Politics in Italy have never really been especially stable at the best of times, but once more, the parliamentary elections on Sunday seem set to return a hung parliament and uncertainty for the months to come. There has been pressure on the euro and further safe haven trading as a result across financial markets this morning. Although a fractious result was broadly expected, the anti-establishment Five Star Movement party gaining the most votes is a concern for political stability of the Eurozone. There are now weeks and potentially months of political negotiations ahead in order to form a government. The yield on the Italian 10 year government bond has jumped by 7 basis points today and the euro has started to fall away as European traders are looking to react today. There is also a degree of safe haven trading this morning with the yen and gold outperforming (although this could still be a hangover from last week’s protectionist moves by Trump). In equities, the Italian stock market, the FTSE MIB is sharply lower, but due to Donald Trump tweeting about German cars, the DAX is under pressure on fears of further protectionist moves by the US government.
Wall Street had a mixed close on Friday with the Dow lower, but the S&P 500 recovered from sharp early losses to close higher on the day (+0.5% at 2691) with Asian markets mixed overnight (Nikkei -0.7%). European markets are looking mixed with Italy lower and the DAX also lower on protectionist fears. In forex, there is a weakness on the euro and although there is a dollar recovery, the yen remains the key outperformer. In commodities, the safe haven flow is also helping to underpin gold today, whilst oil is mildly higher despite the Baker Hughes rig count rising by 1 rig to 800, the highest since April 2015.
The big focus will be on the Services PMIs today. First of all the Eurozone final PMIs are announced at 0900GMT with Eurozone final Services PMI expected to be 56.7 (the same as the flash 56.7). The UK Services PMI is at 0930GMT and is expected to improve slightly to 53.3 (from 53.0 last month). The ISM Non-Manufacturing PMI is at 1500GMT and is expected to drop back to 58.9 (from a hugely strong 59.9 last month).
Chart of the Day – Silver
Silver is considered to be not only a precious metal but also an industrial metal which is a slight hampering given the US protectionist shift. However with the bounce from support around $16.16 the rally that ended last week on a high, is now testing the resistance of a 5 week downtrend, but also the flanking downward sloping 21 day moving average (today at $16.56). This comes with the momentum indicators looking more stable on the daily chart and more interestingly the hourly chart configuration looks more positive. The market has moved above a near term pivot resistance at $16.50 and is trading above the hourly moving averages. However, the key resistance near term to overcome is at 16.77 and this will be the aim for the bulls in the coming days should they continue the recovery. It is also interesting to see the old support around $16.40 once more coming in to act as a floor on Friday afternoon.
Despite the uncertainty of the Italian election (both before and now after), the euro is looking to continue its recovery. Thursday’s bullish engulfing candle (bullish key one day reversal) the market has been looking to buy the euro, and formed a second strong bull candle to break a corrective two week downtrend. This move has also come with a bull cross buy signal on the Stochastics and the RSI back above 50. The MACD lines looking to bottom again just above neutral is also a positive signal. The volatility of reaction from the Italian election result is yet to completely play out and may give an intraday buying opportunity but the euro seems to be on its strengthening path once more against the dollar. The hourly chart shows there is still work to be done to confirm the move, with resistance at $1.2360 needing to be broken, but intraday corrections should again be bought into now, with the support band $1.2250/90 an decent buy zone now. Above $1.2360 opens $1.2435 initially and then the key high at $1.2555.
Even though the dollar is weakening across the majors, sterling is still trying to push water up a hill against the greenback. A couple of sessions of very slight gains on Cable reflect the struggle, whilst the early signs are today that this is going to be another day of toil for the bulls. Momentum indicators are looking to tick slightly higher but in no way suggest that the bulls are in control yet. A downtrend of the past few weeks remains firmly intact whilst the hourly chart shows the resistance at $1.3855 is still a key near term barrier to the recovery. Brexit politics have been like a handbrake on sterling in the past week and any renewed dollar strength would be a drag on Cable, but for now the market is in consolidation mode. Initial support is at $1.3755 with $1.3710 preventing a retreat into the $1.3550/$1.3650 support band.
A third consecutive negative close on Dollar/Yen has seen the market breach the support at 105.50 on an intraday basis. On Friday, this took the pair to its lowest level since November 2016, with the bears looking firmly in control. This comes with the RSI falling back to 30 but with further downside potential (the February sell-off saw the RSI hitting 23), whilst the MACD and Stochastics have also turned lower again. The bears would be further bolstered if there were to be a closing breach of 105.50 though, which is again being threatened today. However there is also a slight near term caveat in the market closing 50 pips off the session lows on Friday and the hourly momentum indicators initially pointing higher early today. Intraday rallies are though still a chance to sell, with 108.35 being initial resistance whilst the eight week downtrend and falling 21 day moving average provide the key resistance around 107.40 today. A close below 105.50 opens 102.50 initially but a retreat to 100 is likely in due course.
Having once again used the long term pivot band $1300/$1310 as a basis of support, gold has looked to resume its push higher again. The positive session on Friday has been followed by early gains today which have now broken a two week downtrend and are seeing the momentum indicators ticking higher once more. The RSI has picked up above 40 with the MACD lines looking to stabilise around neutral and Stochastics are now turning higher. The support at $1302.60 is now key but just adds to the general pivot around $1300/$1310. The hourly chart shows a more positive configuration and a move above the resistance band $1320/$1325 which should now open $1332 in the near term, whilst $1341 is key resistance. There is initial support now at $1317.
The market is struggling to form support but somehow the bulls managed to claw some gains out of Friday’s session and have maintained the position today. Despite the weakening of the dollar the oil price is still struggling from growing fears over global demand (in the wake of US protectionism). However, the technical are looking increasingly messy on the daily chart as the momentum indicators give little real sense of decisive direction now. The support at $60.20 is building but equally there is a sequence of negative candlesticks that is still running. Intraday rallies have tended to be sold into and the hourly chart shows resistance now $61.75/$61.85. Hourly technical are now at a crossroads with RSI still failing around 50/60 and the MACD lines rolling over around neutral. A move below the near term support at $60.20 opens the key support band $58/$59.
Dow Jones Industrial Average
Is the bearish slide showing initial signs of support? Friday’s negative session was actually a positive candlestick that closed a bearish gap. However this needs to be followed up now with a positive session and candle today. With the Fibonacci retracements of the big sell off acting as an excellent gauge, a decisive move below the 38.2% Fibonacci retracement at 24,603 means this is now the resistance initially, whilst the hourly chart shows resistance of the old low at 24,793. The initial support at 24,217 is supportive, with the 23.6% Fib level at 24,128 as a potential support area. A break above 24,793 would be a sign that the bulls are fighting back.
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