Last updated: May 3rd, 2017 at 09:58 pm
Can it be that the murder of a UK politician on Thursday afternoon has changed the sentiment around the Brexit debate? Certainly this is what it appears from a markets perspective. News of the death of Jo Cox, UK Labour Party politician, seem to have boosted to prospects of the Remain campaign and reduced fears of a Brexit and improved market sentiment. This has driven a turnaround in the markets which had been increasingly concerned by a vote to Leave and this has pulled a recovery in sterling and equities. Also the safe haven plays which were so strong yesterday morning have receded with the yen and gold both corrective once more. The Brexit debate will dominate markets in the next week but for now, with the campaign briefly suspended as a mark of respect, this has been taken as a positive for Remain and markets are reacting. Quite how long this boost lasts is another question.
Wall Street closed slightly higher with the S&P 500 up 0.3% whilst Asian markets have rallied on a yen weakening (Nikkei up 1.0%), and European markets are positive in early moves. In forex, the safe haven plays are underperforming, with the yen the worst performing major and the US dollar also under some corrective pressure. The most marked turnaround has come on the gold price which is over $30 down from yesterday’s peak and although is slightly higher on the day, the breakout has failed, for now. Not only that, the oil price has managed to rebound after around a week of selling pressure.
It is a quiet morning for European data so traders will be looking towards the housing data from the US with Building Permits at 1330BST which are expected to improve slightly to 1.15m (from 1.12m) and Housing Starts also at 1330BST which are expected to drop slightly to 1.15m (from 1.17m). Canadian CPI is also at 1330BST and is expected to be +0.5% for the month.
Chart of the Day – NZD/USD
The Kiwi has been under some corrective pressure, but the volatility in forex markets is clear with a candle of 125 pips and very small body. This reflects a degree of uncertainty with the recent move and traders are unsure whether to go with the Kiwi strength and dollar weakness of the dovish Fed, or the dollar safe haven amidst the Brexit fears. Momentum indicators are still relatively positive though with the Stochastics looking to turn up again. However, having recently crossed back lower, this improvement will need to continue to prevent an increasingly corrective outlook. The intraday hourly chart reflects a rather uncertain market for now but also the near term importance of the pivot band which is currently supportive at $0.6960. This support is helping to protect from a deeper correction back to a more important pivot band for the longer term at $0.6880. The bulls would though still see this to be a correction which is coming within a long term uptrend channel. Incredibly, the a Brexit related flight to safety (i.e. the dollar strength) on could still be the driver in the coming days. Resistance is now at yesterday’s high of $0.7092 and then $0.7145.
There have been incredible intraday moves in the past 24 hours as the market have looked to weigh up the impact of the Fed and Brexit fears. The sharp swings on EUR/USD has left a very long tailed candle of a 165 pip range but the mild losses are taken on the outlook across the last few days as part of the recent volatility and that the pair has started to settle on a closing basis. I have been looking at the uptrend intact since February which was tested yesterday but without a closing breach. It also seems that intraday volatility aside, the old pivot level around $1.1215 is still a gauge near term. The early rebound today plays into this theme and the momentum indicators are broadly settled too. The hourly chart shows a band of support between $1.1185/$1.1215. I expect to see the dollar as choppy in the next week in front of the UK’s EU referendum as it would be seen as a safe haven play in the event of a Brexit whilst $1.1130 is now strengthening the old $1.1100 long term pivot.
Yet more huge intraday swings and volatility on Cable as once again, seemingly trading the GBP/USD pair on a time horizon of any more than just a few hours seems to be fraught with the potential for considerable retracements. Incredibly after a daily range of 250 pips, a doji candle has been left, however with the closing price not far from the high of the day, there is certainly an argument to say that the bulls are fighting back. The trend has been lower for the past week, but with further early gains today the price has already rebounded well over 200 pips from the bottom yesterday afternoon. The momentum indicators are looking to pick up again but we must be mindful of the overhead supply in the $1.4300/$1.4330 band. The hourly chart shows there is now a near term pivot at $1.4220. It will be interesting to see the impact on Cable in the coming days with the EU referendum campaign briefly suspended (taken to be a positive for Remain and therefore sterling supportive).
It is incredible that after such a big sell-off, the slightest rebound on Dollar/Yen is impacting on sentiment across markets but looking on the technicals, very little has actually been achieved yet. The daily chart shows a rebound off the low yesterday which has completed another bearish candle and now there is a small bull candle formation today. Is this enough to get excited in about a rally? Not for me, there needs to be a lot more. The daily momentum indicators are still strongly negatively configured. The RSI is around 30, but this is a trending move and 30 should not be a level that implores a technical rebound. The hourly chart shows a minor unwinding of oversold momentum but again nothing really to suggest any rally is sustainable. The rebound high at 104.80 is initial resistance with 105.50 now key overhead. The bulls will need to maintain the recovery and move back above 104.80 to maintain any sort of momentum in a recovery. Without that, rallies would have to be treated as another chance to sell. The support comes in at 103.75 with yesterday’s low at 103.58 being key.
There has been some incredible intraday volatility on gold in the past 36 hours since the Fed meeting, stemming from the perception of the dollar and the gauge of the Brexit fears. The safe haven move initially yesterday pulled gold to a breakout high of $1315.50 which was a near two year high early in the session, only to be sold off hugely into the afternoon. The closing price at $1278.60 (which just failed to be a huge bearish engulfing candle) has changed the sentiment on gold. But will it last? The early move today is mildly higher again, but the technical momentum is turning lower, with the Stochastics having crossed lower (no confirmation yet of a near term sell signal). The hourly chart actually shows that around $1278 is a big near term pivot and this can be seen as a gauge for the outlook. A second negative close (below the $1278 pivot) on gold could begin to usher in the profit takers again. The next support is at $1264.00. With the failed breakout, $1303 is again a basis of resistance.
A significant shift in bearish sentiment has confirmed the breakdown of the big uptrend since February. The big concern however will be that the key support at $46.75 has been breached and that the RSI has broken to its lowest since the start of the recovery all the way back in February. The other momentum indicators are also increasingly corrective with the Stochastics in bearish configuration and the MACD lines also falling. Even the minor intraday rallies are increasingly being seen as a chance to sell, whilst the decline yesterday has left resistance now initially at $47.60. The early rebound today will be watched for how well it is supported but there is now further resistances between $48.28/$48.72 and then up at $49.28. If the sellers continue to hold control then the selling pressure now opens the May low at $43.03.
At Hantec Markets Ltd we provide an execution only service. Any opinions expressed by analyst Richard Perry should not be construed as investment advice or an investment recommendation. This report does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. Forex and CFDs are leveraged products which can result in losses greater than your initial deposit. Therefore you should only speculate with money that you can afford to lose. Please ensure you fully understand the risks involved, seeking independent advice if necessary prior to entering into such transactions.