is the lower high of $1.3215 from late July. Momentum indicators are progressing well in the recovery, with the RSI the highest since April, the MACD lines accelerating at near five month highs and the Stochastics rising in bullish configuration. This suggests using intraday weakness as a chance to buy. The hourly chart shows $1.2950/$1.3000 as a near term basis of underlying demand and a support band for minor corrections now. Support at $1.2870/$1.2895 is growing in importance now.
With an improvement in market risk appetite, the yen has slipped in its performance, pulling Dollar/Yen higher again. There is an ongoing range play in place on the pair, with the last couple of weeks showing consistent postings of two and three day runs of positive candles, only to be retraced. Hence why I am not getting excited about two positive candles in a row and a third threatening today. The overhead resistance of highs in the band 111.75/112.15 has held back the bulls time and again, and momentum indicators are very neutrally configured, there is little reason to believe that this time is any different. There is a mild positive bias forming on the daily and hourly chart, but history tells us on Dollar/Yen that ranging situations will often persist and even perceived breakouts will often be false. Initial support now at 110.85/111.25.
Gold
There is a mild negative drift on gold which has seen the price slip back below $1200 in recent sessions. So far the initial support of last week’s low at $1189 remains intact but it is being eyed now. Yesterday’s doji candle does not really tell us too much, given the $7.50 range (Average True Range even during these lower volatility sessions of late is still $11). Momentum remains subdued, with almost noting from the RSI, flat in the mid-40s, MACD lines drifting higher and Stochastics drifting lower. Below $1189 opens the key higher low at $1183, with resistance at $1207. The bearish drift hints at a test of $1189 is more likely, but another early consolidation today is suggesting a lack of selling intent.
WTI Oil
The continues to hang on to the support of the old pivot around $67.00, however the bulls are still battling for a potential recovery. The concern is that there are still bear candles forming, to suggest that the negative pressure still prevails into the close of the session. Putting an end to a run of negative candles would be an important improvement but this needs to be backed by some supportive candles now. Yesterday’s initial move higher being sold into is not exactly a positive, even though the market spent the whole session trading above the pivot. The momentum indicators will become an important gauge now, with the RSI still above 40, and MACD lines hovering around neutral. If these deteriorate further then the pivot is likely to come under further strain. The hourly chart shows the initial resistance band at $68.50/$69.00 held back the rebound yesterday and is strengthening.
Even with global indices looking to find some gains yesterday the Dow failed to ignite and continues to trade around the support of the 76.4% Fib retracement at 25,845 and pivot band 25,806/25,888. Despite yesterday’s negative candle, for now this remains a period of contemplation within what has been an impressive bull trend channel, however the caveat to this remains the momentum indicators which are drifting back and hinting at a potential correction, should the bulls become complacent. Specifically with the Stochastics in reverse, the MACD lines are now crossing lower. Although not yet seen, a breach of support at 25,806 (especially on a closing basis) could still usher in a correction back towards the channel support, today at 25,540. Despite this caveat, for now, the support remains intact and a move above last week’s high at 26,074 and the August high of 26,168 (a mere sneeze higher in the context of the recent bull run) would regain the initiative for a retest of the all-time high at 26,616.
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