Market Overview
The US dollar continues to weaken as the June FOMC looms on the horizon and there is little to really change the recent trend. In front of the key Fed meeting, aside from Retail Sales next Tuesday there is nothing that can really happen to change the negative trend. Treasury yields are falling, the trade weighted dollar is falling, assets that had been previously underperforming the dollar such as gold and silver are now pushing strongly higher. The dollar weakness is also helping to pull Wall Street to multi-month highs, although the fact that this move is not built on improving fundamentals remains a concern for me and the move is somewhat slow and painful (often the precursor to a corrective move). There was mixed news on Chinese inflation overnight with the CPI dropping back to 2.0% (2.3% exp) whilst the PPI improved to -2.8% (-3.3% exp).
Wall Street closed mildly higher again with the S&P 500 up 0.3% but Asian markets have not followed the lead with general weakness and the Nikkei lower by -1.0%. European indices are also taking on more of a cautiously corrective move. Forex markets continue to reflect the dollar weakness although it is fairly controlled. The big mover overnight has been the kiwi which is over 1.5% higher in the wake of the Reserve Bank of New Zealand decision to stand pat on rates. However despite governor Wheeler saying that the RBNZ stands ready to move on rates if require, the kiwi has driven to a 12 month high against the dollar. Gold is broadly flat although silver continues to make ground. The oil price is steady today.
There is little economic data due other than the UK Trade Balance at 0930BST (-£11.2bn exp), whilst US weekly jobless claims are at 1330BST and are expected to remain around the levels of last week.
Chart of the Day – DAX Xetra
I remain concerned that with reduced risk appetite, the DAX continues to underperform and it is not finding help from the rally on oil (due to now component exposure). Technically the outlook is reasonably positive, but the number of bearish candles being formed over the past week or so is mounting. I still see the DAX as being unable to sustain any key upside traction and the resistance at the 50% Fibonacci retracement of 8355/12390 is still overbearing at 10,373.The momentum indicators are configured for the continuation of a neutral and ranging outlook and the gap that is still open at 10,149 needs to be closed (or at least filled). There is still a trend higher since February but this comes in around 9915 (around the 61.8% Fib retracement of 9897) and a retreat towards here could easily be seen in the coming days/weeks. The initial support is added to with a pivot around 10,120 whilst Friday’s Payrolls low at 10,040 is also supportive. The April high at 10,474 remains key.
The euro bulls are back in control as the price looks to continue to drift higher. Initially following the sharp gains on the Non-farm Payrolls, the market had looked to consolidate, however now the market is breaking higher again. The intraday move above $1.1392 yesterday has continued and the way is now open for a move towards the old long term resistance around $1.1465. The momentum indicators suggest that there is further upside potential with the RI only around 60 and Stochastics also in positive configuration. For now I am not expecting a huge move higher from here that would drive a significant breach of support, however the momentum is for now with the bulls. Hourly momentum is with the bulls and there is a good band of near term support now around $1.1320/$1.1330. For now I am backing the bulls, but I am also aware of a potential slight negative divergence forming on hourly indicators (one to watch in the next couple of days maybe).
The choppy outlook on cable continues with very little direction in the past few days. I continue to see this as a medium term range play between the support of the May low at $1.4330 and resistance at $1.4770. Much within that is becoming just noise as there is almost no trend to speak of and the last four completed sessions have been successive bull then bear candles. The momentum indicators reflect this indecisive and messy outlook with the MACD lines almost entirely neutral and the RSI at 50. There is an argument for a marginal bullish bias with the Stochastics mildly rising but there is also a sequence of lower highs with $1.4738, $1.4723 and now $1.4643. The fluctuations are also reflected on the hourly chart where there is a near term pivot at $1.4460 to be considered. The Brexit polls continue to drive sentiment.
I continue to see dollar/yen as a sell into strength as further weakness plays out. The near term reaction low at 106.35 may not have been retested yet but is increasingly likely, as is a test of the 105.52 key May low. The bears remain very much in control with six bearish candles having completed in the past seven sessions. The market is also pulling back from the resistance band 107.50/108.20 which I still see as a good sell-zone. The momentum indicators are all negatively configured with the RSI falling back below 40, the MACD lines falling under neutral and the Stochastics also turning lower again. In addition to trading under all the falling moving averages this all points towards further weakness in the coming days. The hourly chart reflects the bearish configuration of momentum as even the near term rallies are sold into. There is a minor pivot at 107.20 now which protects the 107.90 recent rally high.
Gold
The gold rally resumed yesterday pushing back above the $1248 near term resistance to push into the overhead resistance band within the medium term range. Overhead supply in this range starts to come in around $1260 and it will be interesting to see how the bulls react now. Yesterday’s strong bull candle was a continuation move which arguably implies $1272 from the near term breakout. The bulls would have also been buoyed by the broken 5 week downtrend and the increasingly positive momentum. The RSI confirming the upside break, the bull cross on the MACD lines and the Stochastics rising strongly all point towards further gains. There is immediate resistance now with the 61.8% Fibonacci retracement of $1303.60 to $1199.60 around $1264. Gold is now into overhead congestion but momentum is strong in this move and there is further upside potential. The next resistance comes in around $1282. There is now near term support at $1248 and $1234.50.
WTI Oil
With the US dollar weakness continuing and the EIA oil inventories showing a very slightly larger than expected decline on crude inventories, the oil price is set up for further gains. With a third consecutive positive candle the price has now broken though the key resistance of the October 2015 high at $50.92 and takes oil now to levels not seen since July 2015. The next resistance is $53.90 and then not until $56.50. The caveat is that the RSI is now at its highest since February 2014. This can be taken to either mean a strong trend that is likely to remain supported, or could signal an overbought market and potential retracement. I remain bullish but I would be far happier buying lower down with the RSI unwound, so perhaps a near term correction would be healthy now. The hourly chart reflects clearly strong momentum and that near term corrections continue to be bought into. However with momentum stretched, an intraday correction cannot be ruled out. Near term support is initially at $50.70 and in the band $49.85/$50.35.
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