Market Overview
Conflicting reports over how President Trump might respond to China have generated swings in sentiment on major markets in recent sessions. Suggestions are now coming out from Trump’s administration that they will not push for retribution over China’s role that could be perceived as having created this global pandemic. It was interesting to see that this change in tack comes after there were significant declines on Wall Street which had occurred after the original suggestion that Trump would push for punishment of some form. In any way, we now see the swing back towards more positive risk sentiment once more. Treasury yields have ticked back higher (albeit marginally), the US dollar is seeing recent gains ebbing away again and equities are rebounding. The Chinese yuan has strengthened against the dollar in the past 24 hours, which tends to be a good proxy for risk appetite. Oil has swung back higher once more as the focus can turn once more to re-opening economies and the positive impact this may have on demand. The Reserve Bank of Australia monetary policy decision was to hold rates at 0.25% as expected, and portrayed a relatively upbeat outlook. The Aussie has benefitted from this and is edging as the best performing major currency today (although the commodity currencies are all performing well).
Wall Street rallied off its lows to close marginally in positive territory with the S&P 500 +0.4% at 2842. US futures are also ticking higher this morning, with the E-mini S&P futures +0.7%. This is lending a positive bias to Asian markets, although China and Japan are still on public holiday. In Europe there is a strong look to early moves, with the FTSE futures +1.5% and DAX futures +1.4%. In forex, there is an interesting consolidation seen across the G4 majors (USD, EUR, GBP, JPY), whilst the commodity currencies are gaining ground on the improved risk. In commodities, we see gold holding once more around the $1700 mark, whilst silver is slipping. Oil is pulling strongly higher with WTI +8% and Brent Crude +5%.
The services PMIs are staggered this week with different countries impacted by Labour Day. Today it is the turn of the UK and US data on the economic calendar. The UK final Services PMI for April is at 0930BST and is expected to be downwardly revised a shade to 12.2 (from the already horrendous 12.3 of the flash reading, 34.5 final March). This would leave the final UK Composite PMI at 12.9 (12.9 flash, 35.0 final March). The focus into the US session will be on the ISM Non-Manufacturing at 1500BST which is expected to drop to 37.5 (from 52.5 in March).
Chart of the Day – Silver
The old saying is that silver is gold on steroids, and the early April rally suggests that this could be true. However, we also see that since topping out at $15.83, silver has been struggling. The move higher is threatening to correct (could this be a warning for gold longs?). This struggle for silver has once more retreated back to a key crossroads. The support of the breakout around $14.70 (the old March high) has seen repeated pressure on support in recent sessions. The level, which is once more under threat this morning, is holding for now, but for how long? There are red warning lights flashing on momentum indicators. A decisive corrective move is already underway already on Stochastics, and now the MACD lines are bear crossing lower. The daily RSI is also leading the price lower, at two week lows. This all points towards momentum leading the price for a break back under $14.70. If this is seen and confirmed on a closing basis, it would be a continuation of the corrective move that formed a lower high (with a bearish engulfing candle) last Thursday at $15.49. A break back below the spike low at $14.48 would form a new corrective trend corrective back towards $13.78 again. The market is already closing decisively clear under the 50% Fibonacci retracement (of $18.93/$11.62) at $15.28, in a move that has opened 38.2% Fib at $14.41. as the next consolidation point. The bulls have got a job on their hands to prevent this market turning decisively corrective now. They need a break above $15.49 to create strong positive momentum now.
Last week’s bull rally put to bed the dollar strength. However, a subsequent failure at $1.1015 has now left EUR/USD with a neutral outlook. There have been some wild swings higher and lower in the last three months. The market is sitting barely -100 pips below where is had been supported throughout much of the latter stages of 2019. All that volatility and nothing to really show for it. What we now see is EUR/USD increasingly trading around a pivot at $1.0890. This has been a strong gauge in the past five or six weeks. As such, the momentum indicators have oscillated around, but once more with little real direction. All yesterday’s strong negative candle has done is retrace a bull move back towards the $1.0890 pivot once more (coincidentally, the 21 day moving average has wavered within 25 pips of the pivot for the past four weeks now). This lack of trend is reflected on the hourly chart momentum indicators, whilst yesterday’s pullback has settled a shade above $1.0890 this morning. Below the pivot, there is initial support at $1.0810, whilst near term resistance is building $1.0950/$1.0970.
Cable is another market which has settled very much into a neutral medium term pattern. A trading range between the April extremes of support at $1.2160 and resistance at $1.2645. A pivot has developed within this range, in a 20 pip band between $1.2385/$1.2405 which is broadly the mid-point of the range. We see holding patterns forming on momentum, with the RSI in a tight oscillation between 45/59. Two negative candles book-ending the weekend have solidified the range and pushed the Cable bulls back once more. There is still the argument for a very slight positive bias within the range (a higher low at $1.2245 and recent strong pressure on the $1.2645 resistance). Trading above the pivot at $1.2405 also plays into this. However, this remains a market lacking decisive traction that can last for longer than about a week or so without seeing significant retracement. Edging higher once more this morning, the bulls need to overcome $1.2520 to drive towards the highs once more.
We continue to see Dollar/Yen struggling for real traction. The negative bias of the drift lower within the four week downtrend continues to broadly weigh on the pair, but time and again over recent sessions the 50% Fibonacci retracement (of 112.20/101.20) at 106.70 has been the basis of support. For the past five sessions there have been intraday tests of the support only for the market to close higher. Today’s early slip below 106.70 is again yet to find the traction for a decisive break lower. However, the four week downtrend is drawing in now and falls today at 107.20 and is certainly weighing on the outlook too. There is still the mild negative bias on momentum indicators which confirmed the price movement and with this, our preferred bias is for a downside break in due course. It is just that this is a market that lacks conviction. A tentative swing higher on Stochastics is falling over once more and we continue to view intraday rallies as a chance to sell for this eventual move lower. The hourly chart reflects the mild negative bias but also a similar lack of conviction on momentum indicators. There is still overhead supply of resistance around 107.25/107.35 and now around 106.90/107.00. We favour short positions and using rallies as a chance to sell for pressure on the recent intraday lows at 106.35. Above 107.60 is needed to change the outlook.
Gold
The near term outlook on gold has become increasingly neutral in recent sessions. The negative implications of last week’s break below the $1702 pivot have become far less assertive as the market has since recovered back to the neutrality of the pivot again. Gold has lost its near to medium term trending outlook as the market has built a trading range between $1660/$1746. The $1702 is almost bang in the middle of this range. Momentum indicators still retain a legacy of the March to April strong rally, but are increasingly mixed. The RSI is moderating towards 50, whilst MACD lines fall and Stochastics turn up around neutral. We still see gold as a buy into weakness and our medium to longer term outlook is for the price to push beyond the recent $1746 highs. For the near term though the outlook is more clouded. There is good support $1640/$1660 to hold up corrections, whilst trading above the 23.6% Fibonacci retracement (of $1450/$1746) at $1677 adds weigh to a positive bias. For now though, the bulls have been neutralised. Above $1721 (confirmed on a closing basis) would drive the next bull leg.
Brent Crude Oil
Sentiment on oil appears to have shifted in the last week. Suddenly we see weakness being bought into and seen as an opportunity. Yesterday was a prime example of this. Friday’s candle (which was negative candlestick) could have been a signal to take profits, but instead, the market bullishly “filled” a gap at $25.75 to then push on higher into the close. This leaves support at $25.50, with the market also using the old downtrend (today at $24,70) as the basis of support. Momentum indicators are maintaining their near term improvement configuration, with Stochastics and MACD lines still pulling higher. It is also interesting to see the RSI trying to push through the 50 area (around where other attempted rallies have all faltered). So the prospect that this could still be a key recovery on oil is still open. The bulls need to push the market through $29.00 resistance on a closing basis to really suggest recovery momentum can continue. This would then leave a much more significant rally open towards $36.40, the April rebound high.
The bulls fought back into the close yesterday to close very slightly positive on the session and with a positive candlestick too. This has prevented a third consecutive negative close, which would have been the first time since the recovery that this would have happened. The move has left support around 23,360 and with futures positive this morning, the bulls will hope that this is the early stages of another upswing. The concern that we have is that this is a recovery which is shallowing with each breach of an uptrend. Is this a recovery on borrowed time? With the momentum indicators seeming to top out on a medium term basis, this does not bode well for the bulls. The Stochastics have accelerated lower on this move, whilst MACD lines are faltering around neutral as is the RSI. The bulls will need to work really hard to prevent this from being the early stages of a topping phase. The support of the higher low around 22,940 will be crucial now. A break above 24,765 in the coming sessions will also be achieved. Initially, there is a downside gap at 24,186 which needs to be “closed” for the bulls to gain real confidence again.
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