Hope of a quick resolution of the US/China trade dispute has diminished somewhat as President Trump has suggested that a deal will be balanced in favour of the US. Traders are clearly sceptical that China will acquiesce to this view and so there will likely be more tough talk in the weeks and months ahead. Subsequently, the weakening economic trends that have taken hold in recent months will gather momentum. Yesterday’s US data reflects the market fears, with private jobs growth disappointing, along with Factory Orders and ISM Non-Manufacturing. The pressure is mounting for the Fed to make their first rate cut in July. Bond markets are certainly making their view felt, with the US 10 year yield falling decisively below 2% for its lowest level since September 2016. Although Treasury yields are not alone in plumbing the depths, it will still make for a difficult environment for the dollar to outperform. Although markets have consolidated today in light of the Independence Day public holiday in the US and the crucial Non-farm Payrolls report tomorrow, market moves are heavily biased towards playing for a dovish Fed. This means safe havens, of the yen, gold and US Treasuries are strong, but also we see equity markets breaking out through key resistance levels. The US data will remain crucial to these moves, so a holding pattern in front of payrolls tomorrow should not come as a surprise.
Wall Street closed strongly at all-time highs on the Dow and also the S&P 500 +0.8% at 2995. US futures are all but flat and with the public holiday today will not be of much help today. Consolidation is also running through forex markets. Today, with almost no direction across major pairs. In commodities the sharp rebound on gold is slipping back a touch, falling -$5, whilst it is interesting to see the bounce on oil being sold into again today.
It is a very quiet day on the economic calendar, with no key events due, whilst of course being Independence Day public holiday in the US.
Non-farm Payrolls webinar tomorrow
Don’t forget I am hosting a webinar tomorrow for what we see as a crucial Non-farm Payrolls report. I look forward to your questions as we navigate our way through the data.
You can sign up to the webinar here
Chart of the Day – EUR/NZD
Right now the euro is getting hit across the major crosses. The selling pressure has built steadily over the past couple of weeks and key support levels have been breached. However, the move below the key June low (at 1.6920) which comes around the medium term pivot, significantly changes the outlook. The means a key higher low has been broken for the first time in three months, whilst a new corrective trend is now forming. Having breached the support earlier this week it was only with yesterday’s decisive bear candle that the market is now using this pivot as a basis of resistance. The move is confirmed on a new negative configuration on momentum. RSI has fallen below 40 to a three month low, whilst MACD lines are also ready to pull below neutral. The next support under threat is at 1.6690 whilst an old breakout at 1.6455 is also under threat if the corrective momentum continues. The hourly chart shows overhead resistance today at 1.6880/1.6920 as an area of overhead supply for the next chance to sell. Initial support at 1.6800.
A basis of consolidation has set in for recent sessions as traders begin to cast their gaze towards payrolls on Friday. The last two completed candles have seen intraday rallies failing and the market closing towards the session lows. This retains the negative near term bias in the market. However, we are still looking at the support of the old breakout around $1.1265 as being the next gauge to watch. A closing breach opens a test of $1.1180 as the key mid-June higher low. Resistance is building overhead too. Since breaching the neckline support $1.1325/$1.1350, this is becoming a basis of new resistance, whilst a run of lower daily highs has also come, hinting at selling into strength. The hourly chart reflects this negative bias, although the selling pressure has just eased mildly overnight. With this being a public holiday in the US, little real direction is likely, especially given the importance of payrolls on Friday.
Cable has retreated over the past two weeks, drifting away to trade below all of its falling moving averages. Momentum indicators reflect the drift and are increasingly negatively configured again. In the past six weeks the market has been trading within a range $1.2505/$1.2785, with the process of whether this is a base pattern or continuation pattern yet to be determined. However, losing $1.2650 as a near term pivot within the range puts the pressure on lower, whilst also providing a near term basis of resistance. With negative configuration maintained on medium term momentum (and near term momentum for that matter) we favour a test of the $1.2505 support. The RSI falling into the 30s tends to test 30, a bear cross on MACD is forming and Stochastics are in solid decline. Selling into strength remains our favoured strategy. Initial resistance starts around $1.2600 whilst another sell signal between $1.2600/$1.2650 would be an opportunity. There is mild support at $1.2555.
A second consecutive negative close adds to the corrective pressure, but the bulls will be noticing that support around 107.50/55 has held. On a session with a tight 40 pip daily range (Average True Range is 56 pips), the close was 30 pips off the day low and support around 107.50 is holding. There have been some mixed signals throughout this week and it is important to wait for confirmation of the next move. A closing breach of 107.50 would be such confirmation, whilst a ceiling is in place around 108.50 now. This is an important phase now, as the sellers are beginning to regain control again. Given the failure of the RSI around 50 and MACD lines still struggling below 50, and now a Stochastics bear cross, this would serve to resume a downside bias. A closing breach of 107.50 means a retest of 106.75 would then be on. However, the hourly chart shows the support building at 107.50 throughout yesterday’s sessions, whilst hourly momentum indicators also turn higher. To truly find a renewed foothold, the bulls need to pull above the resistance band (which is a pivot) at 107.90/108.15. Resistance at 108.50 remains key. A pair with mixed near term signals in front of payrolls.
The huge rally seen overnight on Tuesday has just settled down again. Given the strength of the bullish candlestick that formed on Tuesday, yesterday’s failure to breakout above $1439 leaves some question marks. Technically this is a chart that reflects the bulls regaining control. The Stochastics ticking higher again, whilst the RSI holding above 60 is also positive. However, equally the outlook needs caution too, given the failure to breakout and also the potential for RSI to roll over, and perhaps a MACD bear cross. Today’s early consolidation could continue through to tomorrow’s payrolls report, which could be crucial for the outlook. Such a decisive bull reaction from $1381.50 means that this is clearly a key support now. $1400 which is an old low and psychological level should also be noted. Although calm has returned to the gold market in the past 24 hours (which is likely to continue today), expect the volatility to ramp up again tomorrow. This means we are cautious on gold near term direction for the time being.
After losing almost 5% on Tuesday, the bulls pulled in a decent recover session and a solid positive candlestick yesterday. However, the outlook remains under pressure and the resistance between $57.75/$58.00 is a gauge on a near term basis. With how the market failed around the 50% Fibonacci retracement at $59.60 earlier this week, there is also a basis of a ten week downtrend too (comes in at $59.30 today). The concern is that the rally has played out as momentum indicators have rolled over to give medium term exhaustion signals (RSI failing at 60, MACD lines losing their way at neutral and Stochastics tracking lower). Initial support at $56.05, but a retreat to the 38.2% Fibonacci retracement at $55.55 is likely, along with a test of $54.85. Another lower high around $57.75/$58.00 would add to pressure lower.
Dow Jones Industrial Average
A bullish upside gap, a solid positive candlestick, a close at the day high along with intraday and closing all-time highs. The Dow has broken out. The move comes with the upswing on Stochastics with upside potential, whilst RSI pushes into the 70 with its strongest level since September 2018. A move to new all-time highs means no resistance overhead, so it will be important to keep an eye on momentum indicators now, especially on the short term charts. We remain bullish, but there is a gap open at 26,788 (from yesterday’s open) and this is still likely to be filled. As yet there is nothing to really be concerned about on the hourly chart for the bulls. Configuration remains positive on hourly RSI and MACD. Weakness remains a chance to buy and with hourly RSI above 70 and Stochastics above 80, there is likely to be an opportunity, perhaps the gap fill? Look out for bearish divergences to suggest slowing momentum before a corrective move, but for now we remain bullish.
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