Market Overview
Safe haven assets have caught a bid as markets have become increasingly concerned by the maverick actions of Donald Trump. Apparently recently fired FBI Director James Comey has notes that suggest that Donald Trump tried to get the FBI to end its investigation into Trump’s former security advisor Michael Flynn. This has got commentators making comparisons to Nixon’s Watergate scandal and markets are responding.
Treasury yields are falling away, with the 10 year yield back below 2.300% which is seen as a key watershed. Other safe haven plays such as the yen and gold are also continuing to perform well. The dollar is under pressure from the falling yields, whilst solid Eurozone economic growth have certainly not helped either. Equity markets are also beginning to come under selling pressure with US futures lower overnight. The reason for all this is due to the impact that Trump’s chaotic administration has on his ability to get the legislative reforms through Congress. All this despite positive industrial production numbers that have led the Atlanta Fed’s GDPNow forecast model to show GDP running at 4.1% for Q2. Whilst Trump was previously a reason to buy the dollar, he is increasingly a reason to sell it.
Wall Street closed mildly lower with the S&P 500 -0.1% at 2400, whilst Asian markets were weaker across the board (Nikkei -0.5%). European markets are all lower by around a quarter of a percent. Forex markets show the dollar once more under pressure across the major pairs, with the yen the big outperformer, however sterling continues to struggle. Gold and silver are also higher, whilst oil is under a little corrective pressure after the API inventories showed a minor inventory build versus an expected drawdown.
After UK inflation jumped higher than expected yesterday, the market will be focused on whether UK wages disappointment will continue to drive negative real wage growth. UK employment data is released at 09:30 BST, with the headline UK unemployment expected to remain at 4.7% whilst the claimant count is expected to increase by 7,500. However the most interest will come with average weekly earnings growth (ex-bonus) which are expected to stay at +2.2% which after CPI was 2.7% yesterday means that real wage growth remains negative, and falling. The final reading of eurozone inflation is at 10:00 BST with an expectation that the readings will confirm the flash data, with +1.9% year on year headline CPI and +1.2% core CPI. The EIA crude oil inventories have got a lot of focus recently, especially after crude stocks had such a significant drawdown last week. Expectations are that crude stocks will drawdown by another -2.5m barrels, with distillates -1.0m barrels and gasoline stocks by -1.0m barrels.
Chart of the Day – USD/CHF
The sharp decline in the pair over the past few days has brought a test of the key medium term support at 0.9850. This has been a key floor in the first few months of the year, having been tested on four separate occasions. Now with the three strong bear candles completed in the past few days the market has gone into complete reverse from the resistance at 1.0100. The level of selling was also such that the market paid pretty much no regard for the 50 pip pivot band around parity, between 0.9950/1.0000.
The concern for the bulls is that the MACD lines have been increasingly negatively configured on a medium term basis in recent months and the latest cross lower has come with the lines under neutral. Taken with a confirmed bear cross on the Stochastics and the RSI in decline, the momentum is increasingly bearish. Today’s early selling pressure is now breaking the 0.9850 support. A closing break would be a six month low and open 0.9675 and possibly the complete unwind of the move since Trump, to 0.9542. There was an initial intraday low of support at 0.9812 from the March low. The 0.9850 level will become a basis of initial resistance prior to the pivot band at 0.9950/1.0000 which is once more key.
The euro continues to strengthen. Now having completed three strong bull candles in the previous three sessions the market has broken decisively out above the resistance at $1.1022. The upside break could be argued to drive a range breakout implied target of 170 pips higher towards $1.1190. The immediate test is the long term pivot at $1.1100 which is being tested today, whilst the key November high (just prior to the spike high of the day Trump won the US election) adds resistance at $1.1143. Momentum indicators remain strongly configured with the RSI back up to 70, whilst MACD lines and Stochastics are also rising.
The caveat for immediate upside potential is that the RSI around 70 tends to limit the bulls and can pull in some consolidation. There could then be a minor unwind, with support now initially at the $1.1022 and then at $1.0950, with corrections being seen as a chance to buy. The hourly chart looks strongly configured still but perhaps watch for the hourly RSI dipping below 60 for a potential near term profit taking signal.
The bulls remain in control of the consolidation band between $1.2775/$1.2990 and are making progress towards a test of the highs, however progress is slow. Considering the strength of the euro versus the dollar, sterling is struggling (and has done so since the dovish Bank of England last week). Another mildly positive candle was formed yesterday and again the early moves today are to the upside. However momentum indicators are mixed, with falling MACD lines and Stochastics having unwound to neutral. The RSI holding above 60 is still giving the bulls encouragement though. The hourly chart reflects the mildly bullish bias, trading above a rather neutral set of momentum indicators.
There is a band of near term resistance $1.2940/$1.2957 today that needs to be broken to re-open the highs, however, right now, it would take a significantly stronger effort to break through to new multi-month highs again. Support is $1.2864 above the $1.2843 level which could still be another higher low.
The market’s renewed demand for safe havens in the 24 hours has started to impact on the near to medium term outlook on Dollar/Yen. The dollar out of favour and the yen finding a bid. I wrote yesterday about the broken uptrend, but the support of the previous breakout at 113.05 being breached now opens the key medium term pivot band between 111.60/112.20. With the deterioration in momentum indicators, this band of support will now take on an increasingly important role. The Stochastics have given a confirmed near term sell signal, whilst the RSI is quickly dropping back to 50 and the MACD lines are close to a crossover sell signal.
A breach of the pivot support would put the chart under significant bearish pressure again. The hourly chart shows how 113.05 had initially held, but once decisively breached the sellers have gained the upper hand. Intraday rallies are now looking like a chance to sell, with 113.05 old support now becoming new resistance. There is minor initial support at 112.05.
As with the yen, the safe haven bid has also caught gold. The rally on gold has been building for a few days and is now back to test the confluence of several key technical trends. The downtrend since mid-April comes in around $1241 and the underside of the old broken uptrend is at $1250. Already, the pivot resistance at $1240 has been breached and a close above this resistance today would change the outlook, meaning that the bears are no longer in medium term control again. However a continuation above $1250 would also significantly improve the outlook. The momentum indicators are increasingly turning a corner, with the Stochastics posting a bull cross, the RSI rising and the MACD lines close to a bull cross.
The hourly chart shows the uptrend of the past week continues to climb and provide support, whilst the old near term resistance $1236/$1240 is now a basis of support for any unwinding moves today.
After such considerable gains in recent sessions, the market drew breath yesterday with an inside day session and just mild gains on the day. The outlook on the technical indicators has improved but there is a danger of this improvement falling over again, with the MACD lines shallowing, the Stochastics towards 80 and RSI back to 50. The bulls will need to be careful, as for a second consecutive day a push towards the overhead supply and pivot around $49.60 has hit the buffers.
Furthermore, the opening move today has been lower and the prospect of some profit taking is growing. The hourly chart shows the hourly RSI has repeatedly formed support around 40 however this failed late yesterday. An unwind to a near term support $47.35/$48.20 has set in, whilst an uptrend since the rally set in on 5th May is also being breached. The bulls would remain in control of the recovery whilst the support at $47.35 remains intact.
The consolidation continues, however the bulls remain unable to sustainably move above 21,000 on a closing basis. Once more, intraday moves through this old resistance have been rebuffed and the market has shied away. Intraday resistance is now at 21,046 and 21,070 but in truth this is a consolidation that cannot be pre-empted. The momentum indicators are a little tired and the suggestion on the futures is that early moves lower could pull a test of supports.
The hourly chart is neutrally configured and suggests that yesterday’s corrective move is pulling back into the belly of support in the range around 20,900. The bulls would be disappointed to lose support at 20,870 but a breach would open key near term support at 20,799. As with any consolidation range we would be looking for closing breakouts, so a decisive close below 20,799 completes a small top pattern implying 270 ticks of downside. Above 21,000 would help to generate bull momentum, and above 20,070 re-opens the high at 21,169.
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