The geopolitical tensions that have been driving traders into safe haven assets in recent days seem to be dissipating a touch this morning as it seems that tensions could be about to wane. The US administration is looking to seek a diplomatic resolution with North Korea and there is a notable reaction today on markets, with gold and the yen lower, equities higher, whilst US Treasury yields have also picked up. The pick-up in yields is helping to support a beleaguered US dollar which again came under further selling pressure on Friday as US CPI inflation disappointed to the downside. This suggests that the Fed will not be in a hurry to raise rates, at least that is what FOMC member Robert Kaplan suggests. Japanese Q2 GDP surprised to the upside at an annualised 4.0% for the second quarter (+2.5% annualised expected, Q1 was +2.2%) and will help sentiment. However that could be counterbalanced by a disappointment across the Chinese data overnight which saw industrial production and retail sales both miss. China Industrial Production dropped to +6.4% (+7.2% exp, +7.6% last), whilst Retail Sales were also lower at +10.4% (+10.8% exp, +11.0% last).
Wall Street clawed back some minor gains on Friday with the S&P 500 +0.1% to 2441, whilst Asian markets were broadly positive overnight (aside from the Nikkei which was 1.0% lower after playing catch up on Friday’s public holiday). European markets are all looking decent in early moves today. There has been a move away from the safe haven currencies in the forex majors today with the yen and Swissy both underperforming, whilst other majors are fairly flat. Gold is also around $2 lower with the oil price marginally lower as well.
It is a quiet start to the week again for economic data, with very little to really impact on markets. The only data to really watch would be the Eurozone Industrial Production which is expected to fall by -0.5% for the month to +2.8% for the year (+4.0% last).
Chart of the Day – NZD/USD
The market has now been in decline for the past couple of weeks as a corrective move has started to breach supports and turn momentum into reverse. There is now a move to test what will be seen as a key level, with the key June/July lows at $0.7200 now within touching distance. This move has come as the negative candles have been building up, however today’s reaction to the rebound candle on Friday will be telling for the near term outlook. The significant US dollar weakness across the majors on Friday helped to form a positive candle but the move appears to have simply unwound the market back to the resistance of a pivot at $0.7345 and the two week downtrend. Another negative candle today would again suggest that selling into strength is now the strategy. This would be exacerbated by a break of the key support at $0.7200 which would then open the next key long term pivot of $0.7050. The hourly cart shows $0.7300/$0.7370 is now a sell zone with hourly momentum also showing sell signals.
With the positive candles again beginning to build, the buyers seem to be stemming the corrective tide. The minor correction hit a low at $1.1687 last week but in truth the consistent basis of support around the old key breakout level at $1.1711 (which also held well on a closing basis) suggests that there is an appetite to buy on the euro. Momentum indicators had slipped from their position of decisive strength but seem to have settled with the RSI still above 60, and Stochastics turning up again. The strength of Friday’s bull candle suggests that it may not take much to generate the momentum to test the $1.1909 high once more as intraday corrections are bought into. The hourly chart shows indicators taking on a more positive configuration again and there is a band of support $1.1745/$1.1775 that will be used as a buying opportunity. Initial resistance is at $1.1845 but a breach of that today would encourage the bulls to retest the multi-year high again.
Cable had been looking corrective until a positive candle posted on Friday amidst the renewed dollar weakness. This has helped to settle the nerves of the bulls with the support holding at $1.2930. Momentum indicators are also beginning to settle down and if this proves to be a basis of lasting support, the outlook remains fairly strong. There is though still a risk of a small head and shoulders top pattern forming, which would come on a closing breach of $1.2930 and needs to be kept in mind. The early move today is slightly Cable negative with the dollar pulling slight strength but support is holding. The bulls will need to break out back above the old resistance at $1.3050 to regain the initiative once more. The hourly chart shows a slightly more positive configuration taking hold across the momentum indicators, but still nothing yet confirmed. Above initial resistance $1.3050/$1.3060 resistance comes in at $1.3160.
The trend lower of the past few weeks has now hit the June low at 108.80 which was briefly breached on Friday to a low of 108.73 before an early rebound today. The dollar weakness has been a key factor, but also the safe haven bid for the yen from worrying geopolitics. Lower highs and lower lows accompanied by negatively configured momentum all contribute to a strong negative outlook. The rally today has to be seen as simply another chance to sell at the moment, with old support levels a basis of new resistance. This means that 109.80 (the old early August lows) is an area where the overhead supply starts to kick in. The hourly chart shows the gains today have unwound the momentum indicators to an area where the sellers have tended to resume control. There is a band of initial resistance 109.80/110.20 and it would take a recovery to break above the resistance at 111.00 to realistically see the bulls in control now. Expect selling pressure to resume and a move below 108.73 opens the 108.11 key April low.
The gold rally has been strong in the past few sessions as the market has taken strength from the safe haven attraction of gold in the wake of escalating geopolitical tensions. The big question will be how the bulls react to the key June high at $1296. Will it be tested at all though, with the bull candles losing magnitude until todays early dip. Momentum is positive but looks stretched, with the RSI turning back from 70. There is still a clear risk of the bulls buying into the weakness, however the hourly chart does reflect a loss of impetus in the rally. Friday’s low at $1281 will be key now as a loss of that support will complete a small top pattern and roll over the bull move. On a medium term basis I continue to see gold as likely to be losing the bulls around $1300 and a range play to continue.
The consolidation on oil is beginning to reach an interesting point that the bulls will be required to wake from a near term slumber. The market has been moving sideways for over two weeks now and this means that a developing uptrend is rapidly catching up (comes in today at $47.60). Friday’s session breached the near term consolidation support at $48.37 and although it ultimately closed back above the support, the hourly chart shows a threat to the consolidation that the bulls need to react to today otherwise a more corrective configuration could develop. Friday’s low at $48.00 is now supportive and the sellers will not be back in control again until a breach of the medium term pivot support at $47.00. However the uptrend needs to hold as daily momentum indicators are also beginning to take a more corrective turn.
Dow Jones Industrial Average
With Thursday’s strong bear candle the outlook has become more corrective in the past few days and the market is now approaching some key technical levels. The support of a three month uptrend comes in at 21,760, whilst the rising 21 day moving average has also been a basis of support, currently at 21,814. The momentum indicators have been so bullish in an extended move for so long, that it would not take much to flip them lower. The RSI has quickly unwound back to the mid-50s, MACD lines crossing lower and Stochastics also crossing lower. The market seems on its way for a retreat to the old key breakout of 21,681. The hourly chart shows a retreat to the 50% Fibonacci retracement of 21,496 to 22,179 at 21,838 and a breach would open 61.8% at 21,757. Initial resistance is 21,969.