The politics of the Trump administration continue to impact on sentiment and have been weighing on Treasury yields and the dollar. The resignation of Trump’s much lampooned press secretary Sean Spicer has kept the market concerns over Trumps presidency firmly in focus. The testimony of Jared Kushner will be something that keeps traders alert today too. This has hit risk appetite, sending Treasury yields lower, in addition to gold and the Japanese yen stronger, whilst equities are also out of favour for now. These moves are also playing into dollar weakness. With the IMF also cutting its growth forecast for the US, citing the disappointing Q1 in addition to less tax reform and fiscal expansion than previously thought, there is a problem for the dollar bulls which shows little sign of improving today.
Wall Street closed lower on Friday with the S&P 500 -0.1% at 2472, whilst Asian markets took that today to also close broadly lower (Nikkei -0.6%). European markets have opened mildly weaker. In forex there is a relatively quiet open with little real moves on the majors, although there is a slight dollar rally forming as a slight rebound in Treasury yields has been seen this morning. In commodities, gold has ticked slightly lower on the dollar rebound, whilst oil is consolidating its losses that came as OPEC Secretary General Barkindo noted that oil market rebalancing was taking longer than anticipated.
Markets will be looking out for the flash PMIs today. Eurozone flash PMIs are throughout the early morning for the European session, with the Eurozone flash Manufacturing PMI at 0900BST expected to tick slightly lower to 57.2 (down from 57.3 last month), with Eurozone flash Services PMI expected to pick up to 55.6 (up from 54.7) which would improve the Eurozone flash Composite PMI from last month’s 55.7. The US flash Manufacturing PMI is at 1445BST and is expected to stay at 52.1 (52.1 last month) with US flash Services PMI ticking higher to 54.1 (53.0 last month). US Existing Home Sales are at 1500BST and are expected to improve by +0.5% to 5.65m (from 5.62m last month)
Chart of the Day – DAX Xetra
What a huge breakdown on the DAX to completely put the bears in control again. There had been some uncertainty on the bearish impact of the completed top pattern following the recent rally back above 12,490, however six negative candles in a row have really put the bears back in the driving seat. Friday’s huge downside break of the support at 12,319 with a strong bear candle confirms the market is on its way towards the 12,030 implied 460 tick top pattern target. This means that the long term 14 month uptrend which is in today at 12,070 is likely to come under pressure. Momentum indicators are decisively corrective now with the bear cross under neutral on the MACD lines being the most concerning. The old supports of the past couple of weeks now become a basis of resistance should the market engage in a rebound move today. That means 12,319/12,385 is now an area of overhead supply.
With the US dollar under continued selling pressure, EUR/USD continues to pull higher. Friday’s candle was a decent if unspectacular bull candle that adds further to the sharp breakout to near two year highs. The next resistance is $1.1711 from August 2015 and the early gains today suggest that the market remains on course to at least test that in the coming days. The only real caveat on a technical basis is the RSI momentum which is historically stretched around 73. However, this in itself does not automatically suggest a correction, as all the other momentum indicators retain strong configuration. The hourly chart shows positive outlook and corrections, even intraday ones, should be seen as a chance to buy. Initial support is $1.1615/$1.1635, with the breakout support at $1.1477 being key.
The period of correction has stabilised with a positive candle on Friday that has continued today. With the bulls beginning to regain the upside initiative the support has been left at $1.2930 which could now be another higher low (above the previous low at $1.2808). The momentum indicators are turning up from areas where the buyers have previously returned and the market has pushed back above $1.3000 once more today. The next step for the bulls would be to hold on to the $1.3000 level and push above the historic resistance around $1.3050 which would then confirm the bull control once more. There is a strong medium term configuration that has built up with rising moving averages and momentum indicators settling well above their neutral positions. With a continued run of higher lows, corrections remain a chance to buy.
During the earlier sessions of last week it had looked as though the bulls were building support for the correction. However Friday’s strong bear candle has scuppered that move as the 38.2% Fibonacci retracement at 111.55 has been decisively breached. This move has taken the market below all the moving averages, whilst momentum indicators continue to deteriorate. The support between 110.90/111.10 is now being tested however, the concern would be that if this support area were to be breached, there is little support of any significance until around 109.00. This would also mean a move back to the 50% Fib level at 109.35. The run of candles in the past couple of weeks has tended to be a strong bear candle followed by a consolidation. The move today suggests that we could be in for a consolidation day, but the downside pressure and bias remains. The hourly chart shows initial resistance at 111.20 with the previous support at 111.55 now a basis of resistance. It would need a move above 112.40 to change the near term outlook now. Initial support is at 110.75.
The market continues to climb in its recovery rally. Having decisively breached $1240 the next barrier to upside is around $1260. The old pivots have tended to be points of consolidation or brief turning, during the medium term range broadly between $1200/$1300, so $1260 could easily play this role again, but the head of steam the rally is now generating would suggest that any near term dips are a buying opportunity. The momentum is strong whilst with the RSI above 60, the MACD lines accelerating higher and the Stochastics above 80. The hourly chart shows old resistance turns into support with the support now around $1242/$1247.
The bulls will be deeply disappointed with how they finished the week. Having failed for a second time in July to hold on to the breakout above $47, a sharp bear candle took hold once more. This has increased the downside pressure once more and breached the initial support at $45.80. The concern is that it also breaches the 38.2% Fibonacci retracement of $52.00/$42.05 at $45.85. This now means that today’s session becomes ever more important. A third bearish candle would surely drive a confirmed breach of $45.80 and subsequently open further correction back towards the 23.6% Fib level at $44.40. As yet the momentum indicators have not significantly been impacted but another bear candle would begin to pull a deterioration that would heap downside pressure on the market once more. Initial support is at $45.00 with the key July low at $43.75 back in range too. The resistance is also building at $47.00 to $47.55.
Dow Jones Industrial Average
Corrections remain a chance to buy for the Dow but with the market having just posted two negative candles in a row. Interestingly, also it was almost like déjà vu as the past three sessions were almost identical to the three previous. Friday’s candle posted a negative session but well off the lows and the outlook is somewhat muddied by this move. There remains a sense that the bulls are still prepared to buy into weakness and this helps to generate continued positive momentum. However, perhaps a third bear candle in a row today would change that ongoing positive outlook. The support band 21,471/21,503 will be key near term. Resistance is with the recent highs at 21,662/21,681.