Market Overview
With safe havens starting to find support, there are signs that there is a hint of a near term turnaround as we move into the final trading day of the week.
Equities on Wall Street are threatening to roll over, Treasury yields have dropped back slightly, the dollar is off its rebound highs, precious metals have started to tick higher and the yen has gained. The question is, will it last?
It seems that earnings in the US have been a driver behind some of the correction on equities (driven by retailers and Snap (NYSE:SNAP)), however the contradictory stories going round about why President Trump fired FDI Director Comey continue to swirl. This is adding an air of caution to trading and safe havens seem to be benefiting. Just now this is far too early to tell if it will turn into a significant market turn, but it is worth watching. Also worth watching today will be the US data points with inflation and retail sales. The importance of these releases could mean a subdued European morning.
Wall Street closed slightly weaker last night with the S&P 500 -0.2% at 2394. Asian markets were broadly weaker too with the Nikkei -0.5%, whilst European indices are looking mixed in early moves. Forex majors are showing very little direction but with the mildest air of dollar correction. Gold and silver are again supported after yesterday’s rebounds, whilst oil is also supported again.
The focus is on the two key tier one US economic data releases today, with CPI and retail sales announced early in the US session. US CPI is released at 13:30 BST and is expected to show that headline CPI dropped marginally to 2.3% (from 2.4%), however the core CPI is expected to remain flat at +2.0%. After the PPI inflation showed upside surprises yesterday, the potential for a surprise has been elevated.
Furthermore, traders will also be digesting US retail sales also at 1330BST. Adjusted Retail Sales (ex-autos) are expected to have grown by +0.5% for the month of April, which would be strong enough to maintain the recent positive traction in the year on year data above 5%. Preliminary Michigan Sentiment is at 15:00 BST and is expected to be 97.0 which is stable from the downward revision of 97.0 last month.
Chart of the Day – Silver
“The trend is your friend until it ends”. Silver has been trending lower since mid-April but has now just posted only the second positive daily candle since the market embarked upon a significant sell-off from $18.65 in mid-April. Is this the beginning of a turn around? It is far too early to say, but it is interesting that the magnitude of the bear candles has been far lower in recent sessions, compared to the first three weeks of the sell-off.
The market has just posted a second consecutive session of higher low and higher high, with a run of 10 successive lower highs having been broken. Momentum indicators remain in bearish configuration but begun to show early signs of improvement. Much more needs to be done though to suggest a recovery is in process, however a technical rally could easily be seen. This move needs to break the trend which today comes in at $16.50. The hourly chart shows resistance in a range $16.40/$16.52 that needs to be breached and that would open a recovery potentially back into the key long term resistance now at $16.80. A break back below yesterday’s low at $16.12 would now be a blow for the technical rally and re-open $16.00 once more.
Despite a brief breach of support at $1.0850 yesterday, the euro remains in consolidation mode. The intraday low at $.10838 never really confirmed the break below $1.0850 and the buyers quickly came back in to support. If the market continues to trade back above the support today then this would be a potential buying opportunity again. The bear candles have been losing their potency as the week has progressed and the early gains today suggest the support remains solid.
Momentum indicators have been slipping on the Stochastics and MACD lines but the RSI has held up well above 50 and this move still looks to be an unwind on the stretched bullish medium term momentum to help renew upside potential. The support around $1.0850 is also the major reversal neckline. The hourly chart shows a shallowing of the selling pressure with hourly momentum far more neutrally configured. The bulls will be eying resistance at $1.090 which would be a near term breakout that would imply further recovery towards $1.0950. A close below $1.0850 opens the support at 1.0800 and $1.0777.
Cable turned marginally corrective yesterday on a breach of the near term support at $1.2900. The move completed a small top pattern and implies 90 pips of downside to $1.2810. The key reaction low at $1.2830 is now under threat. However, despite the momentum indicators confirming the corrective move (bear crosses on MACD lines and Stochastics) this looks to be playing out just a counter trend move that is likely to hit a an area of support and supply of buyers.
The long term breakout at $1.2775 is prime support however the bulls will be focusing on $1.2830 as a key higher low. If Cable can post another higher low then the buyers would be quickly looking back towards the highs again. However with the corrective outlook on the momentum this could simply turn into a near to medium term range play above $1.2775. A breach of $1.2830 would suggest that the bulls are content with a range play, however if yesterday’s low at $1.0847 can become another higher low through buying pressure today then the bullish bias will resume. The hourly chart suggests that the momentum has a near term corrective bias still and that $1.2900 has turned from support into resistance. Trading and holding above resistance at $1.2900 would help to re-engage the bulls. Subsequent resistance is $1.2950.
With yesterday’s negative candle and the mild early losses of today, the bull trend of the past three weeks is being tested. The trend comes in today at 113.47 however corrections continue to be seen as a chance to buy with the renewed positive outlook on dollar/yen. The encouraging fact is that the market is trading above all the moving averages which are now converging and look set to turn bullish. Momentum indicators remain strongly configured and there is little reason to believe that further gains will not be seen in due course.
The 23.6% Fibonacci retracement at 114.27 is a basis of resistance but is still likely to be a consolidation point rather than a reversal point. The market has the near term breakout support at 113.05 could be retested though (which would be a breach of the trend). The hourly chart shows that 113.60 is a basis of support for a near term top that would imply a correction towards 112.90, however in this bull run, the buyer are likely to be tempted back in before then. The market is threatening 113.60 today, but ultimately if this breaks, the buyers are likely to resume control around 113.05.
Are precious metals turning a near term corner. Silver has started to find its feet and now gold is showing technical rally signals. However the likelihood is that gold remains under pressure and any rally would struggle. The key medium term barrier for this rally is the $1240 breakdown which is now a basis of resistance. Until that resistance is breached then any recovery would be limited.
The momentum indicators have started to tick higher as the market has begun to find support. However, as yet the moves are not bullish signals. Yesterday’s positive candle has been a start for the bulls, however the hourly chart shows overhead resistance at $1228.60 initially, before more considerable levels come in with the $1236.50 and $1240 pivots. At this stage, rallies will still be seen as a chance to sell. Support is around $1217, before Wednesday’s low at $1213.80.
WTI Oil
The outlook for oil continues to improve with the market having spent the entirety of yesterday’s session above the $47.00 key pivot support. The momentum indicators are now on an improving trend with the Stochastics rising strongly and the RSI at a three week high. The MACD lines are also now starting turn positive and this adds to the improving outlook. There is though much for the buyers to do in order to sustain the recovery.
The bulls just backed away from the next resistance at $48.20 and this remains a barrier to gains. Furthermore, beyond there is the resistance band $49.20/$50.20 which is key on a medium term basis now. The hourly chart shows support in the range $47.00/$47.25 needs to hold for the bulls to justify continued improvement. A loss of support at $45.55 re-opens the downside.
After over two weeks of consolidation, the Dow has broken below the support at 20,848 and the consolidation is threatening to turn corrective. An intraday breach of the support saw a rally into the close, however the candles are turning increasingly more negative. Despite a rally that closed back above 20,777 old support, the intraday breaches are mounting and this suggests the sellers are strengthening. A closing breach of 20,848 would now complete a small top pattern that implies around 200 ticks of correction back towards 20,650.
Momentum indicators are beginning to deteriorate with the RSI confirming the break and the MACD lines close to crossing lower. This is still likely to be a near term move though, with plenty of support between 20,600 and the old pivot at 20,777. The hourly chart also reflect the near term deterioration in the momentum outlook. There is near term resistance now at Wednesdays high of 20,976.
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