There is a mixed outlook on markets to start off the week, however there is a sense that the dollar weakness that resulted from the latest set of US data to bolster the argument against a Fed rate hike. An unexpected drop in the adjusted US Retail Sales adds to the lack of conviction that has so often allowed the Fed wriggle room on tightening and it looks once more as though this could continue to prevent the next rate increase, perhaps until next year. With Treasury yields having fallen back again, the US dollar has suffered as a result and whilst perhaps the selling pressure has not been as bad as initially feared. There is a mixed outlook on the dollar as the European session takes hold today and it will be interesting to see if this continues. However, watch for a decisive move on the trade weighted dollar index below 96.25 for a key breakdown, a move that has not been seen yet.
Equity markets are starting off the week again in a slightly positive vein which comes despite a mixed close on Wall Street on Friday with the S&P 500 down -0.1%. Asian markets have been mixed overnight with the Nikkei slightly off -0.3%. Fore markets show little real move, however there is a degree of yen outperformance, after the disappointing announcement of zero growth in the second quarter for Japan (+0.2% expected) has pull the Japanese yen mildly stronger. Commodities are slightly positive with a positive move on gold and silver, showing around half a percent gains, whilst oil continues its recovery, currently up just under a percent.
There is little on the economic calendar today until the US New York Fed Manufacturing which is at 1330BST, with a forecast of +2.5, although keep in mind that a surprise is highly likely as every consensus forecast this year has been way off. The NAHB Housing Market Index is at 1500BST and is expected to climb slightly to 60 (from 59).
Chart of the Day – USD/CAD
Despite the fact that the US dollar has been strengthening for the past few months, reclaiming lost ground against the Loonie and looking set to continue a recovery, there has now been a decisive move, but to the downside again. This move has come as an uptrend since the early May low of 1.2458 has now been broken. This break comes after five consecutive bear candles and the breach of price support at 1.3000 which had previously been holding firm through the last couple of weeks. With Friday’s breach of this support the deterioration in the outlook has been determined, but this has also been confirmed on momentum by the Stochastics deteriorating to their most negatively correlated since early June, the RSI at a 7 week low and the MACD lines crossing lower. The near term chart shows a small top pattern having completed signalling at least 200 pips to the downside from the 1.3000 breakdown. This suggests the reaction lows at 1.2858 and 1.2827 are set to come under threat. The hourly chart shows that the neckline will be a basis of resistance whilst between 1.3000/1.3080 could now be seen as a “sell zone”.
The outlook for the pair remains all rather uncertain after a rather disappointing end to Friday’s candle has left the bulls lacking conviction in their attempt to push out higher again. The long upper shadow reflects lost momentum in a test of the recent high at $1.1233 as the initial bullish reaction to the weaker than expected US Retail Sales could not be sustained. There is a slightly mixed outlook to the momentum once more with the marginally positive RSI and MACD lines balanced by the Stochastics (which are more sensitive and reflective of very near term price action) that are now threatening to turn lower again. The hourly chart shows a mild positive bias trading above the rising hourly moving averages but momentum is a little tepid still. The pivot band around $1.1120/$1.1130 is supportive still, but the choppy price action suggests a preference for short time horizon trading. Key support remains at $1.1043.
The bearish drift back towards a test of the 31 year lows at $1.2796 remains on. Having broken clear of the old support at $1.3060 in the past few days the consistent run of bearish candles continues to drag the price lower. The sell-off may not be precipitous but the configuration of the momentum will be a concern for the sterling bulls as the Stochastics are still deteriorating, the RSI still has further downside potential in the mid-30s and the MACD lines are only just crossing lower again. Friday’s trading shows a failed attempt at an upside move (in the wake of the disappointing US Retail Sales) but this was sold off intraday to leave another bearish outside day and another lower daily close. The rallies continue to be sold into and there is little to suggest that this is going to change any time soon. There is now another lower high below the $1.3060 key resistance, at $1.3035 and anywhere between $1.2950/$1.3035 could be a selling point now. Expect pressure on the initial support at $1.2850 before a retest of $1.2796.
There is still a bearish outlook on Dollar/Yen but the price has not breached the 100.65 support now for the past 8 completed sessions. I have spoken previously about a consolidation that was building and this remains intact as the price has traded within 200 pips for almost two weeks now. There is still a bearish configuration to the momentum with the Stochastics still below 20 and the RSI around 40 but the pressure of selling has dissipated for the time being. I am still of the belief there will be a test of the 100 level and there have been three bearish daily candles in the past four completed sessions which retains a slight bearish bias. The hourly chart reflects ranging conditions however the price is trading below a near term pivot at 101.65 once more which is putting pressure back on the 100.65 support of the consolidation. The key resistance remains 102.80.
On a day where dollar weakness was being generated from the weaker than expected retail sales the gold bulls could not manage to hold on to initial strength and a very disappointing candle was formed on Friday. Despite the early gains a close below the previous day low is a concern and the momentum indicators are becoming rather mixed once more with the Stochastics falling away again although the RSI is still above 50. This is becoming a somewhat messy phase of trading for gold with false signals all over the chart and moves unable to be sustained. The support posted at $1329.50 is still a key near term low that needs to hold to prevent some significant questions being asked of the bulls. However the hourly chart also reflects this uncertainty and lack of trend of late. There is still near term resistance at $1357.20, with $1367 intact as a barrier overhead. The very mild gains in early trading today have done little to provide any clarity over the direction of the next decisive break.
An incredible two day rally on oil has once more flipped the outlook back decisively towards positive near term bullish control once more. The bullish engulfing candle on Thursday has put down a significant marker with a low at $41.10 which laid the groundwork for the run higher once more. The momentum indicators retain a bullish recovery configuration with MACD lines having recently crossed higher, the Stochastics giving a “bull kiss” and the RSI back above 50. The intraday hourly charts interestingly shows the previous breakout resistance at $43.40/$3.50 is also now becoming the basis of support and this is where the bulls will look to use as a springboard for a move higher above $45 and towards the next important band of resistance between the highs of $46.10 and $46.95. The early gains today show the continued buying pressure and any corrections will to be seen as a chance to buy.
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