The US dollar remains under pressure in the wake of a dovish set of FOMC minutes for the July meeting which suggested there was still the majority of the committee ready to hold off from a further hike. With most of the committee looking for more data to confirm and “several” saying that a slowdown in the future pace of hiring was an argument against a near term hike. This has hit the expectations for a potential hike in December which has been fluctuating around the 50% line in recent days following hawkish comments from the FOMC’s Dudley and Lockhart.
The dollar was hit across the forex majors with the yen strength pulling its pair back below the key 100 mark again. Commodity prices were also boosted whilst sentiment on equity markets took a minor shot in the arm on the probability for looser for longer monetary policy from the Fed. The dollar remains under pressure today, trading weaker against all the forex majors. The Aussie and the Kiwi are the big outperformers in the wake of the Australian employment data which was marginally better than expected. Wall Street closed slightly higher with the S&P 500 +0.2% after having traded lower for much of the day only to close around the day high. Asian markets were mixed, with the Nikkei (+1.6%) under pressure once more from yen strength. European markets are taking their lead from Wall Street with gains in the early moves.
Traders will be watching for the next piece of the post-Brexit jigsaw with UK Retail Sales for July this morning at 0930BST. Expectation is for a positive reading of +0.4% for the month equating to +3.9% for the year on year, on an adjusted ex-fuel basis. Final Eurozone CPI for July is at 1000BST which is expected to stay at +0.2% for the year. Philly Fed Business index is at 1330BST and is expected to improve mildly to +2.0 (from -2.9) whilst the weekly jobless claims are also at 1330BST and are expected to stick around recent levels at 265,000.
Chart of the Day – Silver
The outlook for silver has been corrective now for the past couple of weeks. Since the rally hit $20.78 and rolled over, there have been a majority of the candlesticks on the daily chart have been either outright corrective or disappointing for the bulls. As with gold, there has been a run of candles with long upper shadows which suggests the bulls consistently lose momentum as the session wears on. The momentum indicators reflect this corrective mood, with the RSI dropping back to 50 at its lowest since June, whilst the MACD lines are also falling away. Although a dip to a three week intraday low below $19.55 was not sustained yesterday, if this run of candle disappointments continues, there is an increasing feeling that silver may be dropping back to test the key near to medium term support at $19.20. However, I would still say this this price action over the past month and a half is merely a consolidation rather than a the formation of a top pattern and a bigger corrective move. The configuration of the momentum is still positive but is also just corrective within a medium term bull market. I would continue to see a decline as a chance to buy. The hourly chart shows the trend lower of the past two weeks (today coming in around $20.15) with a resistance band now key near term between $20.00/$20.12. Gold is looking to break higher today and silver is also reacting strongly. This could therefore be an important day as another disappointing candle for silver could trigger a decline towards $19.20. It would need a closing breach of $19.20 to complete the bearish break, however until then I continue to see this as a corrective move that will be bought into.
Having broken out to a new seven week high the dollar continues to edge higher. Another (mildly) bullish candle added 10 pips on the day and even though this was considered to be an “inside day”, the further gains this morning have taken the euro to another seven week high today. The daily momentum indicators remain strongly configured with the RSI rising at 65, whilst the MACD and Stochastics are also advancing positively. The underside of the old uptrend channel is again a potential resistance, today at $1.1355, however the bulls will be eying the pre-Brexit high of $1.1432 once more. Interestingly as well, the previous breakout at $1.1233 became supportive with yesterday’s low and this is now a key near term floor. This is also shown well on the hourly chart which remains positively configured with rising moving averages and strong momentum. The recent uptrend support on the hourly chart is currently around $1.1210.
Despite the dollar weakness that was seen in the wake of the Fed minutes, sterling could not acquire the bull traction to take advantage. A doji candle has subsequently followed the strong bull candle from Tuesday and this uncertainty coming around the resistance of the old floor at $1.3060 is a concern. The bulls are again struggling to gain a decent footing today again and the likelihood is that this rally will once again be sold into. The momentum indicators have picked up slightly with the Stochastics crossing higher, which is in theory a buy signal (or at least take profits on short positions), however the RSI remains negatively configured below 50 and there is little real movement on the MACD lines. The hourly chart shows the extent of the overhead supply between $1.3060/$1.3100 and I see this as a near term sell-zone. Only above the $1.3160 old pivot would the bulls look to be sustainable in this near term bounce. The reaction following the Fed minutes has left support at $1.2975 and a break back below this would re-open the downside once more for a retest of $1.2863 and the 31 year low at $1.2796.
Even before the dovish set of FOMC minutes, the yen had been looking to strengthen once more and the suggestion remains that any rebound on Dollar/Yen is a chance to sell. The selling pressure has subsequently dragged the pair back below the key 100.00 level this morning and the bears look to be preparing for the next leg lower. A daily close below 100.00 would be a really negative signal after that initial rebound this week (a two day close below would be confirmation). Clearly the next support would be 99.08 which was the spike low on the day of the Brexit sell-off and could easily be tested. The stochastics, MACD and RSI are all bearishly configured but the concerning aspect is that they all have further downside potential too. Yesterday’s recovery high has left resistance (and another lower high) at 101.15 and any rallies, even on an intraday basis, are now being sold into.
Can gold convert the first genuinely positive candle for a while into a bullish breakout? So many of the recent candles have closed in disappointing fashion for the bulls with closing prices in the lower portions of the candle. However the dovish FOMC minutes generated a positive outlook into the close and the bulls are continuing this with the early gains today. The move is looking to test the recent downtrend and the resistance built up around $1357/$1358 in the past couple of weeks. A closing break above this resistance could be the catalyst the bulls need to reignite their stuttering momentum. The RSI is responding positively, whilst the Stochastics which have been drifting lower are also looking to turn up. The hourly chart shows the bulls are already putting pressure on the downtrend and with a bullish bias to momentum, the prospects of a breakout are improving. With hourly moving averages rising in bullish sequence corrections are increasingly being bought into. There is a base of support between $1333.50/$1340.
The EIA oil inventories report shows a surprise inventory drawdown on crude stocks and larger than expected draw on gasoline stocks, all of which is supportive near term for WTI. The bulls are subsequently looking confident in a move through the main band of resistance. Using the 23.6% Fibonacci retracement of $26.05/$51.67 at $45.60 as the basis of support is a positive, whilst the hourly chart shows that all the higher lows in the recent rally are still intact as support. The run higher may still be showing signs of slowing slightly as these key technical indicators of the crossroads are being tested, but the bulls remain in control for now and increasingly looking set for another upside break. Support is in at $45.35 before $44.40 and the key $43.40. The bulls will still need to breach $46.93 (which is acting still as a barrier this morning) to continue the recovery but the outlook remains positive for now. Yesterday’s low at $45.85 is initially supportive. Above $46.93 opens resistance at $48.25 and potentially the highs again.