Market Overview
Although market sentiment is still significantly more positive than a week ago at the height of concerns over Italian political risk, positioning seems to be somewhat more cautious today as traders appear to be keeping their powder dry. Concerns over the path of protectionist policies that the US is taking could resurface as the G7 prepares to meet in Canada this week, whilst there remains a lack of progress in discussions between US and China over trade relations. This is leading to a degree of consolidation across forex and commodities markets this morning.
Forex majors have looked to take on a more risk positive positioning in recent sessions, but for now that more seems to be on hold as markets have stalled a touch. The US 10 year yield has slipped back by almost 2 basis points from yesterday’s high but given the significant bounce of 18 basis points in the past week, this is not a significant move and is more likely to simply be jostling for position. The question is whether the interest rate differentials resume their role as a key driver. The medium term outlook for the dollar continues to be positive and this would be helped by rising US yields.
The spread between Treasuries/JGBs has been pushing out again to help Dollar/Yen higher in somewhat conventional fashion, but EUR/USD is being more driven by risk appetite for now as traders re-position for the settling down of Italian political risk. However, the consolidation could also be coming ahead of a slew of tier one data releases today as the services PMIs come into focus.
Wall Street closed higher last night with the S&P 500 +0.4% at 2747 but much was tech driven and this has struggled to translate through this morning. Asian markets were only mildly positive with the Nikkei +0.3%, whilst European markets look slightly negative in early moves today with the FTSE lower but DAX holding up relatively better.
In forex majors, there is very little movement, with perhaps the Aussie dollar the slight underperformer after what looked to be a slightly dovish monetary policy statement from the Reserve Bank of Australia. Keeping rates on hold at 1.50%, the RBA is still beset by sluggish wage growth and inflation at the lower end of the 2% to 3% range.
With little real direction on markets today, in commodities, gold is also somewhat mixed but there is a degree of support coming in early today for oil. It will be interesting to see if this can be sustained as the recent trend has been for traders to sell into early strength.
Traders will be watching out for the services PMIs to create the volatility throughout today’s session. The final Eurozone Services PMI is at 09:00 BST and is forecast to be confirmed at the flash reading of 53.9 (down from 54.7 last month) whilst the final Eurozone Composite PMI is expected to be 54.1 (which would be down from the 55.1 last month).
The UK Services PMI at 09:30 BST is always a key data point as the sector comprises around 80% of the UK economy. Forecast is expected to show a mild improvement to 53.0 (from 52.8 last month), which although would be a second month of improvement, would still be below the levels seen throughout 2017.
The US ISM Non-Manufacturing is at 15:00 BST and is expected to tick higher to a strong 57.5 (up from 56.8). US JOLTS jobs openings are also at 15:00 BST which are expected to slip to 6.40m (from 6.55m last month). Markets will also be on the lookout for the comments of ECB President Mario Draghi (at 14:00 BST) and Bundesbank’s Jens Weidmann (at 18:30 BST).
Chart of the Day – NZD/USD
There has been a decisive turnaround in sentiment on Kiwi/Dollar in the past week. Having forged support at $0.6850 a few weeks ago, the market has steadily been building the platform for a recovery. Last week’s large bullish engulfing candle signalled the decisive shift in the outlook as the market left a higher low at $0.6880 and formed what will now be a higher high. This has the ingredients for the formation of a new bull run for the near to medium term. This was confirmed on Monday with the next strong bull candle which took the market to a four week high and has looked to leave support in the band $0.6960/$0.6975, now seen as a near term “buy zone”. The momentum indicators are reflecting the improvement with the MACD lines accelerating higher, whilst the RSI is rising above 50. Intraday corrections are now a chance to buy. The positive for the bulls is that the speed of the selling pressure through April/May has left little resistance of note once the mini reaction high at $0.7050 has been cleared. This would re-open the way for a move higher to $0.7150.
EUR/USD
The prospects for a recovery are still decent with the market having broken a five week downtrend and also begun to post positive momentum recovery signals. However the resistance around the old low at $1.1715 remains the barrier to gains and is preventing the bulls from really finding their feet again. For a third consecutive session we see the market testing higher but ultimately unable to break the resistance with a closing breach. There has been a shift in sentiment over the past week that shows through on the hourly chart too, with more positive configuration on momentum indicators. There is also a prospective near term base pattern that is forming, with a decisive move above $1.1750 needed to complete, which would imply around 230 pips of recovery. However the resistance is so far holding firm. Support of Friday’s low at $1.1615 is a higher low above $1.1505, but the bulls need to make the breakout if this is to be a sustained recovery.
Simply breaking a downtrend is not necessarily a signal for a recovery, it may just be that the sellers have relinquished control. There are big questions now being asked of the Cable rally that has been looking to form in recent sessions. A worrying negative candle formed yesterday after what had been strong early session gains. If this move is confirmed by another negative candle today then the recovery will certainly be on hold. Furthermore, the $1.3203 May low will come back into view. Momentum indicators are now reflecting this stuttering rebound as the RSI hovers back around 30 and the MACD/Stochastics lines both level off. The hourly chart shows a small base pattern above $1.3345 is struggling and a move below $1.3250 today would confirm the bears back in control. There is now resistance to factor in between $1.3345/$1.3400.
Another positive candlestick yesterday and the bulls are looking to continue the renewed positive intent built up in recent sessions. There is an old pivot of recent weeks at 110.00 which will be seen as a key gauge now as a decisive close above it would re-open the May highs and old resistance around 111.50. Momentum indicators are certainly ticking higher once more with the MACD lines bottoming, Stochastics rising decisively and the RSI above 50. The hourly chart shows a far more positive near term configuration now with intraday corrections being bought into. There is good support now at 109.40 and any move to unwind the hourly RSI towards 40 seems to be a chance to buy now. Initial resistance is at 110.30.
Gold
The sellers remain in control of the outlook as the market continues to trade under a seven week downtrend. Another negative candlestick formation yesterday shows that the market continues to struggle with the overhead supply of the long term pivot band $1300/$1310. Although there has been no decisive break of the 18 month uptrend, there has been a marginal closing breach, and the market continues to trade below early today. A close below $1290 would be a signal now that the sellers are grasping control again as this would be the lowest close of 2018. Initially the test would be the low at $1281.80 but with momentum indicators reflecting a renewed negative configuration with downside potential. Rallies continue to be seen as a chance to sell, with the seven week downtrend in at $1301 today.
WTI Oil
The sharp decline over the past couple of weeks continues to drag the market lower, however is now breaking decisive medium to longer term bullish arguments. The latest bear candle yesterday’s not only confirmed the breaching of the 9 month uptrend, however also took the market below the rising 89 day moving average (which has acted as an excellent basis of support in recent months) for the first time since September. Momentum indicators are also continuing to sharply deteriorate with the Stochastics into bear territory whilst the MACD lines accelerate lower. The next basis of support comes in at $61.80 and is the next test to the downside. The bear move has also now left behind a band of resistance $65.80/$66.65 which is now a band of overhead supply and sell zone. This is reflected on the hourly chart which now shows a pivot at $66.00 and intraday rallies being sold into.
The momentum in the rebound continued yesterday with a second consecutive bull candle that has broken the 8 day corrective move and once more puts the bulls back in near term control of the medium term consolidation. The move back above last week’s high of 24,715 has now re-opened the resistance of the May high at 25,086. Momentum indicators are ticking higher again, and although there is a very mild positive bias within the medium term configuration, there is little reassurance that the bulls are now ready to embark upon a sustained run of gains. There is a gap yet to be filled at 24,673 and within the consolidation that has built over recent weeks, it is very rare that gaps remain unfilled for anything longer that two or three sessions. So this has to be a near term consideration when looking to chase this market higher. However, there is now key near term resistance at 24,248 which is bolstered by a higher low at 24,352. It would need a closing breakout above 25,086 for the bulls to look in true control of this market which remains very choppy.
"DISCLAIMER: This report does not constitute personal investment advice, nor does it take into account the individual financial circumstances or objectives of the clients who receive it. All information and research produced by Hantec Markets is intended to be general in nature; it does not constitute a recommendation or offer for the purchase or sale of any financial instrument, nor should it be construed as such.
All of the views or suggestions within this report are those solely and exclusively of the author, and accurately reflect his personal views about any and all of the subject instruments and are presented to the best of the author’s knowledge. Any person relying on this report to undertake trading does so entirely at his/her own risk and Hantec Markets does not accept any liability.