Market Overview
After the strong risk positive reaction to the positive Trump/Xi meeting at the G20, markets are beginning to look a bit more cautious once more. The reason being further talk of US tariffs, this time turning to the EU. Chatter of the US imposing tariffs on $4bn of EU goods now, has tempered the reaction from news of the US and China negotiations already being underway. This gives a degree of support again for some of the classic safer havens, with the yen and gold finding support. Gold has been especially strong in recent weeks, but saw a sharp negative reaction to the risk positive G20.
The more the talk of tariffs continues, this will help to cushion a corrective unwind on gold. Equities had a big boost yesterday, but there was a notable drift back on Wall Street into the close. Although futures are ticking for a positive open today, it will be interesting to see just how sustainable all these breakouts (on the likes of DAX and S&P 500) can be.
The key question for traders to evaluate is how the development of the US protectionist policies on trade feed into the global economy and then into Fed monetary policy. Treasury yields held up relatively well compared to a sharp fall on Bund yields yesterday, with rate differentials driving EUR/USD lower. If this decline on Bund yields continues, then this fall on EUR/USD will have further to go.
The Reserve Bank of Australia cut rates for a second month in a row to 1.00% (25bps cut to +1.00% exp, +1.25% last). The Aussie has reacted fairly positively, but any talk of further cuts from RBA Governor Lowe will surely weigh on the Aussie going forward.
Wall Street closed higher but well off the session highs yesterday with the S&P 500 +0.8% at 2964. Although US futures ticking mildly higher today +0.1%, Asian markets have been mixed overnight (Nikkei +0.1%, Shanghai Composite -0.1%). European markets are taking a slightly positive open with FTSE futures +0.3% and DAX futures +0.2% higher. In forex, there is very much of a consolidation across majors, with little real direction on USD, whilst despite the rate cut from the RBA the surprise outperformer is AUD. In commodities, the sharp sell-off on gold yesterday is rebounding by a few bucks today, whilst oil is consolidating again. Yesterday’s agreement by OPEC to extend production cuts by another nine months needs to also be agreed by OPEC+ today (i.e it needs Russia to give it the thumbs up).
There is little by way of key economic data on the calendar today. The UK Construction PMI for June is at 0930BST and is expected to improve marginally to 49.3 (from 48.6 in May). The UK construction sector comprises only around 7% of the economy, but having seen the PMI drop to a 14 month low last month it will be an interesting gauge for economic confidence as Brexit drags on.
Outside the data points, the OPEC bi-annual meetings continue in Vienna today with the OPEC+ meeting which includes other major oil producing nations such as Russia. The communique will again be of interest. Also be on the lookout for the comments of FOMC permanent voting member of the FOMC, John Williams (NYSE:WMB) (leans hawkish) who is speaking at 11:35 BST.
Chart of the Day – USD/CAD
Is another key low forming? The pair has been in retreat for the past few weeks, and has been testing the key January low at 1.3065 in the past two sessions. However, the support has held and a bullish candle yesterday from the low opens the prospect of a recovery. A decisive close higher from 1.3060 seems to be signalling a near term turnaround. It is early days for this rebound, but daily signals are beginning to turn higher from interesting levels. The move comes with the RSI hitting 30 and picking up yesterday. Whilst the market continues to hold on to support around 1.3065, the bulls will take a rebound from 30 on RSI as a signal to buy from the low of a medium term range. Turning points with the RSI around 30 tend to come with the market pulling a rally. With the market also closing that past couple of sessions close to the day high, the Stochastics are looking to improve too, close to a bull cross. The hourly chart shows much better configuration on momentum now, however needs a move above 1.3150 resistance to suggest the bulls are making ground. There is plenty of room for a recovery to the medium term pivot resistance band between.1.3225/1.3250.
EUR/USD
A huge bear candle has really shifted the outlook once more for EUR/USD. The key is now how the euro bulls react in the coming days. Breaching support at $1.1350 in such a decisive fashion has now put pressure on the old breakout at $1.1265. Whilst this is not the absolute key support in this recovery (that is the mid-June low at $1.1180) it is a good gauge for how the market is feeling about the continued recovery. For now the run of higher lows and higher highs is still intact and a deterioration in momentum is just of a near term nature. However, if the RSI drops below 45, along with a decisive MACD bear cross, then the outlook would be deteriorating. A near term correction is reflected on the hourly chart, with hourly RSI failing around 50 and MACD lines under neutral implying selling into strength. Reaction to resistance around $1.1300 and now $1.1350 will tell a lot as to how the market is thinking now. A close below $1.1265 would open $1.1180.
A closing break below $1.2650 has put a negative bias back into the recent phase of consolidation again. This continues a drift run of candles lower with a lower high at $1.2735 under the key resistance at $1.2760/85. Momentum indicators are drifting lower, with the RSI into the low 40s, Stochastics lower and MACD lines plateauing, but these are more of a negative bias rather than precipitous bearishness. Losing $1.2650 effectively opens the recent low at $1.2505. However, given the sharp losses on EUR yesterday, it is interesting to see this move lower on Cable is far more contained. The hourly chart indicators reflect a negative bias but are actually holding up reasonably well. This all suggests not being overly negative in positioning on Cable. There is resistance of overhead supply between $1.2650/$1.2670 which will be seen as a near term gauge. If this can be overcome then the bulls will be looking better positioned again. Initial support at an old pivot at $1.2570.
A decisive break of the nine week downtrend channel and a close above the falling 21 day moving average marks a significant shift in sentiment on Dollar/Yen. These two indicators of a negative near to medium term trend, now opens the prospect of a rebound. However there is more that needs to be seen. Daily RSI needs to push into the 50s (which would be a two month high), whilst MACD and Stochastics need to continue to recoveries from their crosses higher. Primarily though, the price needs to push for a decisive close above 108.50 (which is an old key pivot) with an intraday move above the June high of 108.80. If this were to be achieved then it would constitute the formation of a new medium term trend higher. The higher low at 107.55 needs to develop into another higher low, preferably above the 21 day moving average (now bottoming around 108.10) and the bulls need to continue to build. The hourly chart shows there is a mini band of support 107.90/108.15 now as a near term buy zone for the recovery.
Gold
The has been a real shift in emphasis on gold with the break under $1400. Having been a confluence of support around here (23.6% Fibonacci retracement, last week’s low and psychological), such a decisive downside break comes as a key move. The correction is gathering momentum now. The Stochastics are finding traction in their bear cross lower. If the RSI moves below 60 and MACD complete their own bear cross it would really add conviction to the move. Having broken so decisively below the $1400 previous basis of support, this level now becomes a key basis of resistance for the bulls. Despite slipping to here is now what has the potential to be a “breakaway gap” from Friday’s low at $1406 meaning that between $1400/$1406 is a near term sell zone for the bounce. Today’s move higher looks to be a selling opportunity. There is a lower high in at $1424 and we expect another in due course as the retracement of the big May/June bull run does not look done quite yet. Moving clear of 23.6% Fib opens 38.2% Fib at $1374, whilst the first real support does not come in until around $1348. A failure around $1400 would re-open the correction now.
WTI Oil
Even though the OPEC meeting looks to have delivered some good news for the oil price (extending the production cuts by nine months), there has been a continuation of the developing consolidation. Although the price closed higher on the session yesterday, a slight negative candlestick was formed. Interestingly, the past four sessions have all played out around the consolidation point of the 50% Fibonacci retracement (at $59.60). There is now a near term range forming to look for direction of the next break. Support at $57.75 comes a shade under an old pivot at $58.00, whilst yesterday’s intraday high at $60.30 just adds to the overhead resistance area around the 50% Fib and $60 which is another old pivot. Momentum is still positively configured for recovery.
Despite global markets moving strongly higher in unison yesterday, it was not an unambiguously strong session on Wall Street. The Dow closed higher on the day but formed a mildly negative candlestick (given the close of 90 ticks below the open). However, there was a positive signal with a bullish filling of the opening gap higher. The bulls are still in control of the move higher of the past few weeks and a test of the all-time high at 26,951 is still a preferred position. However, there is still a tentative feel to the market. Momentum is strong but also a touch cautious. The RSI is holding in the 60s and Stochastics have turned higher again, but the MACD lines are converging. Also the market did not push on yesterday, it shied away from the resistance between 26,907 (June high) and 26,951 (all-time high). The position is still positive on the hourly chart and whilst the support of a higher low is in place at 26,616 the outlook will remain positive. Just cautiously positive though. Support at 26,465 is now key.
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