With a slight lull in newsflow over trade tariffs and as traders look forward to the tier on events of the ECB and US growth later in the week, markets have begun to consolidate. However, with key talks between Donald Trump and the EU’s Jean Claude Junker taking place today, could newsflow over trade tariffs blow up again. With regards to the consolidation though, this has come with global yields beginning to drift back lower again after their spikes higher earlier in the week. This has taken the sting out of the tail of dollar moves and neutralised forex markets in the near term. However, there is a decent move being seen in equity markets, as US earnings season continues to impress. The S&P 500 breakout to multi-month highs came in the wake of strong numbers from Alphabet (i.e. Google) and United Technologies. European markets have been pulled higher for the ride too, with the DAX stronger and even the FTSE 100 moving out to multi-week highs. The question for today though is how will Donald Trump react to a meeting at the White House with European Commission president Jean Claude Junker. Recently, Trump has been somewhat dismissive of the leaders of traditional allies (bordering on the offensive), so what he makes of Junker who is a key political leader of an economic bloc, the concept of which he is so opposed to, could be interesting. German auto makers will be especially keen to see how it all pans out as trade tariffs will be discussed
Wall Street closed decisively higher last night with the S&P 500 +0.5% at 2820, however with futures suggesting -0.2% will be given back today there is a mixed sentiment across indices. Asian markets have been mixed overnight (Nikkei +0.4%) with European markets slipping back a touch early today. In forex, there has been a very slight move against the dollar as European traders have taken over but nothing to get overly excited about yet. In commodities there is a slight tick higher on gold as the dollar has slipped a touch, whilst oil has found some support on unexpected inventory drawdowns in the API inventories.
Traders will be looking out for the German Ifo Business Climate at 0900BST which is expected to drift back a little further to 101.6 (from 101.8 last month) and given the concerns over trade tariffs it will be interesting to see how this is impacting on business confidence in Germany. Into the European afternoon, the US New Home Sales are expected to fall by -2.8% to 671,000 which would still be a very strong number (from 689,000 last month). The EIA oil inventories are at 1530BST and are expected to show a crude oil drawdown of -3.0m barrels (after the surprise inventory build of +5.8m barrels last week), distillates are expected to build marginally by +0.4m (-0.4m last week) and gasoline is expected to drawdown by -0.9m (-3.2m last week).
Chart of the Day – FTSE 100
Can the FTSE 100 decisively breakout? The outlook for the FTSE 100 has been showing gradual improvement over recent weeks, breaking a downtrend phase and posting a series of higher lows. However there has been a consistent failure for the market to break decisively above resistance in the band 7705/7715. However, an intraday move to 7740 signalled intent from the bulls with a strong positive candle formation. Furthermore, although the market slipped into the close, there was a five week closing high of 7709 which suggests that the bulls are ready to make a move. Momentum indicators are positioning more positively with the RSI confirming a five week high and MACD lines creeping above neutral. Increasingly the market is using corrections as a chance to buy, with a near term buy zone 7680/7710 whilst Monday’s low is a higher low at 7620. However, the bulls need to release the shackles and a closing breakout above 7715 would open resistance at 7800 whilst the all-time high at 7903 would be back in focus too.
The chart continues to drift in a somewhat directionless fashion within the medium term range of $1.1505/$1.1850, lacking any real intent. This is reflected in a small bodied candle loss within a small range of just 65 pips yesterday (Average True Range is currently just 74 pips). Momentum indicators are equally uninspiring with the RSI, MACD and Stochastics lines all but entirely flat around their neutral points. This is clearly a market in desperate need of a catalyst. Let’s hope that the ECB and/or US GDP can inject some life into it. Initial support at $1.1650 before $1.1625 and more importantly $1.1570. Resistance is at $1.1750 protecting $1.1790.
Considering the consolidation across the majors yesterday, the uptick on Cable was a fairly decent performance from sterling (gaining 42 pips on the day). However, despite this move, there is still a sense of rallies being sold into, with the old pivot at $1.3200 seemingly a prime opportunity again. The downtrend channel continues to track lower, whilst momentum indicators retain a negative configuration whereby the RSI has consistently failed in the 45/50 region in recent months. The hourly chart shows a shade more of a mixed outlook nearer term, but resistance at $1.3160 is still a factor early this morning, whilst it would need a move above $1.3290 to consider a potential recovery having any reasonable chance of success. Initial support at $1.3070 protects the $1.3000 psychological level again
Although the corrective force has slowed in the early part of this week, there is still a concern for the uptrend that has been in place for the past few months. Monday’s low at 110.75 has been built up as support but the dollar bulls are struggling to reclaim their ascendency. The market drifted slightly lower yesterday and has continued to struggle today. There seems to be a battle for control around the old breakouts between 111.15/111.40 and with the medium term uptrend coming in at 110.50 today this is an important phase. Momentum indicators remain near term corrective within a medium term positive configuration but the RSI is drifting ever closer to the 45 level which has been a key floor in recent months. A close back above 111.40 would suggest that the dollar bulls are beginning to reclaim their control. However the hourly chart shows that this rebound from Monday’s low is still considered to be a bear rally. Mixed signals then across time frames which adds to the importance of a decisive break.
A consolidation is taking hold as the market has begun to settle under the old key support at $1236. Yesterday’s doji candle reflects this consolidation as the market moves sideways within the downtrend channel. The resistance of the channel is now falling at $1234 and this will become an interesting test of the bearish outlook in the coming days. Momentum indicators are still very negatively configured, suggesting that periods of consolidation will ultimately break to the downside to retest the $1211 recent low, with the July low at $1204.50 a key target also. For now though there is a sideways move playing out under the overhead supply that begins at $1236. The reaction to the ECB and US GDP numbers later this week could be crucial.
There is still a sense that oil is in consolidation as the market formed an “inside day” session yesterday, even though there was a decent gain of +0.8% on the day. Momentum indicators remain in somewhat neutral configuration with the RSI broadly flat just under 50, the Stochastics sowing little direction and MACD lines still drifting back towards neutral. The bulls are still struggling to decisively reclaim the initiative that has slipped in the wake of the contract roll, but whilst the support of the pivot at $67.00 remains intact then the positive medium to longer term outlook will remain. However, trading under the $69.55/$71.10 resistance keeps the bulls under wraps. An early move higher today suggests that there is a continued confidence in the support, but can the overhead resistance be broken to re-open the upside?
Dow Jones Industrial Average
Using the 50% Fibonacci retracement of 26,616/23,345 at 24,980 as a basis of support has seen the bulls return to propel the market higher again. A decisively strong bull candle has ended a series of sessions where the market has slipped backwards. It comes with a breakout above 25,215 on a closing basis which has seen the market storm to a new five week high. The momentum indicators have maintained their strong configuration with the RSI back into the 60s whilst the MACD lines continue to climb above neutral. The impressive push higher has left an increasingly strong support now at 24,980 whilst there is a shallower but more sustainable uptrend now having formed over the past three weeks that comes in today at 25,080. Pulling decisively clear of the 50% Fib level opens the 61.8% retracement at 25,367, whilst the June high around 25,400 is well within range today with the Average True Range of 185 ticks.
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