Markets remain incredibly volatile, with huge intraday swings. The bond markets are continuing to drive sentiment across the board and yesterday’s sharp intraday turnaround on the 10 year Bund yield has again dramatically turned the euro outlook negative once more. With so many significant fundamental data points and newsflow today there is little chance that this volatility will settle any time soon.
Greece has announced that it will not be paying today’s €300m deadline for its payment to the IMF. Instead it will bundle all its payments this month and pay €1.6bn on 30th June instead. This clearly gives Greece and its creditors further time to thrash out a deal, but this is unlikely to impress a market that is already rather fraught with volatility. There is also the no small impact of Non-farm Payrolls to deal with today. After the ADP employment improves on Wednesday the hop is that Non-farms can hold steadily above 200,000 again. The expectation is for a very slight improvement to 225,000 (from 223,000 last month). Also watch for the average hourly earnings growth again. The consensus is (as ever) +0.2% for the month which means around 2.0% for the year. This number has been unable to pick up and the Fed would certainly be watching closely if it suddenly were to start surprising to the upside.
The oil markets will also be watching out for the OPEC meeting which is officially today and production levels will be the crucial take away. Comments from Saudi Arabia tend to be the key driver, whilst there are even suggestions that OPEC could increase production levels which would potentially be a negative impact on prices.
Forex markets show fairly stable major pairs moving into the European session. This is a fairly understandable (and usual) situation in the run up to the Payrolls. There has not been any real reaction yet to the Greek decision to delay repayments. European equity markets have begun the day in slightly negative fashion as Asian markets showed marginal losses over night. It will be interesting to see if they remain fairly stable with Non-farm Payrolls just a few hours from now.
Chart of the Day – DAX Xetra
The DAX is on the brink of a key breakdown. Sentiment has been under pressure for the past couple of weeks now and with momentum indicators still falling away a test of the key May low at 11,167 could be seen today. A breakdown would open a support band back from February of 10,615/10,985. The hourly chart is interesting though as it shows that the bulls are fighting to hang on. The sharp fall early in yesterday’s session hung on to post a low at 11,187 (20 ticks off the key support), but reaction today is key. The early selling pressure is on and with the hourly momentum indicators firmly in bearish configuration the pressure is mounting. With several intraday spikes posting the lows over the past few months it would need a closing breach of 11,167 to confirm the breakdown. The resistance now comes in with yesterday’s high at 11,450 and then more importantly at 11,515.
It seemed yesterday as though the euro was destined for a test of the key resistance just above $1.1450, however a sharp intraday turnaround has again completely changed the complexion of this chart. A peak has now been put in at $1.1379 and a “shooting star” candlestick pattern has been formed from yesterday’s price action. This is a reversal candle and suggests that the sellers are mounting again. A confirmation negative candle today would suggest that once more in this incredibly volatile period of trading, we must be looking more towards the downside again. The intraday hourly chart is one to watch though with the retreat yesterday forming support around the old pivot level at $1.1200. I would see this as a line in the sand today. If the euro can hold above this support then the outlook will not become negative near term. The hourly momentum indicators have unwound and are beginning to settle again. However if the price starts to trade consistently below $1.1200 (and also breached the spike low at $1.1178) then the likelihood is for a retest of $1.1078. Resistance now comes in between $1.1290/$1.1320. With Non-farm Payrolls today I would not expect any let up in volatility.
The price action on Cable has been intriguing in the past few days. Despite running a sequence of higher lows and higher highs in each of the past three days there is still no suggesting that the bulls have really got control. The last two daily candles show high volatility but a neutral outlook. This has continued into the early morning of today (although on Non-farm Payrolls day the run up to the announcement is invariably rather cautious). The daily momentum indicators have picked up marginally but also reflect the lack of conviction. I have been saying recently that I still see this as playing out a correction within a bear phase, with the resistance around $1.5450 as playing an important role. This resistance capped the rally yesterday almost to the pip before a sharp intraday retracement. This has therefore only strengthened the resistance. The hourly momentum indicators are fairly neutral now. The support now comes in around $1.5300 and then at $1.5250.
Dollar/Yen continues to consolidate. The series of neutral, indecisive candles are building up once more as the price continues to trade fairly quietly between 123.47 and 125.03. This is the trading range that has now built up and has been in place for a week now. It is causing the momentum indicators to settle down and it will be interesting to see now whether the bullish RSI, MACD and Stochastics indicators start to fall away. It could just be that the pair is once more building a phase pf sideways trading. The reaction to today’s Non-farm Payrolls could be very telling as if there is no reaction today then it could be that this range becomes accepted and continues for a while. A decisive breach of the support at 123.47 would complete a top pattern and imply a correction back to the 122 breakout. Above 125.03 and the 125.70 original breakout target comes into view. For now though the consolidation continues.
The gold price is beginning to break down. Two strongly bearish candles in a row have resulted in a closing price at $1176 which is the lowest closing price since mid-March. The daily momentum indicators are also reflecting the breakdown with the RSI and Stochastics also the lowest since March and MACD lines continuing to fall away. An intraday move below $1170 today would confirm the bearish break and re-open the key March low at $1142.90. The intraday hourly chart is bearishly configured and suggests that rallies are a chance to sell. There is a band of resistance now between $1178/$1185. The one main caveat is Non-farm Payrolls today, which if they disappoint could result in gold shooting higher. However anything other than a disappointing figure is likely to help to usher the gold price lower now.
The volatility within the range continues as another downturn confirmed yesterday accentuating the $56.50/$62.58 range once more. I spoke yesterday about the Fibonacci retracements with the recent $56.50/$61.60 rally and these levels have played a role intraday, however, the near term correction towards the range lows is now on as the price has dropped below the 61.8% Fib level at $58.45 which opens a full retracement. Hourly momentum indicators are corrective and suggests pressure on the support around $57.70. Resistance now comes in the range $59.30/$60.00. With the price now within touching distance of the range lows again, it worth noting that the support around $56.50 is fairly sizeable and I expect the range-trading conditions to continue. Therefore be mindful of the ability that WTI has for sharp reversals/retracements of near term moves. The volatility is unlikely to take any respite from Non-farm Payrolls today.