Market sentiment looks to be reasonably positive moving into the European session today, as traders assess the impact once more of progress on the China slowdown, movement on the oil price and questions over Greece’s economic reforms coming back to the fore. China’s trade balance was announced over the weekend with exports falling -1.8% (-0.1% expected) and imports down by -10.9% (-5.0% expected). There was also the FX reserves which actually managed to tick marginally higher to $3.22 trillion which was marginally higher than $3.20 trillion expected. The marginal disappointment of the trade data (certainly relative to some of the huge misses in previous months) and the stabilisation outflows in the FX reserves shows somewhat of a plateauing of China’s data, which is supportive for markets. The oil price has also been boosted again this morning on news that around half of Canada’s oil sands production has been taken out by the enormous wildfires in Alberta. Combined with a lower Baker Hughes rig count on Friday the oil price has been supported. Finally Greece is back in focus again with today’s Eurogroup meeting over whether to delay the conclusion of the review on the progress of fiscal spending and reforms.
Wall Street closed slightly higher on Friday with the S&P 500 up 0.3%, whilst Asian markets have been mixed in response to the Chinese data, but the Nikkei has been 0.7% higher helped by a weaker yen). European markets are higher today at the open. In forex markets there is more of a positive risk environment with the yen weaker, but aside some minor underperformance from the dollar, there is little real movement. Commodities are mixed with precious metals lower but oil is over a percent higher.
There is little to go on with economic announcements however overnight tonight the Chinese inflation data could set the risk agenda for tomorrow. Year on year CPI is expected to be +2.4% with the PPI at -3.8%.
Chart of the Day – NZD/USD
The Kiwi came under further corrective pressure on Friday and means that once more a key near to medium term support is being tested. I spoke a couple of weeks ago of a potential head & shoulders top pattern completing on a move below $0.6820, but the bulls held on. However this potential top has expanded into a potential double top pattern which would complete now on a move below the late April low at $0.6803 and then mean a potential implied downside target at $0.6550. This would coincide with a retreat back towards the key February and March lows around $0.6560. The bulls would also then suffer the breakdown of the uptrend channel that today comes in around $0.6790. The RSI is also a key indicator with the corrections over the past few months continually finding the buyers returning above 45. A move below 45 on the RSI or into the 30s would confirm the deterioration on the RSI, whilst the Stochastics have already reached their lower level since late January. The intraday hourly chart shows the near term corrective configuration and that rallies are now a chance to sell. Resistance is between $0.6850/$0.6880 initially, whilst the outlook would improve again above Thursday’s high at $0.6917.
After EUR/USD played out the volatility in the wake of the Non-farm Payrolls report there has been a degree of settling down that shows little real direction now. The rather neutral candle on Friday (just 3 pips down on the day) has been followed by a rather sedate Asian session on Monday morning, so this is a market looking now for the next catalyst. The momentum indicators are increasingly benign with the RSI and MACD lines flattening off and the Stochastics shallowing. The intraday hourly chart shows the last three days have found lows around $1.1380 so this is a near term floor and one that comes in just above the old range support band which is now a pivot around $1.1330. The Non-farm Payrolls spike has left resistance at $1.1475 which in effect is the old long term range high once again reasserting (was around $1.1465). Recent trends suggests continued correction but the with the market less certain now the pace has slowed.
The corrective slide on Cable continues to drag the price back lower, with a fourth consecutive decline. However the pivot band around $1.4400 is now being tested. This is an old level that has come in since January as a consistent turning point and whilst it may not be clinically accurate there is still much to be gained from it. I continue to view this current decline as a correction within a medium term improving outlook and will do so whilst the reaction low at $1.4298 remains intact. The daily momentum indicators show a corrective outlook but again one in which the bulls will need to start supporting soon to prevent this from turning into more of a deeper correction. There is now resistance at $1.4540 from Friday’s post Non-farm Payrolls reaction high, a move that also formed a bearish outside day and reflects the near term negative pressure. The hourly chart shows negatively configured momentum and that the bulls are under pressure coming into the new week.
For the past few days the dollar has threatened to rally but has consistently been hitting the underside resistance of the old key support between 107.60/107.80. Despite the negative candle on Friday in the wake of the Non-farm Payrolls report, this is where the market is again challenging on Monday morning. The momentum indicators are drifting higher rather that showing any real bullish conviction and although there has been a push above Thursday’s high of 107.50 already today, the move still looks to be a bear market rally still. Despite this though a move above 107.80 would re-open the near term recovery upside with the next resistance in at 108.70 which is a minor pivot level whilst there is a potential route back towards the old breakout level at 109.75. The hourly RSI needs to be sustaining a move above 70 to really suggest the bulls are gathering momentum. Key near term support is now at 106.43 from Friday’s low.
After four days of a slide for gold, the rebound on Friday has bolstered the technical outlook. Having made the original breakout above $1282.50, the next step is for this breakout to be anchored and a minor correction back into support could be just that. I have been looking for the support to come between $1260/$1282.50 as this was an old resistance band within the trading range. Thursday’s low at $1268.90 could now be that low, however the bulls still need to work hard. The momentum indicators are looking to hold on to a strong configuration and a slight turn of weakness as the European session has started means that the support is still not secure today. The bulls will need to hold above the rising 55 day moving average which had been a basis of support in April (currently around $1246). The hourly chart shows the neutral configuration and Friday’s resistance at $1295.70. Initial support is Friday’s low at $1274.00.
The oil market has been thrown around by a series of choppy indecisive candles in recent days as the consolidation above the support band $43.20/$43.50 continues. From a technical perspective the bulls will probably be fairly comfortable with the recent price action as from a medium term perspective the configuration of the indicators continues to suggest positive momentum and that corrections are a chance to buy. The RSI remains firmly supported above 50, whilst the Stochastics are also resisting the corrective momentum. MACD lines may have just crossed lower but I still feel this reflects a near term dip rather than any more sinister for the bulls. All the while, the 12 week uptrend continues to pull higher, coming in today around $41.40. The resistance comes in initially at $46.07 which now protects the $46.80 high and is being eyed by the early positive move today. The support at $42.50 is key near term.