It is interesting to see that the US dollar has just lost some of its traction as the Chinese yuan has stabilised overnight, with the moves across forex majors showing a mild slip in the recent strength of the greenback. With Treasury yields stuck, the yuan has been a key gauge for dollar performance, and for now the actions of the PBoC to increase the reserve requirement ratio seem to have stabilised the yuan. Furthermore, the size of China’s FX reserves will be watched for their impact on the yuan today. This has hit the pause button on the renewed dollar strength after yesterday’s move on the Dollar Index was a 12 month closing high. Equities are subdued in the early European session, but taking a slight steer from gains on Wall Street and a positive Asian session overnight. The announcement that the US will now re-impose sanctions on Iran has hardly even produced a ripple in the lake of calm, with the oil price stable and even the safe haven of gold barely budging. More locally, UK assets have Brexit politics to contend with and a meeting between UK Prime Minister May and Scottish First Minister Sturgeon could provide some interest.
On Wall Street, the bulls are pulling higher once more and gave another positive session, with the S&P 500 breaking to multi-month highs, closing +0.4% higher at 2850. With futures also positive, Asian markets have been strong and European indices are ticking higher in early moves. The forex majors show the dollar underperforming a shade against the forex majors. As expected, the Reserve Bank of Australia held rates steady at 1.50% (1.50% exp and 1.50% previous), noting that headline CPI would be lower than expected this year, but GDP to average a bit higher than 3.0% in the next two years. The Aussie dollar has taken a bid from this and is an outperformer. In commodities, gold has bounced $6 higher (around 0.5%) as the dollar strength has waned today. Oil is also continuing its recent bounce and is shading higher again.
With an eye on the ongoing weakness of the Chinese yuan which has played a key role in the dollar strength, there will be a keen interest from traders in China’s foreign exchange reserves which are at 0900BST. The expectation is for a slight decline in reserves to $3.10 trillion (from $3.11 trillion last month) however any bigger decline that that would suggest the PBoC is battling hard to protect the yuan and would be a worrying sign for China, subsequently helping to drive a dollar gain. Aside from the Chinese FX reserves, there is little on the economic calendar today, other than the US JOLTS jobs openings for June at 1500BST which are expected to stick at 6.64m (6.64m in May.)
Chart of the Day – Silver
Precious metals yielding nothing have come under pressure in recent months with US yields providing a much better opportunity cost. However it is interesting to see the outlook for silver and whether there is much of a read through for gold too. Silver has had a history in the past couple of months of breaking through key supports, only for those old supports to turn into a basis of resistance. This happened in July with the break under $16.16 and now seems to be a feature of the break under the old key December low at $15.57. The market may not have seen selling pressure accelerate in recent weeks, with the bounce from the July low at $15.13 still holding on to support, but equally the market is still struggling for any recovery. Despite this, a sharp downtrend has been broken by the two week consolidation, but for now, with the 21 day moving average a basis of resistance still (at $15.55), the struggles on the momentum indicators are showing little sign of a near term recovery. The RSI cannot move above 45, whilst the Stochastics have again turned over around 40. If these conditions were to improve then would the prospects of a recovery. The market needs a closing break above $15.57 in order to prevent current moves simply being just another consolidation that gets sold into. Initial support is last week’s low at $15.21, but a close below $15.13 would open the market for a retreat to $14.87 which is the July 2017 low. For now, rallies on silver remain a chance to sell.
The bulls are still hanging on, but the pressure is really mounting now. A fifth completed bear candle in a row is eyeing the support of the eleven week range low of $1.1505. This is a crucial floor medium term that has significant consequences to the outlook should it be broken. The market was down into the close last night, but interestingly well off the lows of the session which suggests that the euro bulls are still willing to fight to hold on. However, momentum indicators are a concern with the RSI below 40, falling MACD lines and Stochastics negatively configured. However, does the hourly chart hint at a potential rebound again? A positive divergence on the hourly RSI and MACD lines was posted with yesterday’s low. The old support at $1.1570 was a barrier yesterday and could again be key to the prospects of a near term rally. There is resistance further up at $1.1610/$1.1620 so any move will be difficult. A close below $1.1505 opens next support at $1.1370 and $1.1310.
The market is now closing consistently at multi month lows as the July support at $1.2955 was breached yesterday and Cable continues to fall. Dollar strength combined with broad sterling underperformance is driving the move which is pulling Cable ever lower within the downtrend channel, the low of which comes in at $1.2860 today. Momentum indicators remain strongly negatively configured, but there is still further downside potential in the current move. The next support is minor at $1.2850 and then the August 2017 low at $1.2770. The hourly cart shows intraday rallies are being sold into, with the hourly RSI failing around 50 and MACD lines consistently under neutral. There is an initial band of overhead supply now $1.2955/$1.2975, all played out underneath the psychological $1.3000.
The market is still consolidating and that means that the integrity of the four month uptrend is called ever further into question. Even though on a closing basis the uptrend has not been broken, consistent intraday moves lower and the fact that the trend is now above the 111.40 old pivot means that it is likely to see a confirmed breach very soon, unless a significant rebound is seen soon. Momentum indicators reflect the drift sideways now, but retain their broad positive configuration. This move sideways is more a reflection of the dollar unable to outperform the yen rather than an imminent bear breakdown. For that , the support at 110.60 needs to be broken For now the consolidation continues, consistently attracted to the 111.15/111.40 pivot. Resistance at 112.15 needs to be broken to re-open the 113.15 key high.
The consistent theme of hugging the downtrend channel lower as the market slips ever lower, continued yesterday with a negative candle that renewed pressure on the key support around $1204. This move is backed by the ongoing negative configuration on RSI, MACD and Stochastics momentum indicators as rallies continue to be seen as a chance to sell. The recent break below $1220 is now a basis of near term resistance, with the reaction high at $1228 at least needing to be breached to suggest the possibility of a recovery. The bias very much remains a move below the December low of around $1204 which would open $1194.50. The hourly chart shows the consistency of lower highs, with the 144 hour moving average (around $1216) consistently now capping the intraday rebounds.
In the consolidation of the past few weeks, WTI has been supported consistently above what is now a key medium term pivot at $67.00 but has been finding resistance at lower levels. This run of lower highs has formed a shallow mini trend lower. A trend that was again tested yesterday and thus far remains intact. The positive session has carried through into the early moves of today, with the trend lower which today coming in at $69.65, whilst also being flanked by the falling 21 day moving average (today around $69.35). The momentum indicators have though been interesting through this consolidation and reflect a possible recovery near term. The RSI is still very flat between 42/51 (as it has been for the past few weeks – reflecting the mild negative bias in the consolidation), the MACD lines also look relatively neutral, plateauing just under neutral, however the Stochastics have started to tick higher and have a very similar configuration as they did during the June consolidation, just prior to a breakout. The key near term resistance to break is the lower high at $70.45. Initial support is a higher low at $67.85.
Dow Jones Industrial Average
The rebound from last week’s low of 25,120 ticked mildly higher yesterday and edged tentatively through 25,500 which had been a barrier for much of the last week. The market is now testing the resistance that has built between 25,500/25,587. A third positive candlestick in a row has added a more positive outlook to a recent consolidation, and leaves the momentum indicators with an edge of a positive bias. The RSI remains above 60, but only just, whilst the MACD lines have converged. This suggests that there could still be a near term crossroads for the Dow to negotiate, especially if today’s candle turns corrective again. A move above 25,587 would though re-open upside for multi-month highs, with 26,338 and 26,616 ahead. The 61.8% Fib level is a basis of support at 25,367 but a failure back below again could begin to pose some more interesting questions for the bulls. The higher low at 25,120 is now key for the bulls to maintain the recovery.
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