Better than expected Chinese economic data has driven a continuation of the risk recovery across forex that we have seen in the past few days, whilst gold is still under corrective pressure. However, following another terrorist attack in France overnight risk appetite is just being held back and there may be a slight shift towards some of the safer haven plays as a result. This means that sentiment is actually looking rather mixed for today’s session. The positive surprise for China’s GDP which came in at 6.7% (above 6.6% forecast) was also matched by industrial production and retail sales also beating estimates. The volatile moves on forex were also exacerbated by the decision of the Bank of England to hold back on a rate cut, which came as a surprise to the markets. The move drove sterling stronger as its recovery continues today. Wall Street closed again in all-time highs with another 0.5% gain on the S&P 500. Asian markets were also mixed to slightly positive with the Nikkei +0.7%. However with reaction to terrorism again hitting France, European markets are more cautious in early moves.
In forex there are mixed moves, with the yen again weaker and sterling again stronger, however the risk appetite has not extended into the commodity currencies with the Aussie and Kiwi both weaker. Gold has again opened in a corrective mode, whilst the oil price is around a percent lower.
Traders will be thinking about inflation today, with the final Eurozone CPI for June at 1000BST which is expected to confirm the flash reading of 0.1% for the year. Focus will then shift towards the US today for the key announcements, starting with US CPI at 1330BST, with the headline expected to improve to 1.1% (from 1.0%) and core CPI improving to 2.3% (from 2.2%). US Retail Sales are also at 1330BST (ex-fuel +0.4% for the month expected. Industrial Production for June is at 1415BST (+0.2% for the month expected), with capacity utilization expected to tick slightly higher to 75.0. The preliminary reading of Michigan sentiment is at 1500BST and is expected to remain at 93.5 .
Chart of the Day – FTSE 100
The bulls are in a quandary as the outlook for global equities has recovered, but the strength of sterling means that the FTSE 100 is now underperforming. The FTSE 100 rallied previously on the back of sterling weakness but this sterling rally is now a reason to be far more cautious. Looking at the technicals this is playing out with an incredible run of expanding daily candles which has resulted in a bearish engulfing candle yesterday which also has the look of a shooting star. This is the second consecutive negative candle and is beginning to seriously question the bull run. This is the first corrective sign of the daily indicators with the momentum still strong (although very early signs of a Stochastics deterioration). Watch now for key supports being broken to give the signal of a potential correction. With the index trading mildly lower at the open, initially 6612 (which was a breakout) is supportive and a breach would be a concern whilst below 6580 would also continue the correction. Watch also for the hourly momentum deteriorating, as if the hourly RSI breaks below 35 it would be the lowest since the rally began in late June and suggest the bears are gathering pace. Resistance is now at 6743.
The improvement in the euro in the past couple of sessions has pulled the price back above the pivot band $1.1050/$1.1100 and means that it is trading once more towards the upper reaches of the consolidation band that has formed in the past few weeks since Brexit. The move has started to impact on the technicals with the Stochastics pulling higher, however there is still a suggestion that this will simply be another chance to sell. The declining medium term technical indicators, with downtrends on RSI and MACD, and with both also below their neutral points suggests that rallies will still be seen as a chance to sell. The resistance around $1.1188 has not been breached and yesterday’s candle showed initial strength that was pared into the close. I have been discussing the lack of real trend on the euro recently but there being a bearish bias still. This little rally does not change my view of this until a breach of $1.1215. The hourly chart shows resistance at $1.1164 and initial support at $1.1083 now, a breach of which would shift the outlook negative.
It had looked as though sterling was primed for the next leg lower again prior to the Bank of England announcement yesterday, however in holding fire on a rate cut, sterling has continued to strengthen. This has changed the near term outlook which shows an improving technical picture now. The uptick in the Stochastics is developing whilst the MACD lines are also crossing higher. The question is whether sterling now goes on a continued rally as it retraces the recent Brexit related sell-off (which came with the assumption of looser monetary policy). For the near term this is now a rally to be backed, however I still do not believe this to be the end of the selling pressure. The resistance is next in place in the range at $1.3533/$1.3563. The hourly chart shows the improvement too, whilst the rally may encounter some near term pressure with a bearish engulfing hourly candle down from the overnight high at $1.3480, however there is now support at $1.3275 and gap support at $1.3250, before $1.3100.
The rally is now well into the band of overhead supply that I have been discussing between 103.60/106.80 with a resumption of a strong bull candle, and the bulls nill now begin to have realistic hopes of doing some real damage to the bearish outlook. Incredibly the key reaction high at 106.80 is now a real possibility for being tested. The momentum indicators continue to unwind with the Stochastics pulling higher and an uptick on the MACD lines. However this is now the real test of the recovery that we have seen this week. A move that has been over 600 pips in five days is strong but can it be sustained without profit-taking as it is a move against the bigger trend. The RSI is still below 60 and the MACD lines below neutral. I am still of the belief that this rally will be seen as a chance to sell. The hourly chart shows initial support is 105.00 with 103.90 now key.
The near term corrective move in gold is seemingly bringing the price back towards the old key breakout level at $1306. There was a degree of volatility in the wake of the Bank of England holding off from a rate cut which dragged the price lower and although there was an intraday bounce into the close, there is still a little downside pressure today. I am still of the view that a correction will turn out to be a great medium/longer term buying opportunity, but for now the correction is still in play. Initial support is $1319.80 before $1312.50. The previous band of support around $1335 is now a basis of near term resistance today, with $1345.50 adding to the overhead pressure.
The outlook remains negative as the recovery candle from Tuesday was all but undone by a resumption of the selling pressure on Wednesday. The bear may now be entirely in control but there is still a sense that rallies will be seen as a chance to sell and the latest move has left resistance at $46.93. The momentum indicators continue to hold on to a corrective outlook with the Stochastics bearishly configured along with the MACD lines which recently turned negative. Looking at the hourly chart, it is interesting to see the old neckline around $45.83 again playing a role as a basis of resistance. The medium term outlook will remain negative whilst the series of key lower highs continues, with $48.25 and subsequently the downtrend currently around $48.75.