After a number of weeks where the dollar bulls have habitually seen the glass as half full, buying into weakness and breaking key medium and long term technical resistance, the mood has slipped. It is interesting to see the US longer dated yields have slipped and the momentum that took 10 year yields above 3% has been lost. Subsequently we see dollar uptrends being broken and the bulls have just lost an element of control. This may only be a temporary blip that could easily be brought back in line by a strong read on tomorrow’s retail sales numbers, but for now the buyers are taking a timeout. With a limited economic calendar today, politics is in focus to an extent with the increasing prospect of a populist government forming in Italy, whilst the China/US trade dispute is also back in the spotlight after President Trump tweeted on Sunday that he is working with the Chinese President.
Wall Street closed marginally higher on Friday at 2728 with futures pointing towards further gains initially today and there has been a decent session in Asia (Nikkei +0.6%), however European markets are looking more reticent and are only cautiously higher. In forex, the dollar is again struggling early in the session, with the euro looking positive. In commodities the slip on the dollar is helping gold to tick higher by $3, whilst oil is marginally lower by around 0.5% after the Baker Hughes rig count increased by 10 rigs on Friday and shows that US production pressure continues to build.
There are no key economic releases due today.
Chart of the Day – USD/CHF
Nothing goes up in a straight line forever, there will always be retracements at some stage. This strong run higher on Dollar/Swiss that has accelerated higher since mid-April now seems to be stalling. This is another chart that shows that dollar bull run being questioned. With two negative candles to end last week (after the slight miss on US core CPI), the market is threatening to roll over. The momentum indicators are already reacting. The RSI having been above 80 is now crossing back below 70 (a basic sell signal) whilst the MACD lines are ready to cross lower. The market went on a run of 17 sessions without breaking below the previous day low but is now forming lower lows. The immediate support is at 0.9975 which was the old December key high but also Friday’s low. A breach would see a retreat towards 0.9915 as the next support. The rising 21 day moving average which had been a good basis of support prior to the April acceleration comes in at 0.9865 as a decent retracement target too. The hourly chart shows a small top pattern completed below parity and implies 57 pips of correction, whilst hourly momentum indicators have turned corrective. Resistance at 1.0057 is growing whilst a failure under 1.0020 implies the sellers are increasingly gaining a foothold.
The dollar bull run has certainly stuttered in the past couple of sessions and this has resulted in a small rebound that has pulled EUR/USD off support at $1.1820. This move is developing into more of a technical rally now with a couple of positive candlesticks that have decisively broken a three week downtrend. Another move to form a positive candle early in today’s session looks to be continuing this move and the bulls will now be eyeing a run to reclaim the psychological $1.2000 level. Momentum indicators are beginning to turn a corner too with the Stochastics crossing back higher and close to a confirmed buy signal, whilst the RSI has also crossed decisively above 30. It is still playing out that this would be a near term technical rally that is unlikely to develop into anything more than a medium term pullback towards key overhead supply $1.2090/$1.2155, however this is undoubtedly a developing positive reaction from the bulls. Another bull candle today would add to that. The horly chart shows a recovery configuration on momentum, with the recovery higher low at $1.1890 as initial support to hold.
It does seem as though the prospect of a Cable rally is still not completely unrealistic. The market had been consolidating going into the Bank of England last week, and somehow has survived the mixed messages of Mark Carney. A mildly positive candle body of Friday is pulling marginally higher again today. The market has struggled for the past week to breakout above $1.3615 and this is the initial barrier to breach, and if it can be done on a closing basis, then all the better. The momentum indicators are ticking marginally higher but still have a lot to do to suggest the bulls are serious about a recovery. Despite this, the hourly chart reflects the consolidation outlook now and perhaps this near term bias that has formed over the past couple of sessions positions the bulls well. A decisive move above $1.3615 opens a recovery to the old key overhead supply at $1.3710. Initial support at $1.3500 protects the low at $1.3457 now.
The recovery has lost momentum in the past couple of sessions and the bulls will need to fight hard in order to prevent the market starting to slip back. Since once more failing to breakout above 110.00 there has been a sense of consolidation which is effectively now in the process of breaking the seven week recovery uptrend. Momentum indicators are now in the process of tailing off, with the Stochastics leading the market lower with a sell signal and the MACD lines crossing back lower. For several sessions now the uptrend has been continually tested but today seems to be ready to be broken. Taking a step back, the market has posted just one bull candle in the past eight sessions. Breaking the uptrend would though simply be a consolidation move until the market closed below 108.60 (to complete a top pattern). The hourly chart shows how 109.40 continues to play as a near term pivot.
Gold is another chart that shows the dollar strength has waned, but is simply now reflecting a consolidation. The negative correlation of gold and the dollar is still a factor in the direction of gold and has allowed gold to pick up. But once more, the move is yet to be decisive. A negative close on Friday would have been disappointing. Having looked set to make a clean breakout above $1325, a failure has dragged the market back below $1320 again. There is a notable improvement in the momentum indicators as the Stochastics gain strong traction and the MACD lines threaten to cross higher. However there needs to be a close above Friday’s failure at $1326 to really drive a rally. The hourly chart shows how $1317.50 is now a near term support that also needs to hold. With the hourly momentum around important buying opportunity levels, a failure to kick on now would be a significant blow for the recovery prospects.
Is WTI just showing signs of another consolidation again? The impetus of the breakout to new multi-year highs and above $70 from the announcement by Donald Trump seems to be losing its way. A rather neutral looking candle on Thursday has been followed by a drop back on Friday. For now the momentum indicators remain strongly configured and there is little reason to believe that any weakness will not be bought into. However, another early slip today could be set to test the breakout support above $69.55 with the psychological $70 level as the immediate support for the bulls to buy into weakness that finds support. Initial resistance is at $71.90 before an old resistance band $73.25/$77.85 from November 2014.
Dow Jones Industrial Average
The rally in the past week has been impressive and using a growing uptrend, is now testing the key April high at 24,859 (the S&P 500 has already broken above its equivalent April high of 2717. With momentum indicators pulling higher the near term momentum is strong, but it is more interesting to see the medium term configuration, as the RSI is now on the brink of a move above 60 which has not been seen since the big November sell-off began. A breakout above 24,859 with the RSI confirmation and also MACD lines rising above neutral would be a really positive signal. Beyond 24,859 the resistance is initially 24,977 and 25,031 but there is a realistic expectation of a move to test the next key lower high (the March high) at 25,449. Leaving behind reaction highs at 24,500 and 24,580 now means there is a good basis of support for the bulls to work from (also around where the 21,55 and 144 day moving averages are supportive.
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