Market Overview
Finally, after more than a week of procrastination, the S&P 500 has burst through its February resistance to post all-time highs. The move came with encouraging newsflow on COVID treatment (US FDA authorising a plasma treatment of patients with the virus) and potential use of vaccinations in the US (although this is unconfirmed). Add to that the news that phone conversations between US and Chinese top level trade delegates over the progress of phase one of the trade deal were encouraging. With Wall Street powering to new all-time highs there is a positive attitude to risk appetite across major markets. This is reflected in a move higher on US Treasury yields and a subdued outlook on gold. However, whilst the US dollar is a shade weaker today, there is a sense of consolidation across major forex pairs. Looming large this week is a speech by Fed chair Jerome Powell which could define the path of monetary policy in the months and possibly years to come. Even though there are some interesting data points in the coming days (US Consumer Confidence today), is unlikely that traders will take too much of a view ahead of such an important speech. We therefore see EUR/USD gravitating around 1.1800, Cable around 1.3100 and Dollar/Yen around 106, all of which are old pivot areas. This sense of consolidation is also across gold and silver again. Despite this though, the rally on equities looks set to continue today.
Wall Street closed decisively higher with S&P 500 +1.0% at 3430 and way into all time highs. It does not seem to be stopping there either, with futures ticking further higher today (E-mini S&Ps +0.4%). Asian markets were broadly higher with the Nikkei +1.4% but Shanghai Composite was -0.4%. European markets also look to be set fair, with FTSE futures +0.4% and DAX futures +0.7% early today. In forex, the risk positive vibe is helping EUR and GBP rebound slightly, whilst AUD is also performing well. Once more we see NZD as the main drag. In commodities, gold and silver are trading around the flat line, whilst oil is also mixed.
There is a clutch of US data points on the economic calendar today, but the key data kicks off with the German Ifo Business Climate at 0900BST. The Ifo for August is expected to improve to 92.2 (from 90.5 in July). This is expected to be driven by improvements in both the Current Conditions component (to 87.0 from 84.5) and Expectations component (to 98.0 from 97.0). Then into the US session the data begins with the S&P Case Shiller House Price Index which is expected to improve to +3.8% in June (from +3.7% in May). US Conference Board Consumer Confidence is at 1500BST and is expected to improve in August to 93.0 (from 92.6 in July). New Home Sales also at 1500BST is expected to improve by +1.3% to 785,000 in July (from 776,000 in June). The final data will be of note as regional Fed surveys have tended to falter in August and come in with negative surprises, with the Richmond Fed Composite Index expected to remain at +10 (+10 in July).
Chart of the Day – EUR/JPY
The outlook for the euro rally has reached an important inflection point and this is reflected well on Euro/Yen. After six consecutive sessions of losses, Friday’s low was almost to the pip of the old key breakout level of 124.40. However, this appears to have been supportive and building on this yesterday with a (mild) positive candlestick the basis of support between 124.30/124.40 is holding for now. The bulls may have been disappointed that a five week uptrend has been broken, but a bigger 15 week uptrend that originated in early May is still intact (today at 124.25) and adds to the support around 124.40. The bulls need to work hard though, as a mini two week downtrend is intact (at 125.45 today) and near term momentum indicators are mixed. Stochastics and MACD lines are pulling lower whilst the RSI needs to hold above 50 to sustain otherwise the corrective outlook with gather force. For now, this is a near term correction within a medium term bull trend. However, how the market reacts around 124.25/125.40 in the coming days will be key as to whether this is a buying opportunity or not. For now we still hold a positive view of the euro but the bulls need to work hard now. A decisive close under 124.25 opens a move back towards 122/123 and seriously question the bull control. Holding 124.40 is important and a decisive move above 125.55 would help to regain bull confidence for a retest of 126.75.
It is a delicate time for major forex. The dollar has shown signs of recovery in the past few sessions and this has halted breakouts across the likes of EUR/USD. The ensuing pullback has though not done enough to back a stronger dollar (yet) and means that the market lies in a zone of uncertainty. During the late July/early August consolidation range on EUR/USD, 1.1800 was a mid-range pivot around which the market traded. This pivot has come back into play during the pullback of the past few sessions (although is now becoming slightly less adhered to). We see daily technicals having tailed off in their positive medium term configuration. MACD and Stochastics momentum indicators are falling away, but RSI remains above 50. Yesterday’s bull failure candlestick has simply added to the near to medium term mixed outlook that has formed. However, a basis of support is again forming today and the market is again around the 1.1800 pivot area. Holding above 1.1755 (Friday’s low) will maintain this mixed outlook and protect the 1.1695 key support of the past month. The bulls need to hold a move above 1.1880 (Friday’s high) to regain control.
The uncertain near term outlook continues on Cable. The incredible run of four huge but contradictory candlesticks has come to an end, but yesterday’s bull failure, which lost -85 pips from the day high to close lower, again reflects the near term fluctuation still in the market. Even this morning, with the market ticking back higher again, we cannot say with conviction that the bulls are in a solid position. The lack of decisive trend over the past week has weighed on momentum indicators, which are faltering on MACD and Stochastics, but at least RSI is holding in the mid/high 50s. For now, we still favour Cable longs, with the dollar rebound unable to gain decisive ground. This still looks to be a pullback within the positive trend, but support at 1.2980/1.3000 needs to hold for this to continue. Initial support is now at 1.3050 and the bulls will be looking to push through resistance of a pivot band (shown on the hourly chart) between 1.3120/1.3150 to regain their lost control.
There are conflicting signals that are leaving Dollar/Yen at an important inflection point (this seems to be a theme across major pairs right now). Dollar/Yen is again trading around 106.00. This is the bottom of the pivot band 106/107 which is the overhead supply of all the old lows between April and July. The bull failure last week which left a high of 106.20 looked to be the point at which the dollar bulls would throw in the towel of recovery, but they stood strong yesterday (to forma small positive candle) and are again there today to test 106.00 again. Momentum indicators retain their negative bias for a medium term perspective (under neutral points on RSI and MACD), but the near term outlook is ticking slightly higher (positive cross threatening on Stochastics). It leaves the market on a knife edge. We are still minded that the weight of resistance between 106/107 is still likely to generate another lower high in that area and we look to sell into strength. However, for now the dollar bulls are hanging on. This may continue through to Fed Chair Powell’s speech on Thursday. Initial support is at 105.40 which protects 105.10 now. Above 106.20 opens 107.00.
As with several of the major markets we look at consistently, we are seeing conflicting signals on gold which is generating a consolidation for now. What looked to be conviction buying in the rebound from $1863 was scuppered by a big selling day on Wednesday last week. Since then the gold price has formed a series of small bodied candles that seem to be gravitating around the 23.6% Fibonacci retracement of the big $1451/$2072 rally at $1926. The near term pullback downtrend line comes in around $1973 today. This would need to be breached for the bull to be looking at a renewed rally scenario. Initial resistance is at $1961 from yesterday’s bull failure. There is still a sense that this is still a moderating pullback to the big 11 week uptrend (which supports at $1901 today). The daily momentum indicators have been unwinding but are also now stabilising in decent areas to suggest this has been a good phase to renew upside potential for the renewal of the medium to longer term trend higher. It could though be a consolidation that continues for a few days yet though, with a crucial speech by Fed chair Jerome Powell on Thursday likely to drive the next key move. Support at $1906/$1911 will become ever more important as this week rolls on and the uptrend rises.
After a run of disappointing closes on Brent Crude, a decisive and solid session of gains has started the week off on the right note for the bulls. A move which has strengthened support at $43.60/$43.90 has helped to improve failing momentum as Stochastics and MACD stabilise and RSI holds in the mid/high 50s. It also seems to be stabilising what had threatened to be a corrective drift that had threatened to drag the market decisively below the 21 day moving average which has been a basis of support for the recovery (rising today around $44.60). The bulls now need to put together a run of positive sessions to get their confidence fully restored, and an early tick higher today is a good start. They will therefore be eying last week’s reaction high of $45.55 as initial resistance to test. Beyond that the barrier of the $45.80/$46.25 resistance remains the key move still. The hourly chart shows initial support at $44.30/$44.75.
Breakout across the major Wall Street markets. With the S&P 500 bursting to new all time highs, we see the Dow accelerating higher. A third positive close in a row and a decisive move through resistance at 28,155 takes the Dow to its highest level since February. The move looks strongly configured technically, with the use of the June breakout support around 27,580 leaving good support now in a band 27,525/27,580. Momentum is strong with the Stochastics crossing higher and RSI into the 70s to reflect a strength of the trend. The next test is to finally “close” the old February bear gap at 28,400/28,890. This move has similar hallmarks to the previous early August rally which came after a period of slight consolidation drift lower. That move posted a run of seven decisive positive closes. We look to use intraday weakness as a chance to buy. Initial breakout support comes in at 28,000/28,155. The all-time high of 29,568 should not be ruled out in due course, although there is likely to be another corrective phase prior to that.
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