Market Overview
There is an array of factors for traders to weigh up as the new week kicks off for financial markets. Firstly, on the risk positive side, in China the PBoC has announced that it would maintain a stable yuan amidst the sharp weakening of the currency in recent days.
A victory for the centre-right Liberal coalition in the Australian election has boosted the Aussie. This election result has been something of a surprise for the market which had been anticipating a left-leaning Labour victory. A more business friendly outlook is now being priced for the Australian economy. Furthermore, the oil price continues to regain positive momentum on suggestions from OPEC that inventories would be run down and production cuts would be maintained. However, this all comes amidst a backdrop of tension in the Middle East where an air of thinly veiled threats between the US and Iran continue.
Furthermore, the US/China trade negotiations have seemingly gone cold for now. This all adds up to mild risk recovery across major markets. The yen is lower (despite better than expected Japanese GDP), bond yields are ticking back higher and gold continues to retreat. The strength of the US dollar is still a factor to contend with after a big positive surprise in Michigan Sentiment on Friday. The positive sentiment is helping to improve risk appetite for equities today too.
Wall Street closed lower on Friday, with the S&P 500 -0.6% at 2859. However a more positive mood today is pulling US futures higher by +0.3%. The outlook across Asia is slightly mixed (Nikkei +0.3%, Shanghai Composite -0.9%) whilst European indices are a touch tentative with FTSE futures +0.1% and DAX futures around flat.
In forex, there is a risk recovery in the commodity currencies, with AUD powering a recovery of +0.8% whilst NZD and CAD are also in for a decent rebound. It is a mixed look across the G4 majors.
In commodities, the better outlook for risk is a further drag on gold, whilst oil is over 1% higher this morning.
There are no major economic releases today, but keep an eye out for the comments of vice Fed chair Richard Clarida (voter, centrist) at 18:05 BST.
Chart of the Day – USD/CHF
A basis of support for the dollar in recent sessions suggests that corrections on Dollar/Swiss remain a chance to buy. With the market building support at 1.0045 a four month uptrend has been formed. However, the key bullish confirmation of the renewed dollar strength would come on a move above 1.0125. This has played as a pivot in the past six months and is a level the bulls will be eying. Momentum indicators are turning positive again at areas where the medium term bulls should be eyeing an opportunity. The RSI has picked up from 60, Stochastics have posted a bull cross at 20 and MACD lines are looking to now bottom above neutral. With four consecutive higher daily lows, Friday’s low at 1.0080 is initially supportive, with the uptrend at 1.0060 today. A close above 1.0125 opens the high again at 1.0235.
Since failing at the May resistance of $1.1265 the market has gone on a run of five consecutive negative sessions and the bearish momentum is mounting again. MACD lines have crossed back lower again, whilst RSI and Stochastics are both falling in bearish configuration with further downside potential. The old key low which had become a pivot at $1.1175 has been broken and is now a basis of overhead supply. This breach has opened the key April low at $1.1110. Hourly indicators show that intraday rallies are a chance to sell. The hourly RSI is failing between 50/60 whilst MACD lines are failing under neutral. Resistance is mounting between $1.1175/$1.1220. Below $1.1110 opens $1.1000.
With the domestic UK political outlook stuck in the quagmire, the stronger dollar has dragged Cable decisively lower. The move has accelerated back to breach a string of supports and is now testing the old pivot around $1.2700. However, there are signs of respite at least this morning. Cable is holding up. Well, probably more accurately, it is not selling off. This comes with continued negative configuration on momentum, but if the bulls continue the early consolidation, there could be potential for a technical rally from this $1.2700 support. It is very early to call this though and there is plenty of overhead supply to contend with between $1.2770/$1.12865. A two week downtrend comes in at $1.2920 today so there is room for an unwind. It is still very early to call this, but enough at least to think hard about a pause in the selling pressure. A close below $1.2700 opens the key December low at $1.2475.
The recovery momentum is building. With four sessions of gains now, each candlestick shows a move to the downside being bought into to close near the day high. This reflects a strengthening market. It is certainly helping a momentum recovery which sees the Stochastics crossing higher and MACD lines close to a bull cross now. Overhead supply between 109.70 and 110.00 has been overcome. This is an important step in the continued recovery. It opens the next reaction low 110.85 but also shows the improving sentiment. Watch on the hourly chart for this 109.70/110.00 band to become supportive now. The hourly chart shows 109.50 is now a near term higher low.
Gold
Since the bullish upside breakout began to fail a week ago, the renewed corrective selling pressure has been increasing. The move higher has been decisively retraced and a retest of the $1266 key April lows is now on. Another decisive bear candle on Friday means that today’s key test is the long term nine month uptrend (at $1272) which survived the April sell off but is once more in the firing line. Momentum indicators have posted sharp negative signals with a Stochastics sell signal and the RSI set to bear cross under neutral. The hourly chart shows a near term pivot $1278/$1279 is a basis of resistance this morning, with $1284/$1288 overhead supply. A close below $1266 opens $1240/50.
WTI Oil
A run of positive closes and bull candles is looking to break the consolidation and the upside pressure is building. A close above $63.00 has yet to be achieved but again threatens today and this would drive confirmation of renewed upside momentum. Technical signals are seemingly leading the market in a breakout, with the RSI and Stochastics rising at two week highs. Also the MACD lines are bottoming around neutral, close to a bull cross. This is set up for the next bull move, and a close above the 61.8% Fib at $63.70 would add further confirmation. This would then open $64.80 which is an old pivot from April before the key high at $66.60. The hourly chart shows support between $62.50/$63.00 and that a near term unwinding of hourly momentum towards 40/50 on hourly RSI is a chance to buy.
The near term recovery hit the buffers on Friday as the Dow fell back -0.4%. However, with the formation of a marginally positive candlestick (close above the open) this was not an entirely negative session. If the bulls can respond with a positive reaction today then it could be all part of a broader recovery process. There has been an improvement in momentum signals in recent days which has suggested the early May correction has played out. MACD lines bottoming whilst RSI and Stochastics tick higher is encouraging. The hourly chart shows support between 25,660/25,720 for the bulls to build on. If hourly momentum has now start to build a more positive configuration the outlook will continue to improve. Overcoming resistance at 25,950 opens 26,120/16,180.
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