Market Overview
An incredible surprise move by UK Prime Minister Theresa May to propose a general election on 8th June has significantly impacted forex markets. May’s government will look for confirmation of the election in a vote in parliament today. Sterling strengthened significantly to levels not seen since October against the US dollar, at one stage adding 350 pips.
This has further knocked the dollar which has been under pressure in any case. With the 10 year Treasury yield falling to a five month low, the US trade weighted dollar continues to correct. The move has driven EUR/USD to break resistance and dollar/yen to further breach support.
The dollar is under pressure from several angles at the moment, as US Treasuries are being bought as not only a safe haven in light of expanding concern over Syria and North Korea, but also as traders unwind expectations of the “Trump Trade”. However, the dollar is a touch higher this morning as beleaguered bulls bounce back off the ropes, but this is still likely to be seen as an unwinding move that will give another chance to sell.
Wall Street remains under corrective pressure after Goldman Sachs (NYSE:GS) missed earnings estimates with their results, driving the S&P 500 -0.3%, whilst Asian markets were mixed to lower overnight (Nikkei -0.1%). European markets are following yesterday’s sharp losses and are mixed to slightly lower, whilst the performance of FTSE 100 will again be in focus as further reaction to the call for the snap election.
In forex markets, the dollar is looking to claw back some lost ground early today with an unwinding rally across the major pairs. Gold is around $5 lower, whilst oil continues to correct.
Traders will be looking out for the final reading of Eurozone CPI at 10:00BST which is expected to be confirmed at +1.5% which was the flash reading and down from last month’s +2.0%, with the core inflation confirmed at +0.7%.
The EIA oil inventories are at 15:30BST with crude oil stocks expected to show another drawdown of -1.5m barrels, whilst the distillates are expected to be -1.0m and the gasoline stocks are expected to also again to drawdown by 2.0m barrels. Quarter on quarter New Zealand CPI is at 23:45BST and is expected to pick up to +0.8% (from last quarter’s +0.4%)
Chart of the Day – USD/CHF
The market has turned corrective again as the dollar has weakened. The formation of a head and shoulders top pattern completed on a close below parity and points towards further downside. For the past couple of weeks, the market has been supported just above parity, consistently finding a low around 1.0050/1.0010, however yesterday’s decisive and strong bear candle closed the market well below 1.0000 and now implies a target of around 100 pips to 0.9905.
The daily RSI confirms the downside break with a move to a three week low under 50, whilst the Stochastics have confirmed a sell signal and the MACD lines have crossed lower. Historically there has been a pivot at 0.9950 but a close below there would open the move to the implied target.
It was therefore interesting to see yesterday’s low just above this pivot and subsequently following a rebound early today. Can the bulls reclaim control? They would need to close back above parity which is also the marabuzo line of yesterday’s strong bear candle. The hourly chart shows parity and the neckline will be a basis of resistance for this pullback rally today between 1.0000/1.0010, whilst the corrective move will remain in play whilst the resistance at 1.0052 is intact.
EUR/USD
A huge turnaround in sentiment against the dollar has changed the outlook, with the bulls far more positive. A strong bull candle drove the pair almost 100 pips higher, but more importantly the move was through not only the near term resistance at $1.0690 but also the pivot around $1.0710. The momentum indicators have taken sharp improvement with the Stochastics rising strongly, the MACD lines crossing higher and the RSI above 50.
The hourly chart shows a band of 30 pips of support between $1.0680/$1.0710 that the bulls will be referencing today as the market has just begun to retrace a touch. However the hourly momentum indicators are just unwinding a little stretched upside momentum and a bull signal in this band of support would be a positive move. Resistance is yesterday’s high at $1.0735, before minor resistance at $1.0760. The main resistance is around $1.0850 which is an old long term pivot.
In the wake of a surprise call for a UK general election, sterling has shot higher. Cable has subsequently posted a huge strong bull candle that added 275 pips on the day. However, also importantly, the market drove an upside break through huge overhead resistance at $1.2775 to close at the highest level since early October 2016. This is a strong bull move which now completely changes the technical outlook.
The range trade has been broken and with the rush to close short positions there could be a phase of a bulls run. Momentum indicators are strengthening with the Stochastics advancing into bull territory and the MACD lines also improving. The RSI is now at 70 and this will be an interesting moment to see the bull reaction.
The daily chart shows the breakout at $1.2775 is supportive but there is also further support at $1.2600/$1.2700 and dips are now likely to be seen as a chance to buy. With the market consolidating early today, yesterday’s high at $1.2904 is resistance. Subsequent resistance is $1.3000 and $1.3060.
USD/JPY
There is still a corrective look to the chart with the market continuing to fall away. Having broken clear of the 50% Fibonacci retracement at 109.35, the way is now open for further retracement back to 61.8% at 107.17. The run of lower highs suggests that rallies continue to be sold into and the yen remains a stronger play. However, there is a slight caveat, with the bull hammer from Monday that still holds as support at 108.11, however yesterday’s follow up candle was bearish and suggests that the bulls are not ready to take any real control.
Momentum indicators are strongly negatively configured and continue to suggest that any intraday rebound will be seen as a chance to sell. Yesterday’s high at 109.20 is initial resistance but there is resistance with the 50% Fib at 109.35 and strong overhead supply at 110.09. A move towards 107.60 implied from the big top pattern is still on.
Gold
The gold bulls are consolidating the upside break once more. Over the past few months it has been a consistent feature that the bull moves are consolidated, perhaps even corrected, before the buyers regain control of the market once more.
The breakout above $1260 reopened the old pivot around $1300, a level that is once more being eyed. The moves over the past few sessions have been somewhat uncertain, with a mix of positive and negative candles, however the momentum remains strong with the recovery. RSI has just unwound a touch back below 70 but Stochastics and MACD lines remain strong and the suggestion is that corrections are a chance to buy. Initial support is at $1279 with the breakout at $1261/$1264 also supportive. The bulls will be eying a consistent move above $1300, with the resistance above $1307 not coming until $1337.
WTI Oil
As the trend that formed towards the end of March has rolled over, the market has started to threaten a correction. A third negative candle in the past four sessions has posted resistance at $53.75 whilst there has now been a sequence of three sessions of lower highs. The daily momentum indicators may have not yet given any outright corrective signals but there has been a deterioration that now threatens to embark on a reversal.
The hourly chart shows a small head and shoulders top pattern completed below $52.70 which implies around $51.65 so there is room for further pullback, whilst the $51.50 support could also be tested. If there is another bear candle formation again today the prospect of a retreat into the support between $50.70/$51.22 will grow as the market looks to continue the medium term range. The hourly hart shows a move above yesterday’s high at $52.85 would improve the outlook again, whilst above $53.20 would put the near term bulls back in control.
The market remains in its corrective downtrend which has been forming over the past six weeks. As the correction has taken hold the consolidation in the past couple of weeks suggests that a retest of the 20,413 support is increasingly likely.
This is also around the 23.6% Fibonacci retracement of the 17,884/21,169 bull run. The concern for the bulls would be that as this trend lower has developed, the momentum has deteriorated with the RSI and Stochastics consistently failing below 50 and the MACD lines now below neutral. This all suggests that rallies are increasingly being viewed as a chance to sell. The resistance formed on Monday at 20,644 is now key. Yesterday’s intraday high is initial resistance at 20,600. Friday’s low at 20,453 is initially supportive.
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