Last updated: May 3rd, 2017 at 09:55 pm
As the G7 meeting of foreign ministers looks to compile a coherent and decisive message to take to the Russians over Syria, there has been a negative shift in risk sentiment as safe haven assets outperform. With conflict over the actions of President Assad of Syria bubbling up, concerns are also growing over how the US will deal with the increased sabre rattling by North Korea. This is reflected in the building of support overnight for gold and the yen, whilst Treasury yields are also starting to fall back again. In a reduced risk environment, equities will tend to suffer and that seems to e developing today. Wall Street lost its early gains into the close, whilst Asian markets were also lower overnight and European markets are also corrective in early moves.
Forex majors show an interesting picture developing too, with a mixed outlook for the dollar but also the yen is an outperformer. Can the yen finally breach the 110.09 support? Furthermore, we are seeing gold picking up too, but again as with the yen there is a key barrier holding back its advance with resistance in the $1261/$1270.50 range. Oil has been boosted by the increased conflict in the Middle East, whilst Libya’s largest oilfield has also been shut down, and it will be interesting to see if the early drop back will be seen as another chance to buy.
The European session will be focused initially on the UK inflation data which is announced at 0930BST. Headline UK CPI is expected to stay at +2.3% for the year, which would stall the recent acceleration, whilst core UK CPI is expected to drop back slightly to +1.9% which would temper the run higher from last month’s spike up to 2.0%. Traders will also be looking out for UK PPI Input Prices which are expected to drop back marginally to +17.0% which would be a second month of reversal after last month’s +19.1%. German ZEW Economic Sentiment is at 1000BST and is expected to improve to 14.0 (from 12.8) which would continue the consistently positive outlook for the German economy over the past six months. The US data is limited to the US JOLTS jobs openings at 1500BST which are expected to dip slightly to 5.59m 5.63m last.
Chart of the Day – Silver
The reversal signals are racking up after Friday’s huge bearish engulfing candle (bearish key one day reversal). This comes after the price was creeping gradually higher over the past week and the bull run has been gradually running out of steam. The move now comes with confirmed sell signal on the Stochastics, the RSI back below 50 and the MACD lines also on the brink of a bear cross. Closing below the support around $18.00 on Friday, the market continued to correct yesterday with another bear candle and the increasing bear pressure suggests that rallies will now be seen as a chance to sell. It is interesting to see the Fibonacci retracements of the big sell-off from $21.10/$15.59 have repeatedly been used as key turning points and once more the March rally has failed at the 50% Fib level at $18.35 and is now already testing the 38.2% Fib level at $17.70. Despite a rebound off this 38.2% Fib level yesterday, I expect further pressure on this level in due course and a decisive move below 38.2% would open 23.6% at $16.89. The hourly chart reflects bearish configuration and there is a band of resistance now $18.00/$18.10. A move above $18.47 aborts the bear control now.
Despite a quiet start to the week with a small trading range of only 50 pips and an almost doji close to the session, the euro remains under corrective pressure. The legacy of the big bear candle from last Friday which broke the consolidation is still playing out with the sellers in control. Once more, there is an element of negativity to the session, with the daily momentum indicators remaining corrective. Rallies are still a chance to sell and the hourly chart shows a band of resistance $1.0640/$1.0695. Furthermore the hourly momentum studies remain negatively configured with the RSI failing under 60 and MACD lines unwound back to neutral. Expect further pressure below yesterday’s low at $1.0568 and towards the February/March key lows around $1.0500.
Sterling bulls reacted well to Friday’s strong bear candle and helped to retrace some of the losses to maintain the support around $1.2345. The next job for the bulls will be to break a sequence of lower highs that has been forming over the past couple of weeks. This minor corrective slant that has now taken over on Cable has developed a negative slant to the momentum indicators that is now a concern for long positions. The daily moving averages have all converged to within 35 pips which reflects a neutral medium term outlook. However this could all change on a breach of the support at $1.2345. Yesterday’s bull candle shows an appetite to still buy sterling but the hourly chart shows the recent downtrend that comes in around $1.2470 today. Furthermore, to breach the trend of lower highs a move above $1.2505 is needed. The hourly indicators are relatively supportive in configuration, however the bulls will have to fight hard to break this corrective sequence.
This is a somewhat uncertain phase for Dollar/Yen with a string of very neutral and indecisive candlestick patterns. The pressure on the long term uptrend in place since September continues and there is a squeeze now with the major pivot at 111.60. The early moves today suggest there is further downward pressure developing with an apparent safe haven bid in the market as the yen has strengthened. The daily momentum indicators are in a strange moment where they could go either way, with the consolidation on the market meaning that momentum is gradually unwinding but also remains somewhat negatively configured. The hourly chart reflects a range of around 150 pips has formed between the key low at 110.09 and the pivot at 111.60. For now continue to use the extreme readings on hourly RSI and Stochastics as signals for mean reversion within the range. Trading below the mini pivot at 111.00 puts pressure on the range lows again, however with the hourly RSI towards 30 again the downside potential could be again limited. The bulls have the further resistance at 112.20.
Despite the false upside break on Friday there is still a minor safe haven bid in the market which is helping to pull gold higher and open for another test of the range resistance above $1261. The daily momentum indicators will be interesting now as the MACD lines have lost impetus and the Stochastics are still tracking lower from the deterioration last week. This points towards a market that could continue to struggle to sustain a move above $1261. Yesterday’s candle was mildly bullish and reflects the market responding well to initial selling pressure, whilst there is a mild positive move today. The hourly chart configuration shows a continued range trade and therefore I am expecting this $21 range between $1240/$1261 to continue. Yesterday’s low at $1247 is now supportive above $1243.30 and $1239.50. Resistance is at $1261 and $1270.50.
Oil remains in bullish recovery mode as the uptrend of the past two weeks continues to run higher. The market has now closed above the resistance around $52.55 which is the latest bullish breakout, whilst corrections continue to be bought into. Momentum indicators remain positively configured with the daily RSI up at 65 which is the strongest levels of this year, whilst the Stochastics and MACD lines are also finding strengthening momentum. The hourly chart shows a well-defined uptrend which is supported by a near term pivot around $52.30 today. Initial support is at yesterday’s low of $52.30, with the key support now Friday’s reaction low at $51.50. Hourly momentum is strongly configured and the corrections that are seen to unwind momentum are chance to buy. The daily chart shows that the next resistance is $53.80 before the $54.45/$54.95 late February resistance of the key four month trading range comes back into play.
Dow Jones Industrial Average
US markets started the week where they left off, with yet another doji candle and an uncertain trading outlook. Despite this though, the pressure is back on the five week downtrend. It will also be interesting to see if the momentum indicators can break the recent consolidation with the RSI and Stochastics both trading around neutral and the MACD lines also looking to bottom. The old resistance band around 20,757/20,777 which was the old March low that turned into a basis of resistance during late March is back in play and remains a barrier to overcome. Despite the intraday breach last Wednesday, there is yet to be a close above this level in the past few weeks as the downtrend has progressed. A breach would now confirm the bulls starting to regain control, however for now it is a struggle for traction. The hourly chart shows momentum indicators starting to look more positively configured and that the 20,607 level could now start to become a higher low above 20,518.
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