The respite for the dollar seems to be ending as the corrective sell-off has resumed overnight, not helped by an upward revision to Japanese GDP. This is impacting across forex majors and commodities. The oil price is pushing higher and there has been a rather muted reaction to the mixed China trade data, but with little US data on the cards for the remainder of the week, the slide in the dollar could continue. Risk appetite has been mixed despite the better than expected Chinese imports (-0.4% versus -6.8% exp). Japanese GDP was also revised higher to +0.5% (from +0.4%) but this in effect reduces the expectation of further easing from the BoJ which has played into yen strength and dollar weakness.
Equity markets were mildly higher on Wall Street last night with the S&P 500 managing to break through to its highest level since November, although the gains were very slight at just +0.1%. Asian markets have been mixed overnight although the Nikkei has managed to climb +0.9%. European markets are mildly weaker at the open. In forex markets there is a mixed bag with little real direction of any note, however the slight gains on both the euro and the yen (the latter in the wake of the Japanese GDP revision) means that the dollar is trading weaker again. The Kiwi is also positive in front of the RBNZ. Gold and silver have continued yesterday’s late rebound and oil is also mildly higher again as the break to new multi-month highs continues.
Traders will be looking out for UK Industrial Production at 0930BST which is expected to fall back marginally to -0.4% (from -0.3%). The US JOLTS jobs openings are at 1500BST and are expected to dip back slightly to 5.67m (from 5.76m), whilst the EIA oil inventories are expected to show another draw of -3.0m barrels and would again be supportive for oil. Late this evening we have the Reserve Bank of New Zealand monetary policy decision at 2200BST. Consensus has been fluctuating between no move and a rate cut of 25 basis points, so the decision is clearly in the balance, which will mean a volatile reaction can be expected.
Chart of the Day – AUD/USD
In the wake of the dollar weakness and support for the Aussie after the RBA rates decision, the outlook has shifted once more. The technicals have subsequently significantly improved. Two sharply bullish candles in the past three sessions (sandwiching a doji) have resulted in the Aussie breaking back above the key long term pivot at $0.7385, which now becomes a basis of support again. The configuration on the momentum indicators is far more positive too, with the Stochastics sharply rising, the MACD lines crossing higher with a buy signal and the RSI back above 50. The near term momentum is therefore clearly strong and intraday corrections are a chance to buy, with the next resistance barrier now to be tested between $0.7475/$0.7490. The early move in correction today looks likely to be another buying opportunity. The hourly chart shows a minor support around $0.7335/$0.7385, whilst the near to medium term bulls remain in control whilst above the 6th June low at $0.7312. A break above $0.7490 opens $0.7545 and possibly $0.7720.
The consolidation on the euro continues as a second consecutive neutral candle formed yesterday. The market has settled down since the sharp gains last Friday and the new level seems to have been accepted. With the mild gains seen again today the bulls are looking higher and the initial resistance at $1.1392 could come under test. It seems now that there is control for the bulls and positioning for a push back towards the longer term range resistance around $1.1465 could be seen, although there is an interim resistance at $1.1445. The consolidation of the past couple of days has just seen the momentum indicators tail off slightly but they are more positively configured and suggest underlying support now. The hourly chart shows continued support around $1.1320/$1.1330 and the hourly momentum indicators have unwound and look ready for a move higher. There is further support at $1.1290 and $1.1245.
The incredible volatility of the past few days which has resulted in three strong bull, bear and bull candles successively could be showing some signs of settling today with little significant movement overnight. The Brexit polls may have been driving sentiment in recent days, and are likely to continue to do so in the coming days so this is something to keep in mind. The technical outlook is though still very choppy and indecisive. Although there is a marginally bullish bias to momentum, this is rather indicative of the fluctuations within a range, with the RSI hovering around 50, the MACD lines all but neutral and the Stochastics mildly rising again. Medium term support in at $1.4330 (added to at $1.4350) and up towards resistance at $1.4770 (added to at $1.4723) with much in between just noise now. The hourly chart is very messy with no real trends or consistent momentum. There is minor resistance around $1.4600 with $1.4475/$1.4500 minor support.
I continue to see rallies as a chance to sell. I have been discussing the resistance band between 107.50 and 108.20 being an area to look for the next short term sell signal and this seems to have been the case yesterday with the reaction high at 107.90. The MACD lines crossing lower for another medium term sell signal and the RSI now languishing below 50 adds to the negative outlook. I am expecting pressure back on the near term support at 106.35 but there is little reason to think that a retest of 105.50 will also not be seen. The resistance between 107.50/108.20 is still aa sell-zone, whilst there is further resistance up around 109.10/109.50.
The near term consolidation was supported yesterday at $1234.50 before pushing back higher once more as the dollar has weakened again and the gold price has rallied. With the price looking to break higher today, the renewed buying pressure looks set to return gold back towards the old resistance that comes in around $1260. The momentum indicators are certainly supportive of this view with the Stochastics rising strongly, the MACD lines having crossed higher again and the RSI rising above 50. There is another interesting aspect today and that is that the resistance of a five week downtrend today comes in at $1254. Already the bulls are looking to push clear of the 55 day moving average again (at $1244) but a break of this downtrend would confirm the continuation of the medium term range play. Above the $1260 pivot is resistance around $1288. The support at $1233.60 has been strengthened by yesterday’s low, with further support around $1224 and $1220.
The recent range is breaking to the upside again. This has come as an intraday push above the six month peak at $50.20 was seen yesterday to open the key October high at $50.92 again. Intraday corrections are being bought into and there is now an uptrend that can be drawn linking the lows of the past four weeks giving support between $48.50/$48.75 today. Previous moves on the daily RSI above 70 have tended to struggle with the limited upside potential, so this needs to be kept in mind whilst chasing the breakout. However, hourly momentum remains strong and any move to unwind overbought momentum is likely to be pounced upon again by the bulls. There is a good band of near term support between $49.20/$49.45 whilst there is further support at $48.35. The reaction low at $47.75 is now key.