Last updated: May 3rd, 2017 at 09:58 pm
The concerns over the risk events are hitting markets, as traders gear up for not only the Fed this week but also fears over a Brexit mount. Safe haven plays continue to be preferred, with the Japanese yen remaining strong and Treasury yields consistently falling back. With the US 10 year yield now the lowest since February, there is a degree of fear over global growth (the weaker than expected Chinese data has certainly not helped this) but also the prospect of a Brexit is a concern too. Sterling liquidity may be low and volatility may be high but its value is falling as opinion polls point towards huge uncertainty and a possible “Leave”. The front page of the most widely read newspaper in the UK, The Sun, has come out in favour of “Vote Leave” and this will only add to the market concern.
Equity markets continue to fall away, with Wall Street closing lower last night as the S&P 500 dropped by 0.8% (and below a near term pivot support at 2085). Asian markets have also remained under pressure with the Nikkei down 1.0% as the yen continues to strengthen. European markets are again lower in early moves today. Forex markets show the safe havens preference with a strong yen, weak sterling however a mixed outlook for the commodity currencies. Gold and silver are mildly lower (see below) which is interesting considering the safe havens have tended to benefit, whilst the oil price is around a percent lower again.
Markets will be looking towards UK inflation at 0930BST with headline CPI expected to pick up slightly to +0.4% (from +0.3%) and core CPI to move to +1.3% (from +1.2%). There is also US Retail Sales at 1330BST with an expectation of +0.4% for the month on month core (against a previous +0.8%).
Chart of the Day – Silver
Having underperformed so significantly in May, both gold and silver have been rallying sharply in the past week and a half as the dollar has come under pressure. However even when the dollar looked to be trying to claw back some losses against the forex majors, the precious metals have continued to climb higher. On silver the move back above the resistance at $16.80 was key but also barely caused a stir as the recovery continued. Daily momentum indicators have been strong with the RSI in the mid-60s and the MACD lines also back above neutral. However, is silver beginning to run out of steam again ahead of the test of resistance back at $17.58. The one caveat is that yesterday’s trading range was an “outside day” with the low below the previous day low. Although the market closed strongly, this suggests that perhaps there is a degree of tiredness and drilling down in to the hourly chart we see momentum that is not quite as strong on the near term basis with slight bear divergences on RSI and MACD lines. This would tie in to my belief that that precious metals (including gold) may not breakout on this run higher and could be ready to post another near term top. This is one to watch with a little bit of caution now, especially with today’s early weakness and if the support at $17.10 fails then a correction could gather momentum. The key resistance remains the full retracement back at the key May high at $18.00.
Ahead of the big key risk event of the week the euro has formed some support to find a positive response following two strong bear candles. There are conflicting signals coming through on EUR/USD now and this is not overly surprising given the importance of the FOMC meeting this week. The bearish engulfing candle on Thursday still has the near term negative sway, however finding support at $1.1230 yesterday (ie. in the old breakout resistance between $1.1215/$1.1245 which is now supportive) has helped to neutralise the outlook to an extent. The RSI is at 50 and the MACD lines flat around neutral, whilst the Stochastics are falling to reflect the mildly corrective near term outlook still. The hourly chart shows initial resistance now between $1.1300/$1.1320 but I expect that the market will begin to settle in front of the Fed.
High volatility, illiquid market and a fear over a Brexit means that Cable is under pressure. After another rather wild ride yesterday which saw over 200 pips of daily range and a rebound to close higher, sterling is falling away again this morning. It is difficult to argue that technicals are in control as the market is closing running on Brexit opinion polls and rumours. However, the outlook on a medium term basis is deteriorating since the loss of $1.4330 which opened the March/April lows between $1.4000/$1.4080 and with deteriorating RSI, MACD and Stochastics this is reflective of further weakness. The intraday hourly chart shows two near term resistances at $1.4275 and $1.4325 now with a retest of yesterday’s low at $1.4112 likely today.
Pressure is mounting once again on a test of the key May low at 105.52. The constant bearish downside pressure (8 bearish candles in the past 10 sessions) reflects the market concerns and lack of risk appetite. The technicals are bearishly configured but still have further downside potential with the RSI at 35, the MACD lines in consistent decline below neutral and the Stochastics also negative. Rallies remain a chance to sell, even on an intraday basis. The daily chart still shows the overhead supply between 107.50/108.20 but there is tighter resistance between 106.20/106.55. Beyond 105.52 is a support from October 2014 at 105.20 but after that there is little really until 101/104. Key near term resistance is at 107.90.
The gold rally has added over $80 since the announcement of the Non-farm payrolls disappointment, with yesterday’s positive candle the sixth such candle in the past seven sessions. However, in recent days I have been noticing a slight slowing of the momentum in the run higher (most evident on the hourly chart). This is something that I have seen before on gold in recent months, with the last key rally which eventually peaked at $1303 before embarking upon a big corrective phase. The daily technicals are still positive, but interestingly the RSI has reached the level it did in late April before turning lower and the Stochastics are threatening to roll over too. The hourly chart shows a series of negative divergences with the recent highs of the price. The early slide back from yesterday’s high of $1287 (interestingly under the resistance at $1288.20) is only adding to this. The trouble is that negative divergences can take a while to really take affect and can go on longer than hoped. However, I see this as a sign of a topping phase and that another near term high will be posted soon and the range will continue. Support comes in at $1272.30 and $1264.00. Resistance remains in place at $1295.70 and $1303.60.
An intraday turnaround yesterday seemed to have left a low at $48.16 as the bulls tried to claw their way back again. A doji candle formation has left question marks over the corrective momentum, but slight early weakness today means that the sellers are still present. I have been looking for a low in the support band above $47.75 and the question is have we just seen it? The support of the 4 month uptrend is at $47.85 today, whilst the RSI has been consistently be bottoming around the mid-50s for the past two months. A confirming candle of support today and this could be the renewed buy signal to continue to use the uptrend and push back towards the highs again (at $51.67). Intraday hourly technical show a series of recovery momentum signals, whilst a move back above the near term resistance band between $49.50/$50.00 would confirm the bulls as being back in control. There is further near term resistance at $50.75.
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