With US Treasury yields calming down their recent rise yesterday (on the back of a further decline in the US Producer Price Index), equities markets were able to regain some upside initiative once more. This seems to now be the theme of trading, that if the bond markets are settled then equities can take heart and find support. Accommodative monetary policy clearly helps though, with Mario Draghi indicating yesterday in an interview that the ECB’s programme of QE would be implemented in full. Furthermore, US economic data continues to suggest that there is a lack of inflationary pressure which is keeping an anchor on expectations of a Fed rate hike.
The S&P 500 closed at an all-time high yesterday at 2121, whilst Asian markets were mixed to positive overnight, with the Nikkei 225 around 0.8% higher. European markets are trading slightly higher this morning after continuing the rebound they saw into the close last night.
In forex markets after the dollar has been in for some significant selling pressure, there appears to be a little respite today. Perhaps this is due to the calming down in the rise of US Treasury yields, however the dollar is finally showing some support early today. Whether this is just a near term consolidation remains to be seen, however US data this afternoon could have a significant bearing once more. Dollar gains are being seen mostly against the yen, Aussie and Kiwi.
There is little on the economic calendar until the US Industrial Production data this afternoon at 1415BST. The expectation is for Industrial Production to rise by 0.1% on the month, whilst Capacity Utilization is expected to remain stable at 78.4%. There is also the University of Michigan Sentiment indicator at 1500BST which is expected to fall back slightly to 95.8 (from 95.9 last month).
Chart of the Day – DAX Xetra
The volatility seen on the DAX in recent sessions has been quite remarkable. However, the large top formation remains intact around the neckline at 11,620 and the technical indicators have been on a bearish drift on the daily chart. The big question is whether yesterday’s big bullish candle (and around 2.3% higher) can stir the bulls into life to improve the outlook. I am still looking at the fallig 21 day moving average which has been a basis of resistance in recent weeks (currently at 11,652). This comes below the key near term support at 11,710. The intraday hourly chart shows a series of lower highs in recent days, although resistance seems to have been coming around the neckline of the top resistance between 11,620/11,700. I still see the downside pressure building for a correction and that rallies are being sold into. Yesterday’s low at 11,218 is now the support.
Another positive day for the euro has resulted in a close above the key resistance at $1.1390 which continues the track higher. It is very interesting that the resistance at $1.1450 capped the upside yesterday and the euro has since started to consolidate. That does not necessarily mean that the euro is unable to make the upside break but I would see this more that if this resistance is to be successfully challenged (which I believe it will) then there could be more or a surge breakout. The daily momentum indicators retain a strong configuration with MACD and Stochastics especially positive. I would continue to see intraday dips as opportunities to buy, with a good band of support now between the old key breakout levels of $1.1290/$1.1390. The intraday hourly chart shows near term momentum remains strong and there is little reason not to be backing the bulls still.
I remain positive on Cable, however I am increasingly feeling that a near term correction could be close. I spoke yesterday of the shortening bull candles of the past few days and this condition continued yesterday. The upside impetus has been gradually reducing over the past few days and I think that with the daily RSI up at 74 that the prospects of a near term correction are rising. The Stochastics have now come together and could also be about to roll over. Higher daily highs and higher lows have been a feature of the past five days, so watch for perhaps a failure to break to a new high today as a potential signal. The intraday hourly chart shows that the 5 day uptrend has now been broken whilst the hourly momentum indicators continue to show a series of bearish divergences. The initial support is at yesterday’s low of $1.5725, whilst key initial support is at $1.5630.
A “doji” candle on the daily chart denotes uncertainty with the prevailing trend (basically the trend is sideways, although after two days of selling pressure this is a sign of a potential end to the near term selling pressure). After a day of contemplation, once more the outlook within the range has turned around. Unlike many other of the forex majors, the dollar has never really come under too much selling pressure against the yen and with the support for the dollar this morning, there is a slightly more positive outlook (I stress though only near term) forming. Yesterday, the pivot at 119.40 again played a role but the rally today has breached it. The next step is to hold on to the breach. If the hourly momentum is anything to go by then the outlook is improving near term. With such little to really go on in terms of trend, simple support and resistance levels become even more important, so watch for the next resistance at 120.00 before 120.27 is a key near term high in place. Support is in place at 118.85.
With the continued weakness of the US dollar there is finally some upside traction being found in the gold price. Could it be that gold is finally looking to breakout from its range play? A second consecutive positive candlestick yesterday took the price on a break above the resistance at $1224.10 to hit a 3 month high. However, there has been no closing breakout yet and the gold price drifted back to close once more within the range. Today’s session is again therefore important as after three positive candles in a row (not seen since mid-March) this momentum needs to continue. The RSI is straining to push above 60 and if this can be seen then I see the range break may be validated. Once again we wait for confirmation. A confirmed break opens $1236.50. Key near term support is at $1211.60.
My concerns over the longevity of the bull run have not been helped by a second consecutive negative candle on the daily chart. I said yesterday that I was happy that the RSI continued to read above 60, but this is now hanging by a thread. Additionally the MACD lines have bearishly crossed and the Stochastics are also less than convincing for the bulls now. The intraday hourly chart also give me some concerns. The big uptrend that has been in place since the March low was broken a week ago, however this old uptrend has since been used as resistance as the price has broadly moved sideways in the past two weeks. The support band $59.50/$60.00 is under continued threat, whilst the hourly RSI and MACD indicators are also increasingly corrective. Yesterday’s rally peak at $60.40 is now protecting the key near term resistance at $61.85. The pressure is beginning to build on the downside and I am increasingly concerned that further pressure is growing on $58.30 key support.