Market Overview
Market sentiment has been hit with a safe haven bias as terrorism has struck again. Last night at a concert in Manchester for Ariana Grande there was an attack by a lone bombing incident in which more than twenty people are known to have been killed and several more injured. Any terrorist attack is horrific but the fact that this was a concert that would have been mainly populated by children and teenagers makes the attack even more senseless and barbaric.
Financial markets have become less and less reactive to one-off terrorist incidents in recent years, however there has still been a mild safe haven preference in response. Sterling has dropped slightly, whilst gold and the yen have been stronger. The FTSE 100 is mixed in early moves, however with the international focus of the index perhaps it is better to gauge the impact through the moves on the more domestic FTSE 250 (mid-caps) today. In other news, the Eurogroup finance ministers failed to reach an agreement with the IMF over debt relief for Greece. Despite the uncertainty, markets do not seem to be overly concerned yet, with a deal supposedly close and another meeting scheduled for June.
Wall Street was positive into the close last night with the S&P 500 +0.5% at 2394, however the safe haven shift overnight (including a stronger yen) has hit the Nikkei which was down -0.3%. European markets are mixed in early moves. In Forex trading, there has been a slight move out of the euro and into the safe haven of the yen which is the main outperformer today. The dollar is trading mixed against the Forex majors whilst sterling is the underperformer. Gold is mildly higher, whilst oil has just hit the buffers a touch this morning, trading off by just under half a percent.
The Flash PMIs come into focus today with manufacturing and services survey data for the Eurozone and US. The eurozone flash manufacturing is at 09:00 BST which is expected to tick down slightly to a still healthy 56.5 (from 56.7) whilst the eurozone flash services PMI is expected to mildly tick up to 56.5 (from 56.4). The German Ifo Business Climate is at 09:00 BST and is expected to improve slightly to 113.1 (from 112.9). The US data begins with the flash PMIs at 14:45 BST with flash manufacturing PMI expected to improve to 53.2 (from 52.8) whilst flash services PMI is expected to improve to 53.3 (from 53.1). New Home Sales are at 15:00 BST and are expected to dip back slightly to 611,000 from 621,000 but anything above 600,000 would still be a strong number. The Richmond Fed manufacturing index will be watched at 15:00 BST especially given the huge Philly Fed reading from last week, with a reading of +15 (down from +20 exp). There are also two FOMC members speaking today, Neel Kashkari (dovish) and Jim Harker (hawk), with any change from their recent lean potentially set to move markets.
Chart of the Day – EUR/GBP
This pair has been difficult to call in the past few months as it has continued to trade in a medium term range. Every time it has looked as though a decisive move was forming within the range, a reversal has been seen. However with the euro bulls having taken control in the last couple of weeks there has been a another decisive shift once more within the range. The rebound has now pushed above what had become a pivot over the past few months with a range £0.8590/£0.8600 which had previously been holding the market back last week. With yesterday’s strong bull candle, in clearing this pivot that has been in place since mid-February, the market is opening the resistance form the highs of March (£0.8787) and January (£0.8853).
There has also been a breach of a seven month downtrend on a closing basis yesterday and seemingly confirmed today. The momentum indicators are increasingly strong with the RSI into the mid-60s, the MACD lines rising above neutral and the Stochastics also positively correlated. This looks to be a move that the bulls are backing. Last week’s breakout above £0.8530 completed a near tem base pattern implying between 150/210 pips of upside meaning a target range of £0.8680/£0.8740. This recovery target has the market testing the next key resistance of £0.8735. Corrections are increasingly being bought into, with the £0.8600 pivot now a basis of support, whilst £0.8530 is now key.
The euro continues to steadily strengthen. Having used the long term pivot at $1.1100 as a basis of support the bulls are once more pushing higher. The next resistance is the spike high from 9th November at $1.1300, whilst the target from the big base pattern is at $1.1350. Momentum remains strongly configured and it would appear that the bulls are increasingly comfortable with the RSI stretched over 70 now. This reflects the strength of the momentum in this recent leg higher.
Daily MACD and Stochastics both remain strongly configured too. The hourly chart shows how intraday corrections continue to be seen as a chance to buy, with any moves to unwind the positive momentum being lept upon by the bulls. Yesterday’s $1.1160 reaction low came around the previous breakout at $1.1170 meaning there is a near term band of support strength at $1.1160/$1.1170. The hourly RSI around 40/50 is now a buying opportunity.
Sterling has had reaction lower following the terrorist attack last night in Manchester. We will know more this morning as European traders take control, but the initial response means that sterling is an underperformer today. However, as yet, the broadly positive near to medium term bias to Cable remains intact. This comes with a string of higher lows and continued pressure on the $13000 to $1.3050 resistance band. Furthermore, momentum indicators are positively configured still. However, yesterday’s candle was mildly corrective and another dip to the downside today could begin to question the slight positive bias.
The support around $1.2890 from Thursday’s low will be the initial gauge for the bulls. The hourly chart reflects a slightly positive outlook but the bulls have just lost a little control in the past day or so and having broken the support at $1.2965 this puts on hold the expectation of a push above the increasing resistance at $1.3050. A breach of support at $1.2840 would re-open the range lows.
The market seems to be settling down following the volatility of last week, however the resistance band of the old pivot around 111.60 remains a key factor. The rebound has failed to breach the pivot in the past few days and now with a slight safe haven bias to trading today the price has started to drop back again.
Momentum indicators are tailing off again and the bearish candles are beginning to mount once more. The hourly chart shows how an old pivot at 110.85 has been holding up the price in the past day or so, and if that breaks it would open the way back towards last week’s low at 110.20. The importance of the 111.60 resistance continues to grow.
The gold bulls seem to be getting back their control of the market after the wobble last Thursday. The resistance around $1261 was pressured in yesterday’s session and is being breached today. The bulls will be looking for a close above the resistance to open the way towards a test of the April high around $1295. Having showed signs of previously stalling, the bull candles of Friday and Monday have now allowed the momentum indicators to resume their positive configuration with the Stochastics and MACD lines rising and RSI holding above 50.
The hourly chart shows the uptrend which is now into its ninth day continues to pull the market higher as corrections are seen as a chance to buy. Yesterday’s low at $1251.20 is an initial basis of support, whilst the reaction low at $1245.40 is now a key near term support. The bulls will want to break through the recent rally high of $1265 to sustain the bull momentum today.
WTI Oil
Having closed through the resistance at $50.20 on Friday, the oil price continues to make gains in front of the OPEC meeting. The market subsequently posted another strong bull candle yesterday and pushed through the latest resistance at $50.70 to open up the next barrier at $51.22. Although an initial test of $51.22 has been rebuffed, given that there has been continued improvement in momentum in recent sessions the outlook remains positive an as yet there is little reason not to expect further recovery gains. The RSI above 60 is a positive development and this would suggested there is still further potential to extend the momentum towards 70, as was seen with the April rally.
The hourly chart shows previous breakouts becoming a basis of support with $50.20 as initial support above the $49.50/$49.60 pivot. Continue to see corrections as a chance to buy. Above $51.22 opens $53.75.
The bulls continue to respond well in the wake of the spike lower last Wednesday. The break back above resistance at 20,887 which was another old pivot and support that is now overhead supply, has not yet been confirmed, however the bulls continue to test higher. This comes as momentum indicators bottom and look to pick up. The hourly chart does show that the Dow is now trading around something of a crossroads.
The overstretched bearish hourly momentum has now unwound with the RSI around 60 and MACD lines around neutral. As a consolidation set in later in yesterday’s session, a failure of the rebound around this old support at 20,887 would begin to pressure the bulls once more. Although the market has moved to all but close the gap down from 20,933, whilst the gap remains open the bulls will be concerned. However, equally, the pivot at 20,780 has now become supportive and whilst the support holds it will confidence again in the recovery.
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