Market Overview
Janet Yellen may have helped to settle the nerves for the dollar bulls, although in stopping short of taking about when a rate hike may be, there has been no notable unwinding of the recent weakness. In a speech yesterday she urged not to over-react to the disappointment of the Non-farm Payrolls last Friday and that whilst the report was concerning it is important not to over-react. Well, over-reaction is something that these markets do very well, given the obsession there is with the timing of the next rate hike. However Yellen also talked of the concerns she had over the impact of a potential Brexit and this would appear to rule out June and possibly July. The US dollar has stabilised on her words and in some instances started to retrace some of the losses. However this is still likely to be short-lived as the market is now looking towards September (and possibly not until December) which will need to be factored in. Equities have been supported by Yellen’s comments which have helped to settle nerves a bit.
Wall Street pushed solidly higher, with the S&P 500 briefly breaching its April high at 2111 and adding +0.5% on the day. The Asian markets have also been mixed to slightly positive with the Nikkei up 0.6%. European markets are also rather mixed in early moves.
Forex markets are reasonably settled now moving into the European trading session, although sterling continues to fly around with Brexit opinion polls, with a couple of polls now pointing towards a remain victory, driving the currency back higher again. The Aussie dollar the big outperformer after the Reserve Bank of Australia kept rates steady at 1.75% and seemed rather content with how policy was able to generate consistent growth. There is a slight drift lower on gold and silver whilst oil is around the flat-line today.
There is little economic data of any note today.
Chart of the Day – Silver
Precious metals have been significantly underperforming other dollar related plays such as the forex majors in recent weeks as the US dollar embarked upon a rally, however now this dollar rally has reversed, the prices could be set to make a considerable turnaround. The recovery on silver is now looking to test the resistance of the five week downtrend and is subsequently close to a change of outlook. The momentum indicators have tuned higher with a confirmed buy signal on the Stochastics, whilst the MACD lines are bottoming and the RSI rising towards 50. A move above the $16.56 (preferably with a closing break above) would be a two week high on silver and also signal a near term breakout and breach of the downtrend, whilst also trading above all the moving averages. This would then open further recovery back towards the neckline of the old head and shoulders top pattern around $16.80. However, early morning today, with a slightly more positive dollar, the silver price has fallen away again. The hourly chart shows the near term momentum is more corrective once more, however the old pivot level at $16.15 is now supportive and would be a chance to buy into weakness. There is now key support between $15.77/$15.90.
The market is still looking to settle down after the huge gains seen in the wake of the Non-farm Payrolls. Yesterday’s follow up candle was a mild retracement of the gains, rather muted with a daily range of less than 70 pips and was actually a doji candle (denoting uncertainty). This has continued overnight with little real direction, however it will be interesting to see how the European traders react to the Yellen speech today (there could be some further drift retracement, with Yellen not giving much away). However technical momentum is still reflective of the big move from Friday. The hourly chart shows that the price action is unwinding the near term overbought momentum without losing too much of the upside. There is support around $1.1320/30 with further support at $1.1290. The reaction high at $1.1392 is resistance and this is protecting a move back towards the long term range resistance around $1.1465 again. The market is still settling which makes the next move harder to predict. Sometimes it is best to wait and see.
The volatility in sterling is such that it makes trading with a trend almost impossible. There is still violent swings on cable on almost a daily basis, with intraday moves (such as the sharp spike higher overnight, much of which has subsequently been retraced) frequent. This is making the technical outlook very messy and indecisive. It may not come as a surprise therefore that the momentum indicators are not giving too much signal and are fairly neutral with the RSI around 50, MACD lines flat, although the Stochastics have turned higher again with the overnight gains. There is support that has been left now at $1.4350 which has bolstered the key May low at $1.4330. Closer in, there is initial support at $1.4435. However the spike high at $1.4643 overnight took out the initial resistance at $1.4580 but this is still a level to watch for the European traders. Key near term resistance remains in place at $1.4723. Expect this choppy, volatile and indecisive trading to continue as the EU referendum nears.
The sharp recovery on dollar/yen has unwound some of the significant losses from Friday, but there is a question as to whether this is now a chance to sell again. There is a resistance band between 107.50/108.20 which now will be eyed with importance. There is still a negative medium term technical configuration and rallies look to be a chance to sell. The MACD lines are falling below neutral, whilst the RSI reflects the tepid recovery in the price. I am looking now for a sell signal in this 107.50/108.20 range as I see the potential for a retest of the 106.35 low. There is further resistance at 109.10 holding back the bulls.
Gold
There is now a degree of consolidation that has set in for the gold recovery as a very small $9 daily range took hold yesterday with the outlook being considered. However there has clearly been an improvement in momentum as the Stochastics have sharply picked up and the RSI has unwound back to 50. This is now an important time for gold. I see that this is now a medium term trading range but the bulls need to find some steady ground and that might mean forming support on a minor pullback. There is now support in the band $1220/$1233, whilst the hourly chart shows that support around $1238 is currently preventing this near term erosion of gains. The market is still looking to settle from the strong move, but I still see this move as a game changer and should mean that there will be pressure back on $1260 in due course.
WTI Oil
After over a week of consolidation, is oil on the brink of another upside breakout? The rally high at $50.20 is now under threat with the bulls still ready to jump back in to support oil at any sign of a correction. The momentum indicators remain strong and there is an interesting degree of upside potential showing on the indicators such as the Stochastics and RSI. A move above $50.20 would re-open the key October high at $50.92, whilst also helping to leave further support in place at $47.75 with $46.75 increasingly key. The hourly chart shows the strength of the move yesterday taking the hourly RSI into strong configuration and leaving an initial band of support now at $48.35/$49.50.
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