Major bond yields are beginning to fall away as a slight tilt back into safer haven assets has taken hold this morning ahead of the G7 meeting in Canada. This is helping to support the Japanese yen but also the dollar is showing some signs of support too after a tough few days for the greenback. One fact in this move to caution has been ongoing concern in emerging markets, with selling pressure impacting across Asia overnight. The G7 meeting which begins in Quebec today could have key ramifications for global trade with which emerging markets are so geared towards. The G7 meeting is likely to prove to be a fractious affair and how the other leaders deal with Trump’s potential belligerence on trade tariffs will be key. Already the scene has been set on Twitter with Trump talking about Canada and France charging the US “massive tariffs” and accusing Canadian Prime Minister Trudeau of being “indignant”. France’s Macron has responded by saying that there could be a 6 country agreement at the end of the summit if need be. Market sentiment is rightfully cautious with this sort of rhetoric, and market are likely to move on announcements. Aside from the G7, overnight the China Trade Balance narrowed to +$24.9bn (+$31.9bn exp, +$28.4bn last) with imports improving to 26.0% (+18.7% exp, +21.5% last) and exports also beating expectations at +12.6% (+10.8% exp, +12.7% last).
On Wall Street last night early gains faded into the close with the Dow higher but the S&P 500 (-0.1%) and the NASDAQ also lower. Wall Street futures are also lower today and Asian markets have fallen overnight with the Nikkei -0.6% and European indices are also cautiously lower in early moves. In forex, there is a definite safe haven bias with the US dollar outperforming every major with the exception of the stronger yen. Interestingly, in commodities it is the dollar strength (and not safe haven bias) which is impacting on gold which is $2 lower, whilst oil is also half a percent weaker.
There is little on the economic calendar today to impact on market sentiment and it could be a somewhat quiet end to the week. However the big caveat to this is the G7 meeting which begins in Quebec, Canada. The G7 has the potential to be rather more of a spicy affair than usual, given the ratcheting up of trade disputes by Donald Trump in recent months.
Chart of the Day – EUR/AUD
The euro is gaining strongly across the major currency crosses and the recovery is gaining ground against the Aussie too. Momentum indicators have been gradually improving in recent sessions but it seems as though yesterday’s decisive strong bull candle has really fired the starting gun on a sustained rebound. Bullish divergences on RSI and Stochastics have been complete, whilst the MACD lines are now crossing higher to post the first bull cross since January. Back in January that MACD signal triggered a recovery which ran for almost three months. Yesterday’s bull candle was a two week closing high and further gains today are now testing the 1.5530 high from last week, but also for a test of the six week downtrend (which comes in today at 1.5545). If these two levels can be broken then with the momentum improvement in process the market can develop to drive a retracement back to the overhead supply at 1.5600 again. The hourly chart shows building positive momentum configuration with a good band of support now between 1.5390/1.5440 to use as a near term buy zone into any intraday weakness.
The recovery in the euro across the majors continues and this means that EUR/USD has posted another positive candlestick. Although yesterday’s session was not decisively higher, as the market closed mildly below the marabuzo line (mid-point) of the session, bulls momentum remains and weakness is still seen as a chance to buy. Subsequently the weakness of today’s early move should be seen as an opportunity. There is also a trend higher that has formed in the past week, which is supportive around $1.1750 today. This recovery pulled back from the pivot resistance at $1.1820/$1.1830 overhead and although this initial test of the May pivot was rebuffed yesterday, the bulls will be looking at the strength of the momentum and that intraday corrections continue to be bought into. The hourly chart shows a strong band of support now on the near term breakout above $1.1750 and already the hourly momentum indicators are beginning to swing back higher to give near term positive signals once more this morning. Expect further pressure on $1.1820 in due course and a closing breakout would open the psychological $1.2000 once more. Below $1.1750 the support is at $1.1710 with $1.1640 now a basis of key support.
The rally on Cable is not as developed as it is on EUR/USD and perhaps it is due to the political risk of Brexit that continues to cloud sterling. Yesterday’s mildly positive session was a second successive cautious looking candlestick and the fact that this is coming around the overhead supply of $1.3450 (from the old May lows) is interesting. Whilst the momentum indicators are still improving there is still a sense that the handbrake is on this recovery. The hourly chart shows an uptrend channel and some very choppy trading throughout yesterday’s session. Initial support of $1.3370 needs to hold but the bulls are holding up this morning and will be looking for a closing break above $1.3450 to open for further recovery gains. Yesterday’s high of $1.3470 will also be watched. The hourly chart does show consistent buying into weakness and positive configuration now, with the recent uptrend support in around the $1.3345 breakout support today.
The rally has rolled over in the past 24 hours. Yesterday’s decisive bear candle seems to have shifted the tide of sentiment on Dollar/Yen. The momentum indicators have ticked back lower, with the Stochastics rolling over but also the MACD lines too. The market has formed resistance at 110.25 and has also broken a sequence of higher daily lows. The hourly chart shows that the important near term support is 109.40 and a breach would confirm a renewed corrective outlook near term. The momentum indicators on the hourly chart show that the bulls have lost control, with initial resistance at 109.85 today. A closing breach of 109.40 would test an old pivot around 109.10 but also the support at 108.10/108.35 comes back into view. This is a key moment for the near term outlook.
The market is increasingly finely poised as a consolidation that has formed in the past week is now breaking the eight week downtrend. Once more, the long term pivot band $1300/$1310 is a barrier to gains as another long upper shadow of the candlestick shows the buyers unable to cope above $1300. Momentum indicators retain their negative medium term configuration but also a nearer term neutral position has built up which reflects the recent consolidation. It is likely that the market is consolidating ahead of not only the G7 but also the Trump/Kim summit next Tuesday, two events that could be catalysts for a decisive move. Initial support is $1289 and then $1281.80 which is key now, whilst key price resistance is the late May high at $1307.80.
Oil has been choppy in recent sessions but it is interesting to see that whilst momentum has remained negative, a two week downtrend has been broken and support around $64.25 is building. Yesterday’s positive candlestick now opens the potential for a near term recovery. It is important to note that calling trend reversals following such a decisive move lower can be a risky business. Furthermore, there is considerable overhead supply resistance that has formed between $65.80/$66.65. This is now a considerable barrier to a recovery. On the hourly chart there is a key near term pivot that is a strong near term basis of resistance at $66.00 which is already impacting on the market today. There would need to be a decisive breakout which then uses the pivot as a new basis of support in order to gain conviction in the move. A sustained move above $66.00 would also re-open $68.67 reaction high, however the $66.65 resistance would need to be overcome first. Initial support at $64.80.
Dow Jones Industrial Average
The bulls remain in control following the breakout, however with other Wall Street markets beginning to fade recent rallies, the sustainability of the recent run higher could be called into question. Yesterday’s positive session pulled back from the session highs and there is a gap open at 25,146 which is yet to be filled. The breakout is supportive at 25,086 whilst the recent mini trend higher is further supportive back at 25,045 today. How the Dow reacts to a minor correction could be key now. Daily momentum is positively configured and the bulls will be confident having broken to multi-month highs recently. However weakness needs to be bought into and supports need to hold now, meaning that losing the 25,000 would be a concern for the bulls now. Resistance of yesterday’s high at 25,326 protects the reaction high of 25,449 and the key February high is 25,800.
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