Market Overview
Trade tensions continue to dominate the outlook for financial markets. The negative sentiment continues to creep through as discussions over the renegotiation of NAFTA (US/Canada) remain unresolved and President Trump threatens to initiate tariffs on $200bn of Chinese imports potentially as soon as Thursday.
Given Trump’s recent comments on the possible US withdrawal from the World Trade Organisation, this does not set up for a particularly positive landscape for risk appetite. Subsequently, the negative pressure on emerging markets continues, with the Dollar/Yuan rate seemingly in a renewed upswing phase.
With yesterday’s US ISM Manufacturing data much better that expected, the move out of EM and into US assets remains the play, a move to widen spreads of US Treasuries over majors bonds and seeing the US dollar regain some recently lost ground.
Coming into today, the broad sentiment is still dominated by trade tensions and whilst there is little direction on forex, equities continue to look corrective from Asian into the European session.
Wall Street closed marginally lower, with the S&P 500 -0.2% at 2897 whilst futures are also similarly weaker early today. This has been reflected in losses across Asian markets (Nikkei -0.3%) whilst European markets are negative in early moves.
In forex, there is a mild amount of USD strength coming into the European session, whilst, AUD is holding up well after a better than expected GDP print. In commodities, there is a degree of support for gold after yesterday’s weakness, whilst oil has slipped back and is threatening to find negative traction now.
Services PMIs are the focus for traders today with the final reading for the Eurozone first up at 09:00 BST. Final Eurozone Services PMI is expected to see no change at 54.4 (54.4 from the flash reading, which is slightly up from last month’s 54.2), whilst the final Eurozone Composite PMI is expected to be 54.4 which would be only slightly up from 54.3 last month).
UK Services PMI at 09:30 BST is expected to show a mild improvement to 53.8 (form 53.5 in July).
The US Trade Balance for July is at 13:30 BST and is expected to deteriorate to -$49.8bn (from -$46.3bn in June).
The Bank of Canada monetary policy is at 15:00 BST and is not expected to move from +1.50% (having hiked by +25 basis points last meeting).
Chart of the Day – Silver
The selling pressure has ramped up once more as silver has broken down once more to its lowest level since February 2016. This has come as ever since the move below 14.86 subsequently became a basis of resistance, the buyers have been unable to gain any sort of sustainable foothold in the market. An 11 week downtrend remains intact and the falling 21 day moving average remains a basis of resistance (currently c. $14.75). Ever since June, the momentum indicators have remained firmly in bearish configuration, with the RSI failing consistently in the low 40s, whilst the MACD lines have just crossed lower again and the Stochastics are also negatively configured for further downside. Rallies are certainly a chance to sell now, with $14.30 the initial resistance as the overhead supply of the old August low, and anything up to the downtrend being a sell zone. There is little real support until $13.60/$1.3.70 which is the 2015/2016 lows. It would need a break back above $15.00 to sustainable improve the outlook now.
As the traction in the rally has been lost in recent sessions, the dollar bulls are threatening to regain control once more. The support of the old floor at $1.1505 and the lows around $1.1530 means that it was important for the buying pressure to come in during yesterday’s session to prevent a key near term breakdown. The market has formed another negative candle, but the 50 pip rally off the session low has added a degree of uncertainty to the correction. The support has been maintained during the early exchanges today and the bulls will be eyeing a move back above $1.1630 which is the pivot which is now a basis of initial resistance. The momentum indicators have flattened off without taking on a renewed corrective configuration yet, as the MACD lines settle around neutral and the RSI around 50. Even the Stochastics are less corrective. This all sees a market in near term balance. A close below $1.1505 puts the bulls in control, whilst a close above $1.1630 sees the buying pressure mounting again.
The corrective slip on Cable in the past few sessions has now formed four consecutive negative candles as the recovery uptrend has been broken. Although this move has put the brakes on the Cable rally, it has not yet brought the dollar bulls back into the driving seat. For tis, the support at $1.2800 is key. This is the first key higher low from the early rebound and a closing breach would confirm the recovery having been lost. Momentum indicators have lost their recovery impetus, with the Stochastics reversing, but this is for now in isolation. For a decisive shift lower again, watch for the RSI falling below 40 and MACD lines crossing lower. However, the bulls will need to return quickly as pressure will mount the longer the market trades back below the $1.2955 old low. The hourly chart shows that the pick up from $1.2800 again has brought the hourly RSI to 60 and MACD lines to neutral. Initial resistance at $1.2890 today. A close below $1.2800 re-opens the key low at $1.2660.
Taking a step back allows a view of Dollar/Yen which is broadly neutral, but there is still a mild positive bias. Can the bulls finally find some traction in a push higher? The breakout above the old resistance at 111.40 last week quickly failed at 111.80 under the key 112.15 resistance. However, the legacy of the breakout is now a set of MACD lines ticking slightly higher now, pushing above neutral and Stochastics mildly positively configured. A move above 111.80 and close above 111.40 further improves the outlook for a potential decisive test of 112.15. Support at 110.65 is now key above 109.75. The hourly chart shows initial support around a minor pivot at 111.15.
Gold
The impetus behind the recovery has been lost, and yesterday’s decisive negative session is increasing the negative pressure once more. Having been consolidating around $1190/$1200 the market is now clear below $1200 once more with a $10 loss on the day. The decisive move lower is also now impacting negatively on momentum indicators, with the Stochastics swinging lower, whilst RSI and MACD lines are also beginning to deteriorate again. A run of lower highs is also beginning to form a near term trend lower. The key remains the higher low at $1183 and a breach would mean the outlook for a retest of $1160 would grow. The hourly chart shows a near term band of overhead supply $1195/$1200 is now in place today and a failure to overcome it would increase the corrective momentum.
WTI Oil
The bullish near term recovery is having its first real test. A failed breakout above $70.45 has left a rather mixed candlestick from yesterday’s session, however the bulls will need to be careful to prevent a corrective outlook from developing. The near term importance of support at $69.50 is now increasing after the market failed in a rally to $71.40. This failure has left the bulls somewhat disappointed with a close once more back below $70.45 resistance. Furthermore, the nature of the intraday failure is already being reflected on the Stochastics which are now crossing lower. Another negative close, especially one that closes below $69.50 (which would be a four day low). The support of the three week uptrend comes in at $69.30 today so a break back below yesterday’s low at $69.10 would also be another negative signal. This move may still just be a consolidation of the rebound but a close below $69.10 would increase negative traction in a corrective move.
The bull run to multi-month highs has seen a corrective move to unwind some of the overbought momentum. The bulls will now be trying to time their next entry into the market. The Fibonacci retracements of the 26,616/23,345 correction have often been strong gauges of the turning points for the market and it is interesting to see yesterday’s low at 25,805 came around the 76.4% Fib level (at 25,845) which has been a pivot area only to rebound once more. The question is whether this corrective slip over the past four days is enough for the bulls to be tempted again. Since the rally resumed in late June, the corrective moves have lasted between four and six sessions before the bulls have launched higher once more. The Fib level is supportive and the momentum indicators have also unwound nicely to renew upside potential. The support of the higher low at 25,608 is a key factor here and there is little here to suggest the bulls will not regain control to retest the 26,168 high and then on towards the all-time high at 26,616.
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