Market Overview
Despite still being incredibly oversold as yet there seems to be little sign of any imminent technical rally for the dollar. Selling pressure has been more restricted in recent days as the discussions over fiscal support in Congress have continued. However, as House Speaker Nancy Pelosi has suggested that a deal is unlikely this week, we have seen the dollar faltering once more. It comes as Treasury yields have resumed their path lower. The US 10 year yield jagged lower last week around the Fed decision, and has now dropped under 54 basis points (the April low) to now sit at its lowest since the spike low of early March (which hit 0.32%). The key beneficiaries of a weaker dollar and falling yields has come in the precious metals space. Silver1 has been launched higher once more and gold is now above $2000 for the first time ever. With yields continuing to fall and the dollar pressured, the path higher for gold remains clear. Agreement over the next phase of fiscal support in the US could be the trigger point for a reversal in the precious metals, but whilst Congress dithers, there is little resistance ahead.
Wall Street closed higher last night, with the S&P 500 +0.4% at 3306, whilst US futures are similarly higher again today (E-mini S&Ps +0.3%). Despite this there was a slightly mixed look to Asian markets, with the Nikkei -0.3% and Shanghai Composite all but flat. In European markets, the outlook is looking positive today, with FTSE futures and DAX futures both +0.6% in early moves. In forex, USD is again edging lower, with underperformance across the major pairs. AUD and NZD are performing well. In commodities, we see silver another +2% higher, whilst gold is around 0.7% higher. After two days of decent gains, oil is once more edging higher by around +0.2%.
It is a day of services PMIs for July today on the economic calendar. The Eurozone final Services PMI is at 0900BST and is expected to be unrevised at 55.1 (from the flash reading of 55.1, up from 48.3 final June). The Eurozone final Composite PMI is expected to be unrevised at 54.8 (54.8 flash July, up from 48.5 final June), but considering the upside surprise in the manufacturing data there is another risk of a positive surprise here. The UK final Services PMI is at 0930BST and is expected to be unrevised at 56.6 (flash July 56.6, up from 47.1 final June). The UK final Composite PMI is expected to be unrevised at 57.1 (flash July 57.1, final June at 47.7). Into the US session, the ADP Employment change for July is often seen as a lead for Friday’s payrolls, with an expectation of 1.500m (down from 2.369m in June). The US International Trade Balance is at 1330BST and is expected to see the deficit narrow slightly to -$50.1bn in June (from -$54.6bn in May). The ISM Non-manufacturing is at 1500BNST and is expected to slip slightly to 55.0 (from 57.1 in June). EIA Crude Oil Inventories are at 1530BST and are expected to show a drawdown of 3.3m barrels (after a huge drawdown of -10.6m barrels last week).
There is also a Fed speaker to keep an eye out for, with the FOMC’s Loretta Mester (voter, leans hawkish) at 2200BST.
Chart of the Day – GBP/JPY
It is interesting that a sterling rally is beginning to hit the buffers on Cable, but this also comes where Sterling/Yen is hitting important resistance. On GBP/JPY the trading band between 138.85/139.75 was an old range support in Q4 2019 that restricted the June rally. Now we see this latest rally into the band of resistance but again beginning to struggle. Yesterday’s negative candle was the second successive close lower, with a session failure at the 138.85 resistance but also comes at a point where the RSI is tailing off over 70 (again similar to the June rally high). It is still early days though in calling for a correction. The Stochastics are crossing lower, but would only really confirm a corrective signal on a move into the low 60s, whilst MACD lines are still rising. Essentially, with the acceleration higher over the past week now faltering, this could be the latest set up for a slide back towards the uptrend that has been in place since March (comes in around 134.80 today). A move below initial support at 137.70 would begin to see the retracement set in at least towards the mini breakout 136.60. The bulls will still have designs on breaking through the ceiling of resistance though. A close above 139.75 would be the break to open the upside for the next key resistance band at 141.00. The caveat is the market consolidating at a key crossroads ahead of the Bank of England on Thursday.
After a couple of sessions of attempted dollar rally weighed on EUR/USD, the path to upside resumed during yesterday’s US session. There had been the threat of a near term topping pattern but support around 1.1700 was used as a springboard for a decisive positive candle into the close. This helps to maintain the market in what is now essentially a mini consolidation range of just over 200 pips, between 1.1695/1.1910. Momentum is still stretched but is not yet suggesting any sell (or profit-taking) signals. We continue to consider the potential that this is a very similar set up forming to the early June consolidation, where an overbought bull run consolidated for the next four weeks without really seeing any real correction. How the market responds around the support now around 1.1700 will be important in the coming days/weeks. The hourly chart shows moving decisively back above 1.1800 helps to maintain a sense of bull control in this consolidation.
As with several of the dollar major pairs, consolidation has set in recently. Such is the weakness of the dollar in the past few weeks, that despite being significantly oversold, there is still little sustainable sign of a retracement. As such, Cable is consolidating the upside move but holding at bay any profit-taking. We now see something of an indecisive market developing, with three successive small-bodied candlesticks. An initial breach of 1.3000 did not hold and the market rebounded off 1.2980. Once more, this morning, we see the ranging continue as yesterday’s rebound begins to roll over. The hourly chart shows resistance developing around 1.3110 and near term ranging configuration developing on hourly signals (hourly RSI falling over around 60). A move below 1.3040 put pressure back on 1.2980/1.3000 whilst above 1.3110 opens a test of the 1.3170 resistance again.
The rally on Dollar/Yen has been struggling to hold its ground in the past couple of sessions, and it is interesting to see the move faltering around the overhead supply between 106.00/106.60. Monday’s candlestick had a sense of bull failure with it, especially now followed by yesterday’s mildly negative session. We continue to view this move as being a technical rally into resistance before the next selling phase emerges. The hourly chart shows 105.55 (Monday’s low) has all but held overnight, but a decisive move back below would effectively re-engage the negative pressure. Below 105.30 would re-open 104.17 once more. On a near term basis 105.90/106.00 is becoming an area of pivot resistance now as rallies increasingly struggle around the old key 106.00 floor. We favour a test of the 104.17 low in due course.
After almost a week of hanging in consolidation, the bulls just took off once more yesterday. A switch was flipped and the market burst through $1984 resistance to surge higher. A big bullish candle has taken gold way clear of $2000 and the move is not stopping today either. Despite the RSI way extended into the high 80s and the highest it has ever been, the bulls are just not stopping in this incredible run higher. With blue sky overhead, it is difficult to say where this gold bull run will end, only that it keeps going. Exhaustion signals are also not forthcoming either yet. We note that other strong bull runs over previous months have tended to culminate in an exhaustion move, and a bull failure candlestick. Thus far, there have been no failure moves in this run. So with the bulls so strong, what is to stop them? The hourly chart shows an overnight support at $2009, whilst the old $2000 resistance is now a basis of support, and $1980/$1984 being the latest breakout support now. This incredible train continues to roll on.
Are we starting to see some traction for the oil bulls building once more? With two decisive positive candlesticks in a row, the market is looking higher towards the $44.90 July high. With growing bullish intent, could Brent Crude be about to finally close the key March gap from $45.20? There has been a notable positive swing on momentum in recent sessions, with Stochastics beginning to pull decisively higher for the first time in a month and RSI rising back into the 60s. We noted yesterday that the Bollinger Bands were at their most narrow since March 2017, a development which will tend to be seen prior to a decisive breakout. A close above $44.90 would be positive, but a close above $45.20 would be a strong signal now. The hourly chart shows support now $42.90/$43.25 as intraday weakness is now bought into. The support at $41.30 is increasingly important.
There has been a definite shift in the past couple of sessions, with the bulls regaining control. Closing back above the 26,610 pivot on Monday, the market then used this as a springboard for another decisive positive candlestick yesterday. The bulls will now very much be eyeing the 27,070 resistance of the July high. A closing breach of 27,070 opens the key June high of 27,580. Momentum indicators are swinging positively, with the bull cross on Stochastics, RSI into the high 50s and even MACD lines looking to turn higher again. Weakness is once more a chance to buy, with the pivot around 26,610 a basis of support now. There is a gap still open at 26,440 which is a minor downside risk, whilst the importance of support at 25,990 is growing.
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