Markets remain cautious/sensitive on Greece, which is moving ever closer to Friday’s deadline for the €300m repayment without a deal in place that would allow the debt to be paid. In addition to this, markets are also mindful of the importance of the economic announcements, as we looking towards a batch of key tier one economic data points that are due this week. This data driven uncertainty helped to pull markets around yesterday afternoon and can be expected to continue again today. Strip it back though, the improvement in the ISM manufacturing data has fuelled the expectation of a Fed rate hike, even though FOMC members Rosengren (non voting dove) and Fischer (voting moderate dove) were rather dovish in comments. The dollar has made further ground although equity markets have stalled, whilst gold has consolidated.
Wall Street closed just 0.2% higher, whilst Asian markets were cautious overnight with the Nikkei 0.1% lower. European markets are mildly higher but with a lack of real conviction behind them. In forex trading there is sense of consolidation amongst the major pairs. The big mover has been the Aussie dollar which is strongly higher. In the past few hours the Reserve Bank of Australia kept rates on hold at 2.0% (as expected), however it failed to strike a sufficiently dovish tone which has led to a rally of over 75 pips on the day.
Traders will be looking out for the UK construction PMI data at 0930BST. Although it only comprises around 7% of the UK economy the sector has been a drag on UK growth and signs of a decent pick up would be welcomed by traders, expectation is for a reading of 55.0. Then at 1000BST the Eurozone flash CPI data for May is released. The German flash data continued a surprise uptick which beat expectations yesterday, which could help to push inflation back to positive for the Eurozone to the expected +0.2%. There is also the US Factory Orders at 1500BST which is seen as an important component in the building of the US economic recovery. An expectation that there will be zero growth on the month is unlikely to enthuse the dollar traders too much, following 2.1% growth last month.
There has been a sharp turnaround in sentiment on the Aussie this morning in the wake of the RBA monetary policy decision. This move has pulled the Aussie almost 100 pips higher and is now beginning to reverse the consistent decline over the past few weeks. The overnight move has instantly taken the Aussie to a three day high above the resistance around $0.7680 which is the first lower reaction high within the sell-off. The daily signals are starting to pick up although much more needs to be done to suggest this is the beginning of a meaningful recovery. The key near term resistance that needs to be breached is between $0.7740 (historic pivot level and $0.770 (27th May reaction high and would be a confirmation of the breakdown in the series of lower reaction highs). Interestingly the hourly RSI is at the highest level since mid-May when the latest sell-off began. Watch also for the hourly MACD lines consistently holding above the neutral line. The Aussie also now needs to build support around the old resistance band $0.7680. This improvement needs to be consolidated to suggest this rebound will not be in vain.
The outlook for the euro has taken a turn for the worse again without entirely convincing the bears that they are fully in control again, as today begins with another slight rebound. There is still undoubtedly a bearish bias to the daily momentum indicators which suggest that any rallies should be seen as a chance to sell, there still needs further confirmation to be certain. That confirmation would be a move below the support at $1.0867as shown on the intraday hourly chart, which is the higher reaction low in place from the rebound last week. So far though this support is still in place as two intraday attempts yesterday failed to break down, whilst the moves early today are further muddying the waters. Traders will subsequently be watching today for a test of the resistance at $1.1005 which marked the rally high, whilst the minor reaction low at $1.0867 provides the support. Moves through these levels would be the key near term moves to show the intent. Intraday momentum has become largely neutral , as have the hourly moving averages.
The steady selling pressure on Cable in recent weeks has now completed seven consecutive days of bearish candles. This fairly uniform sell-off has got the momentum indicators falling calmly. The intraday hourly chart is interesting with the past four days all showing a very uniform stepped decline, using the falling 55 hour moving average (c. $1.5255) as the basis of resistance. Rallies have been seen every day but have tended to fall over after around 80 pips (this has happened on each of the past 4 days), suggesting that the rallies continue to be sold into. Hourly momentum indicators remain in bearish configuration. There is little reason other than to continue to use technical rallies as a chance to sell. Resistance levels come in around $1.5300 and then $1.5340. A test of the $1.5088 low should be seen in due course.
During the course of this bull run, Dollar/Yen has rallied now for 11 of the past 12 sessions. The bulls clearly do not want to give up these gains without a fight. That is continuing to suggest the pair will move towards the breakout implied target of 125.70. However, I have been talking about the bearish divergences on the hourly momentum indicators in recent days. Although the upside breakout from yesterday have muddied the waters slightly, however I still believe that there is a hint of a bearish divergence. The issue is that now, in order to get the trigger move (a breach of a key reaction low within the bull phase), there needs to be a move below support at 123.85 which was yesterday’s reaction low. Initial support of yesterday’s breakout between 124.35/124.46 is under pressure, but it is risky to sell into an uptrend and until there is a confirmation signal for a reversal then the trend is your friend.
Gold continues to trade above the support at $1178/79, but there is also a slight bearish bias within the range that tells me that selling rallies towards $1200 is the correct strategy. I do not necessarily believe that there will be an imminent breakdown of the range, however I see that the selling pressure remains on. I have written recently about the gold price looking for a catalyst and the moves yesterday were certainly akin to that with a spike higher on the weak US personal consumption data only to be retraced on the stronger ISM manufacturing data. This now leaves the outlook broadly as it was, consolidating above the key range lows. Once more as the near term technicals settle down the gold price is waiting for the next catalyst. The chart still retains a slight bearish bias though.
The argument of the downtrend and series of lower highs was tested by Friday’s rally, but the failure at $60.70 suggests that the bearish bias remains intact for WTI. This outlook is also confirmed by the daily momentum indicators with the RSI running a series of lower highs, and the MACD is in decline. The Stochastics have picked up but for now there needs to be far more confirmation to suggest that a sustainable improvement is underway. The hourly chart shows that moves are still fairly volatile but there is still a trend of lower highs and lower lows in place. The $60.70 reaction high on Friday was tested again yesterday and again today, but for now remains intact. With hourly momentum unconvincing, this rally once more looks to be a chance to sell within the recent bear trend. Support levels come in with the old pivot level of $58.30 before $57.72 and the key low now in place at $56.50. The initial resistance is at $60.90, whilst a breach of the mid-May high of $61.85 would confirm the bears had lost control.