Market Overview
The improvement in risk appetite in the weeks since the first round of the French presidential election drove a bull run higher (the “buy on rumour”). However, with the result pretty much fully priced in even before Macron was confirmed as president after Sunday’s second round, the market has struggled to sustain the move. Despite this though, as yet there has not been any widespread “sell on fact”. We will though have to wait to see how markets develop, but for now forex and equity markets are consolidating.
There is a reversal potentially forming on the euro, but the move is still very early days and would still need to breach some key support built up around $1.0850. The DAX and CAC have similarly stalled advances, but without any major selling pressure yet. Markets will quickly now turn attention towards expectation of potential changes of stance from the ECB away from its continued dovish outlook.
Commodities are another issue for markets, with a feeling on Friday that perhaps oil had bottomed after a recent sell-off. However, once more this seems to be an undecided consolidation rather than a sustainable recovery. Commodity currencies are having their potential recoveries against the dollar also questioned.
Wall Street had a day of quiet consolidation but there is still a feeling that the bulls are close to a breakout once more. The S&P 500 was almost entirely flat at 2399. It is also interesting to see the VIX closing below 10 yesterday which is its lowest close since early 2007. Does this reflect an options market becoming complacent once more? Asian markets were also very flat, with the Nikkei (-0.3%), whilst European markets are mixed to slightly higher in early moves. In forex, there is very little real direction although there is the slightest bullish bias on the dollar. Gold is creeping lower again, as is oil.
There is another light economic calendar to impact on traders today. Aside from the Australian annual budget which is at 10:30 BST and is likely to move the Aussie dollar, there is only really the US JOLTS jobs openings at 15:00 BST. The market expects 5.67m which would be mildly lower than last month’s 5.74m, however it is worth noting that the last two months have called for a deterioration but five of the past six months have all be stronger. FOMC member Robert Kaplan (generally seen as a centrist) also speaks at 21:15 BST.
Chart of the Day – AUD/USD
The outlook remains under pressure despite posting a bull hammer reversal candle on Friday. The selling pressure took back over yesterday and the attempted rally could not sustain the momentum. Posting such a negative candle in the wake of a one day reversal signal is never a great sign and the bears retaining control today have broken below the support at $0.7365 to continue the selling pressure. This suggests that selling into strength remains the medium term strategy which was derived following the decisive breakdown of the support at $0.7500 which completed a top pattern that implies 250 pips of downside towards $0.7250 in the coming months.
Momentum indicators are fully negatively configured, but also there is room for a minor recovery. However there has been consistent resistance around $0.7430 in the past few sessions, and there is a now a belt of resistance between $0.7365/$0.7430 to use as a near term sell zone. The downtrend of the recent run of lower highs in the past five weeks comes in at $0.7530 today. Ultimately the outlook remains bearish though and there is little real support until the major long term lows $0.7140/50.
In the wake of Macron’s victory the euro has given a corrective signal. A big bearish engulfing candle (bearish key one day reversal) has been posted, leaving resistance at $1.1022. The move has meant that the euro has retreated back within the previous trading band $1.0850/$1.0950 and the momentum indicators are now just beginning to sag. The bearish reversal pattern is the first real sign of a correction but to really trust this counter-trend indicator there needs to be further confirmation.
The support at $1.0850 is strong and unless this is breached it would be more prudent to treat this as a minor correction that is still likely to be bought into. The hourly chart shows a small head and shoulders top pattern that implies around 70 pips down from $1.0950 suggesting that the support around $1.0880 could be tested now. However, hourly momentum indicators are not excessively corrective yet. I expect the next higher low to form within the $1.0850/$1.0950 trading band. A push back above $1.0950 would help to re-engage the bulls.
Cable continues to post a series of higher lows as the market has been pushing back higher towards $1.3000. The slightly corrective candle posted yesterday where the market fell by around 40 pips is likely to be a buying opportunity once more. Thursday’s reaction low at $1.2830 is the latest higher low above $1.2775 and the bulls will be looking to build once more a further higher low to use as a springboard for a push above $1.3000.
The momentum indicators are more considered this time and retain a positive configuration, however there is a less exuberant feel now, so the bulls need to be decisive. The hourly chat retains a bullish bias without being exceptionally strong now. There is initial support in the band $1.2900/$1.2930 today, with the hourly momentum around levels where the buyers have tended to be interested again. A push back above the $1.2990 high and $1.3000 psychological opens $1.3050 and then $1.3120.
The uptrend of the past three weeks continues to carry the market higher. Having initially looked to be losing impetus, the market bounced off the trend to form another positive bull candle and regain the move into multi-week highs. The market holding on to the breakout support band 111.60/112.20 is also important as it means that the bulls are laying down firm foundations for the market sustaining the move into the old trading band 111.60/115.60. The next resistance is 113.55 before the way is open towards the top end of the range.
Momentum indicators are positively configured with the RSI closing in on 70 and the MACD lines rising above neutral. The uptrend provides support today at 112.55. The hourly chart shows support between 112.35/113.05 with a strategy of buying into intraday weakness.
The selling pressure may have slowed in the past couple of sessions, but there is still no real sign of any sustainable buying. The two candles of the past two sessions which both reacted to the major events (payrolls and Macron’s victory) have stemmed the tide but not reversed it. Yesterday’s candle was almost a “gravestone doji” in a downtrend (i.e. open and close around the low of the day) and does not fill the bulls with any confidence in a recovery.
Momentum indicators continue to slide into negative configuration and rallies continue to be seen as a chance to sell. This will remain the case whilst below the $1240 old support turned resistance. The hourly chart shows that recent trading has been in a range between $1225/$1236 but with a bearish bias to the momentum the expectation is that further weakness will be seen. This would be either on a decisive breach of $1225 to open $1220 or another failed rally around $1240. It would need a move above $1261 to really suggest the bulls were back. A move below $1220 could then open towards $1200 and the key March low at $1194.50.
WTI Oil
The huge recovery turnaround candle posted on Friday has increased expectation of a recovery. However for the move to be considered to be meaningful there needs to be a break back above the resistance around $47.00. This is the overhead supply of the old key lows from March and capped the upside yesterday. There is also a confluence of resistance from trendlines, with the old 15 month uptrend and a new three week downtrend, both of which dissect at $47.50 today.
The momentum indicators are negatively configured and do not suggest that the recovery is anything more than a bear rally which is likely to be sold into. The hourly chart shows a recovery which has simply helped to unwind and renew downside potential. The falling 144 hour moving average (currently c. $47.33) has been a strong basis of resistance in recent weeks.
Even after Friday’s bull candle put the pressure once more on the resistance at 21,000, the bulls have struggled to break the shackles of this resistance a breakout. Another very contained session (less than 50 ticks when the average true range is currently 125 ticks) has formed a very neutral candlestick and even though the market closed at 21,006, the bulls just cannot shake off the resistance that would open the 21,169 all-time high again. Still though, there is a feeling that with the strength of the momentum indicators, that it is likely to only be a matter of time for the bulls. There is intraday resistance with 21,070 and support remains firm in the range around 20,777/20,887.
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