Last updated: May 3rd, 2017 at 09:59 pm
Yesterday was another absolutely remarkable session, as the Eurozone sovereign bond yields have continued to soar. Helped higher by Mario Draghi’s ECB press conference which showed an upward revision to inflation projections, the yield on the German Bund has added over 30 basis points in the past two days and is showing little sign of stopping. This is having a direct and positive impact on the euro which has also been on a tear. The interesting move of yesterday though was that the dollar actually remained fairly steady across major pairs (apart from against the euro). The move on the euro is also being helped by the improving prospects of a deal for Greece, which would suggest that Tsipras is close to an agreement with Greece’s creditors.
Equity markets in Europe showed a decent bounce but this was not replicated with any decisive move Wall Street (S&P 500 closed 0.2% higher). With Asian markets flat overnight, the European session today is again fairly circumspect early on as traders watch for further developments on Greece.
Forex trading shows the dollar slightly regaining a little lost ground today. The Aussie dollar is currently the worst performer after Australian retail sales and the trade balance both disappointed overnight. Both gold and silver remain under growing pressure.
Traders have arguably got the most quiet day of the week today with regards to the economic calendar. Clearly the day will come when the Bank of England will surprise the market, however that day is not likely to be today as the MPC announces monetary policy at 1200BST. As ever the meeting minutes will provide the more interesting announcement but for those we will have to wait. US weekly jobless claims are at 1330BST and are expected to show a slight improvement to279,000 from 282,000.
Is silver calling a breakdown in gold? Silver has been more volatile than gold (no change there then) but the price action in the past three weeks has been more of a stepped decline than the consolidation that has been seen on gold. After a series of uncertain “doji” candles in the past week, yesterday we saw a sharp bearish candle which although did not quite achieve a closing breakdown below near term support at $16.51, the intent is certainly there. The momentum indicators all have a bearish near term configuration but also that this move has further to go. The pressure seems to be growing on supports and a closing breakdown below $16.51 would suggest a likely move back towards $16.10 but also probably back towards the old key support band around $15.50 in due course. The initial resistance band comes in between $16.60/$16.83. I would be looking to use any intraday rallies as a chance to sell.
Despite a degree of intraday volatility, the surge higher in the euro has continued, posting two very bullish candles in a row along the momentum is becoming increasingly strong now. Furthermore, the move above $1.1210 was significant this was the key reaction high which marked the completion of the old top pattern. The euro is now well on the way towards a test of the resistance between $1.1450/$1.1465. The intraday hourly chart shows consolidation since the sharp gains during yesterday’s ECB press conference, which threatening to turn into a slight correction early today. The bulls will now be looking to use the support of the breakout resistance between $1.1190/$1.1210 to build a base from as any stretched near tem momentum unwinds. Key support is now in place at $1.1078. The immediate resistance at $1.1290 needs to be breached and then minor resistance around $1.1340. Today may be less volatile as recent days have been more driven by fundamental newsflow, but as ever watch for developments on aa Greek deal.
Despite the sharp gains on the euro yesterday, Cable actually managed to close very slightly lower. It was interesting that the “doji” candle came around the 38.2% Fibonacci retracement level of the $1.4562/$1.5814 rally. There has been a slight uptick in momentum however I continue to see this Cable rally as a move that will be used as a chance to sell. I see the intraday hourly chart as just showing a move that is unwinding some near term oversold momentum and with the lack of significant progress made I see a large amount of overhead resistance in place which will see Cable struggling to rally. The $1.5375 peak in the recent rally remains intact as momentum is running out of steam. The key overhead resistance remains around $1.5450. I expect the process of leaving the next lower high is underway and pressure on $1.5250 before retesting the $1.5268 low.
The consolidation of the past few days continues as the rally appears to have run out of steam. Tuesday’s bearish candle has been followed up by a fairly neutral (almost spinning top) candle yesterday which suggests a lack of certainty now in the trend higher. I am still interested to watch the momentum indicators on the daily chart which are now beginning to turn lower. RSI is close to a sell signal, the NACD histogram is falling away and the Stochastics are starting to decline. For now we must wait as it is unsure as to whether this will be a continuation or a corrective pattern. The support at 123.47 is key as is would complete the top. The indicators on the hourly chart are broadly neutral as we await the next signal. The key resistance in place is at 125.03.
I continue to see gold as in a trading range, but with a slight bearish bias within the range. Yesterday’s test of the range lows $1178/$1179 has once more been rebuffed, however there is a fairly persistently negative feel to the chart now. Consistently trading below all the moving averages whilst the MACD lines are falling (gradually) and Stochastics remain camped in a rather negative configuration. This negative theme also runs through the hourly chart too which shows that downside pressure is growing. The rolling over of the price at $1196.10 leaves gold with a sense that rallies are now being seen as a chance to sell. This comes below the general pivot resistance around $1200. The big question is whether the range lows will give way. There is still a feeling that gold is waiting for Non-farm Payrolls tomorrow (which invariably creates much volatility in gold). I favour a downside break of the range which would be achieved with a close below $1178 and/or an intraday move below $1170.
With the rebound rolling over once more it is difficult to see WTI as anything other than a range play now. On the daily chart it is interesting that during the original rally from the March low to the peak at $62.58, the RSI traded for several weeks between 60/70, whereas now, with the rally running out of steam the RSI is failing to push above 60. This is indicative of a range play. Looking intraday on the hourly chart, the rally from $56.50 late May low has now failed around $61.60. Initial support around $59.30 is holding for now, however, during yesterday’s correction the price had retraced back through the 38.2% Fibonacci level of the $56.50/$61.60 rally at $59.60 and the breach opens the 50% retracement at $59.04. The hourly momentum indicators are increasingly corrective and for now the near term sellers are controlling. However, as ever the volatility in oil remains high. Initial resistance comes in around $60.30 and rallies within this range are now a chance for near term selling opportunities.
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