Market Overview
There are a few mixed signals out today but some early signs of a decent trading day for risk in the offing. The rally in the oil price, a correction in the safe haven plays, the yen and gold, whilst equity markets are marginally higher in early trade. The big question is whether an improvement in market sentiment could sustain a slide back in the oil price, but I have my doubts. There were signs that Wall Street was looking to decouple from oil on Friday but these are only early signs. Over the weekend, traders have also had to digest the news of the UK referendum vote on membership of the EU. The political posturing has now begun in earnest and despite UK Prime Minister Cameron finalising his deal with the EU, the affable London Mayor Boris Johnson joining the Vote Leave camp has raised the possibility of a Brexit, something that is already negatively impacting on sterling. The vote is four months away on 23rd June, but this shows that any time questions of a Brexit arise, the volatility in sterling is likely to remain elevated.
Wall Street managed to close around flat on Friday despite a sharp loss on the oil price. This performance has helped Asian markets to bounce today with the Nikkei 225 +0.9% as the yen has weakened. European markets are mildly positive in early moves. The forex markets show dollar strength but also the commodity currencies benefiting from a stronger oil price today.
Traders will be on the lookout for the flash PMIs today with the data from Eurozone countries released through the morning, and the Eurozone region at 0900GMT. The manufacturing flash PMI is expected to show 52.0 with the composite number at 53.3. The US flash manufacturing PMI is expected to show a slide to 52.3 (from 52.7).
Chart of the Day – NZD/USD
The outlook for the commodity currencies is becoming increasingly choppy and mixed, with the kiwi no exception. The movement over the past few weeks has now developed into a well-defined range between the support at $0.6560 and resistance at $0.6750, meaning quite a tight range of around 190 pips for now. The support has marked the lows of the past couple of weeks and is a pivot from an old resistance through January. The momentum indicators are settling into a rather neutral outlook now with the RSI having been around 50 for a few days now, the MACD lines around neutral and the Stochastics also flattening off. The consolidation has broken the uptrend from the January low but the bears are not in control yet. There is slight near term pivot around $0.6600 and the hourly chart shows that a rally through $0.6675 would break a sequence of mild lower highs and be a positive move giving the outlook a slightly more positive bias. However, for now we await the next real catalyst.
The drift back continues to test the support of the pivot band $1.1050/$1.1100 but for now the support is still holding. There has also now been the first positive candle in 6 sessions with a candlestick that could almost be described as a bull hammer. As yet there is no real sign of sustained buying spilling over into the new week but a higher daily low today would be a further positive sign, as would another positive close. There is something of a drift going on for the euro at the moment with recent candlestick bodies all very tight, and this is reflected in the momentum which is drifting. The bulls will point to a lack of conviction in the recent selling and if there begins to be some further bullish signals the buyers could begin to influence more. For now it is as though we are in need of the next catalyst. The hourly chart has taken on a very neutral configuration with a pivot band of initial resistance at $1.1150. A move above $1.1193 would re-open the upside. A close below $1.1050 turns the outlook negative.
The downtrend channel of lower highs and lower lows continues to be a drag lower on cable. The technical configuration on the daily chart is negative, with the bear kiss on the Stochastics a negative development whilst the RSI and MACD lines have also taken a medium term turn for the worse too. I have been saying that between $1.4350/$1.4400 would be a sell-zone and despite a marginal move above on Friday this still seems to have been the case as the bears have hit cable hard on Monday morning. The fear of a Brexit seem to have hit sterling hard today and as the European session has taken over there has been a decisive downside break of the support around $1.4235, which now becomes a basis of resistance today. The move has opened $1.4147 whilst the key January multi-year low at $1.4080 is also potentially under threat. Using rallies as a chance to sell continues to be my strategy. The intraday hourly chart shows the resistance around $1.4400 bolstered now which there is a minor pivot around $1.4310 which is currently acting as resistance this morning. The top of the recent downtrend channel comes in at $1.4450 which is also an old pivot which would be the point at which the bears had lost control.
The decline on the pair in recent sessions has turned the outlook bearish once more. Momentum indicators have taken on a more bearish configuration with Stochastics turning lower and MACD lines in decline, whilst the RSI has further downside potential. The break below the 23.6% Fibonacci retracement of 121.68/110.98 at 113.50 has been a key near term move and means that the early pop to the upside today should be seen as a chance to sell. The intraday hourly chart shows how the move below 113.15 old support has become a near term pivot and with a consistent run of lower highs and lower lows the gains are likely to come under selling pressure again. Hourly momentum has already unwound to a level at which the bears tend to resume and I see 113.15 to 113.50 as a near term sell zone now. I expect further pressure on Friday’s low at 112.30 with subsequent support at 111.70 and then 110.98.
The bulls are once more facing a test. As Dollar/Yen has bounced slightly this morning, in a similar move that reflects an improvement in risk sentiment today, the gold price has also dipped back. Gold is now once again trading around the 23.6% Fibonacci retracement level of $1071/$1261 at $1216. The move has also taken the RSI right back to its 3 month uptrend as the bulls begin to be questioned. I would see a close back below the 23.6% Fib level as a suggestion that the bull run has certainly been put on hold, if not could be over. The hourly RSI could also be a signal too, as a move below 30 would again suggest the bulls have lost control. There is now a key near term band of resistance $1230/$1240. The hourly chart shows the next support is at $1200 before $5 incremental lows back to the key support at $1190.
WTI Oil
It seems as though the recent rally on WTI has fallen over at the old downtrend (which today comes in at $31.25) as the bearish candles of Thursday and Friday have reinstated the bear control. The unwinding move brought the RSI back to 50 and given a chance to sell. With the price falling over from $30.75 on Friday there is now a lower high on the hourly chart which strengthens the resistance at $32.00. The outlook now turns more negative and the bears will be eying today’s bounce as a potential selling opportunity a test of Friday’s low at $29.05 and the double support at $28.70 from the middle of last week. Whilst this support is intact the near term outlook is fairly mixed, but with the trends on the daily chart pulling oil lower, there is once more a bearish bias. A breach of the support at $28.70 would confirm bear control and re-open the key lows once more at $26.05. A move back above $30.75 is needed to improve the near term outlook.
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