Market Overview
Risk appetite has returned to markets as strong housing data from the US and a renewed oil price rally have improved sentiment again. With strong gains on equities and the oil price pushing again to new multi-month highs, the performance of safer have assets has taken a dive. Notable weakness has come in the previous metals as gold has suffered with the re-pricing of expectations of a Fed rate hike, whilst the classic safe haven of the yen also saw selling pressure. US Treasury yields have also started to push back higher again as the announcement of hugely strong New Home Sales have helped to reflect positive trends in the economy. The stronger dollar has also been a feature, though this is something that has previously acted as a hindrance to risk. Following European equities higher, Wall Street closed with strong gains with the S&P 500 up 1.3%. Asian markets have also benefitted, with the Nikkei up 1.6% on the yen weakness. European indices are maintaining the momentum this morning with the FTSE 100 notably looking to confirm the breakout through the resistance at 6200.
Forex markets are showing an interesting mix, with the dollar showing little real movement against the euro, sterling or yen, whilst the risk appetite improvement has helped to support the commodity currencies today, with the Aussie outperforming as it looks to unwind recent weakness.
Traders will be looking out for the German Ifo Business Climate at 0900BST which is expected to show a very marginal pick up to 106.8 (from 106.6). There is also the monetary policy decision from the Bank of Canada at 1500BST, but with no move expected on the +0.5% rates the statement will be eyed for any comments on inflation and possible signs of any rate cuts in the coming months. The EIA crude oil inventories is expected to show a draw of -1.7m barrels after last week’s build of +1.3m.
Chart of the Day – Silver
The correction on precious metals continues and in the past few days the price of silver has completed a top pattern which suggests there will be continued downside. The decisive breach of the support band around $16.80 completed a top that now implies a move back to $15.60. But will it get there? The momentum indicators are increasingly corrective but the RSI is now around the 40 mark where the key reaction lows over the past five months have all been seen. With the price again back towards the old key breakout around $16.15 this would suggest that silver has now reached a crossroads. If the slide continues then the outlook will turn decisively negative on both the near and medium term perspective. The MACD lines are also back to around neutral, however the configuration on the Stochastics is increasingly negative. The hourly chart shows a minor slowing of the corrective downside in the near term, however whilst the hourly RSI continues to fail around the mid-50s, the bulls will be unable to find the traction and further weakness will result. There is now pivot resistance at $16.43 which is protecting the resistance at $16.65. Stick with the corrective trend for now but be mindful of the reversal signals at this crossroads.
Once more the resistance of the three week downtrend kicked in yesterday to act as a drag on EUR/USD as the dollar strengthened further. The correction continues and with the strong bearish candle breaking through the late March low at $1.1142 the retreat to the long term pivot band $1.1050/$1.1100 can now be complete. The momentum indicators are taking on an increasingly negative configuration with the Stochastics firmly bearish, the RSI at a near six month low and the MACD lines have just gone negative. Rallies continue to be seen as a chance to sell and the hourly chart shows the falling 89 hour moving average (currently around $1.1195) has become the basis of resistance in the past few days. There is now a band of resistance between $1.1180/$1.1245 to look for opportunities to sell as any near term oversold momentum looks to unwind.
Despite a day of broad dollar strength through the forex markets, the outperformance of sterling was stark. Cable added almost 150 pips with a hugely positive candle that saw the price closing towards the highs of the day. The outlook has strengthened once more, with the price closing above the resistance of the nine month downtrend, something that the previous two rallies of April and early May could not achieve. Technically cable is subsequently maintaining its improving medium term outlook. However the chart is rather messy and there is still some overhead resistance with the overhead supply at $1.4660/$1.4770. The bull kiss on the Stochastics is a positive near term signal but I would still prefer to see the RSI sustaining a move into the 60s to really suggest the bulls were in control. The concern is that this was a move driven by a Brexit poll, and that it can reverse quickly on a different poll. However the hourly chart shows a strong configuration and that the bulls will look to support at $1.4550. Support at $1.4440 is now key.
The uptrend may have been broken but the bulls are fighting back with the formation of yesterday’s strong retracement candle. However there is still much overhead supply starting between 110.60/111.00 which is preventing further gains. The downtrend channel dating back to early March is adding to the resistance at 110.55 whilst the falling 21 day moving average is also a basis of resistance at 110.17. The crossroads is still in play here and it will be interesting to see just how strong the bulls are, because of the considerable barriers to gains. It was interesting to see on the hourly chart that yesterday’s rally unwound back to the underside of the old uptrend and fell over. There has been a series of near term sell signals with the MACD and Stochastics both turning lower. The outlook remains very uncertain, with support now in place at 109.10.
Gold
The trend lower on gold in the past few days has impacted the medium term outlook, which has now turned to neutral at best as the bulls have decisively lost control. The drift lower accelerated yesterday with a bear candle that lost $22 which has meant that gold has shed over $55 in just five completed sessions. The move has also gone through the support at $1227 which has now opened the bottom of the key old support that came in around the end of March at $1208. The momentum indicators are increasingly negative now with the acceleration lower of the Stochastics, the RSI is now below 40 and is now the most negative since the rally began from $1046 all the way back in December. This suggests that any rallies are a chance to sell. The oversold hourly indicators could mean that there is a near term technical rally but with the overhead resistance now in place again at $1043 (the old pivot line is again active), any rebound is likely to be sold into. Below $1208 the next support is $1191.
WTI Oil
Concerns had been that after four days of negative closes, a correction could have been due. However, the bulls appear to be made of sterner stuff now and with support around $46.80 holding firm, the buyers have returned once more. The strong medium term outlook is maintaining the push higher and the resistance at $48.95 has been breached. However, immediate upside potential may be a touch limited now with the RSI at 70 which has historically been an area where the bulls have struggled to keep their foot on the gas. Near term corrections continue to be buying opportunities and any intraday weakness will likely be seen for a full retracement up towards $50.92. The near term support is now in at $47.40.
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