Just one day in to the supposed deal for Greece and the markets are a touch more cautious again. There is still much work that needs to be done and in a short space of time. The deal needs to be passed by the Greek parliament by Wednesday, not only that but there is also talk that it could cost Tsipras his leadership as he is apparently contemplating resignation. The markets are beginning to take on more of a settled look to them and despite the gains of yesterday, you could be forgiven for asking “is that it then?”. With sentiment a bit more cautious economic data will take the attention again today.
Wall Street closed 1.1% higher, whilst Asian markets were also mixed to positive as the Nikkei 225 moved 1.5% higher (as the yen weakened) and equities in Shanghai also continued to stabilize. European markets are mixed at the open. In forex trading there is a slightly mixed outlook to the major pairs today, with a slight hint of dollar strength. The euro and sterling have fallen away, whilst the Aussie is also slightly higher after an improvement in the Australian business confidence. Once more, gold and silver are creaking under the tilt of dollar strength. The oil prices are under pressure as it looks as though the diplomats are on the brink of announcing a breakthrough in the Iranian nuclear sanctions negotiations.
Markets will turn focus back towards the data today. After final inflation readings across the Eurozone countries, UK CPI kicks us off at 0930 with an expectation that the year on year data will dip back once more to flat (from +0.1% last month). The German ZEW Economic Sentiment is at 1000BST and is expected to dip slightly to 29.0 (from 31.5). Then the key data point of the day with the US retail sales at 1330BST. Expectation is that the month on month data (ex-autos) will come in positively once more at +0.5% although this is slightly down from last month’s positive +1.0%. Retail sales have just started to pick up in the US after several months of disappointment and if this trend continues then this will buoy the hawks on the FOMC.
Chart of the Day – USD/CHF
Is Dollar/Swiss building for a breakout? Since breaking a three and a half month downtrend in late June, the resistance of the key May high at 0.9545 has been holding back the pair for a couple of months now. However this level is coming under increasing pressure. The momentum indicators are all on the brink of signalling a breakout. The RSI continues to bash up against the 60 level (interestingly the RSI turned lower from 60 in May when the resistance was hit). So the RSI could be seen as a key indication of whether we will see an upside break. The MACD lines are also turning more positive, whilst the Stochastics are also moving into bullish territory. So is this a range play continuing, or will it breakout? Certainly the RSI and Stochastics could both go either way. The intraday hourly chart suggests that today could be a key test, and it is currently well configured. Don’t forget not to call breakouts until they are seen (and preferably confirmed by a closing breakout). Above 0.9545 opens the next resistance at 0.9718. The key near term band of support comes in at 0.9400/0.9420.
The reaction of the euro to the announcement of the Greek deal was extremely interesting. The initial move higher was then replaced by some quite sharp selling pressure to leave the euro around 160 pips lower on the day. A sharply bearish candle has subsequently been left and this now suggests that there is another lower high in place on Friday at $1.1215. Despite the fact that the euro has held up fairly well during the Greek crisis, the technical outlook is beginning to falter. The pair is now trading below the medium term pivot at $1.1050, which also trading under all the moving averages too. The momentum configuration is on the weaker side of neutral without being overly bearish. Looking a bit closer at the hourly chart, again there is a bearish tilt without being overly negative. I would say that using rallies as a chance to sell would be the way to play the euro. The hourly RSI has tended to oscillate between 30 and 70, and recently turning higher from 30 suggests that once it has unwound again, a rally is a chance to sell. There is probably 70 pips of resistance between $1.1050 and $1.1120 no with which to use. I would expect a test of $1.0915 in due course.
The bulls will be really disappointed that they could not really grab the initiative yesterday. Cable spent the majority of the day looking to have broken the downtrend and on the way towards a serious recovery. A late session sell-off has left a very weak candle with a close towards the day low. This has put on ice a prospective rally, but not entirely. There is still hope with a confirmed buy signal on the Stochastics and the MACD lines looking to have bottomed. The intraday hourly chart shows a retreat back towards the 61.8% Fibonacci retracement level once more of $1.5188/$1.5928 at $1.5471. So if there is a loss of this support area then the bulls would seem to have lost the recovery, with further support at $1.5450 acting as a confirmation of the deterioration once more. Confirmation of a breach of $1.5470 support area would also complete a small top implying around 120 pips of downside towards $1.5350.
After three strong bull candles have heralded the complete turnaround of what had seemingly looked to be a corrective outlook, the Asian trading session has been somewhat cautious overnight. This cautious is coming just as the real near term resistance has come into play. The initial July high is at 123.72 which protects the key highs from June around 124.43. The intraday hourly chart shows that there could just be the early signs of a loss of bullish impetus now. The hourly momentum indicators have rolled over and with the early dip this morning, are beginning to reverse. This is now testing the support of a four day uptrend for Dollar/Yen which interestingly enough comes in right around the 38.2% Fibonacci retracement level of the 118.86/125.85 rally at 123.20. This Fib level has acted as a consistent turning (or at least consolidation point) for the pair and should be watched once more. It is holding for now but a breach would open 122.88 and could suggest another correction back towards the 122.00 support.
I think that if a single candlestick could sum up how gold has been trading over the past few weeks (and arguably months) it was yesterday. A fairly wide daily range (just over $13) whereby it looks as though the sellers have got control. However there is a late intraday rebound which resulted in a closing price around the mid-point of the day. So in effect this is a candle where the bears have lost conviction. The sellers have been in control of the gold price for a while now, but without ever really managing a big run lower. This means that there are opportunities for short term selling opportunities but be mindful of the occasional rally. Gold is now trading consistently clear of the old floor around $1170 and the outlook is fairly poor with the momentum indicators all negatively configured. The intraday hourly chart shows the bearish tilt suggesting that any rally towards the resistance band around $1159/$1164 should be seen as a selling opportunity. I continue to expect a test of the $1146.75 low and then the key March low at $1142.85.
The oil price has settled into a sideways trading band over the past week amid the uncertainty over the Iranian nuclear sanctions. This is leaving a range between what is increasingly a key near term low at $50.58 and resistance at $53.89, which gives WTI a range of around 6%. Daily technical indicators continue to look corrective on the outlook and that the old break below $56.50 still implies $49.50. However, on the intraday hourly chart the outlook turning more negative again. The balance of the technical indicators suggests that rallies will now be sold into, however the pressure is on the downside now (with a deal expected imminently on an Iranian deal). The hourly RSI can be a guide, with moves towards 50 being seen as a chance to sell, however the breakdown looks to be close now. The support below $50.58 comes in around $47.