Market sentiment seems to be settling down as the volatility following last week’s Brexit continues to subside. However, it appears that markets have developed into more of a consolidation and there will be fears that this could simply have been an unwinding move that provides another chance to sell. The direction of the next leg is as yet unclear but equities are pausing for breath after a hectic period of trading in the past four sessions. After Wall Street managed to rebound 1.7%, Asian markets have been rather mixed overnight and this is a mood reflected in the open of European trading. However looking across the moves on forex majors today there is a subtle shift back towards the more safer haven plays with the yen performing strongly and the rest of the forex majors underperforming the US dollar. Another safe haven, gold, is trading a little less positively in early moves and is mildly lower today whilst silver is holding on to yesterday’s gains. Oil is trading around a percent lower as supply disruptions in Norway and Nigeria look to be resolving.
Traders will be looking out for the final reading of UK Q1 GDP at 0930BST with +0.4% expected. The Eurozone flash CPI is at 1000BST and is expected to improve marginally to 0% or flat (from -0.1%), and if the slight and in-line improvement in German CPI is anything to go by then the uptick is likely. There is also the weekly jobless claims at 1330BST which are expected to increase slightly to 267,000 (from 259,000 last week). Bank of England Governor Mark Carney is expected to speak at 1600BST and markets will be looking for any more hints on monetary policy in the wake of Brexit.
Chart of the Day – Silver
Silver has broken sharply higher to a new high dating back to January 2015 and is now in prime position for a test of the key resistance at $18.50. This move is long overdue though with gold already having broken above is equivalent resistance from January 2016 (which was $1306). The move on silver came as a move above the old barrier of $17.80 was finally accepted by the bulls and the market closed strongly at $18.27, whilst today’s early gains suggest the pressure is mounting. The outlook on the momentum indicators looks well set up to sustain the move this time around, with the Stochastics crossing higher again in positive territory and the RSI pushing above 70 whilst in a trending move (the April trend higher got to 82). It now looks on a longer term basis that the bulls are ready to push forward and break the shackles of $18.50 to push on towards $20 and above. The hourly chart shows good support for a near term correction to be bought between $17.80/$18.12 as dips are now viewed as a chance to buy.
The euro has managed to generate a second straight positive candle as a 60 pip gain on the day has pulled the price back into the overhead resistance around $1.1100. However I am still looking to use this rebound as another chance to sell. I have been talking about selling around the $1.110 old long term pivot and although the price made it as high as $1.1134 early today, I think that that between $1.1100 and $1.1200 is an ideal sell-zone now for the next leg lower. The broken uptrend today comes in around $1.1200, the underside of which could now become the basis of resistance. We also find that momentum indicators are also pointing towards rallies being seen as a chance to sell, being now in more corrective configuration. The hourly chart shows that the resistance at $1.1188 remains intact and that the recent rebound is losing upside momentum. Initial support is now $1.1032 which protects $1.0968 and then ultimately $1.0909.
The unwinding rally continued yesterday with another positive candle that added 84 pips to the close. However the closing price seemed to lose some upside impetus and was over 100 pips off the day high in a move that continued to drift lower in the Asian session today. It will be interesting to see how the bulls react then as a similar move of early losses was seen yesterday prior to significant strength in the European session, only to lose momentum in the US session. I view this recovery on Cable as an unwinding more that is likely to be sold into, however the volatility has been (and still is to a certain extent) so great that it is difficult to assess the timing of the next leg lower. The hourly chart shows the move yesterday hit a high of $1.3533 which was just under a band of resistance that was formed on Brexit day between £1.3555 and $1.3980. Hourly momentum has tailed off in the recovery since then and the initial support of yesterday’s low at $1.3280 will be eyed. This is still part of the settling period and the swings in price are likely to continue for the coming days.
Markets all seem to still be calming down as the outlook on Dollar/Yen continues to settle. A gain of just 6 pips into the close and little real direction in the Asian session today suggest that the market is waiting for something now. I am of the belief that the pair is still a rally to be sold into and there is a band of resistance between 103.60/106.80 which also houses the old key reaction low around 105.50. I therefore see this area as a sell-zone for rallies. The momentum indicators are bearishly configured and do not suggest that any sustainable recovery is about to be seen. Marginal overnight gains have been reversed coming into the European session and hourly indicators look far more as though this is a consolidation now rather than a recovery. I am looking for the next sell signal to retest initial support at 102.15 and then 101.37.
As many of the markets have in the past couple of days, gold has started to settle down into something more of a consolidation. The price is subsequently holding on to the support of the old breakout levels between $1303/$1306, but seems to have just lost the upside impetus. I am encouraged by this medium term breakout and feel that gold is now a buy into weakness having broken through the medium term range. The hourly chart shows the interesting Fibonacci retracements of the $1251/$1258 move of Brexit day. The 50% Fib retracement around $1305 and the 23.6% Fib retracement around $1333 have become the basis of the support and resistance of the consolidation. The price has further settled overnight. The momentum indicators on the daily chart may not be exceptionally strong however they are positively configured enough to suggest that corrections will be seen as buying opportunities on gold now.
Having shied away from the pivot band resistance around $48.50 for much of yesterday’s session, the announcement of a larger than expected EIA inventory drawdown helped to boost oil through the resistance. This means that the bulls are fighting back again. They now need to continue the rally to push through the resistance at $50.54 which was the lower high under the key 2016 high of $51.67 and would entirely retrace the Brexit related sell-off. For now though the outlook still remains medium term neutral with the RSI buzzing between 40 and 60 and the MACD lines back towards flat. All this volatility could still simply be taken as near term noise, and again the early weakness today back from yesterday’s peak of $50.00 adds to that assessment. Within this though the $48.50 pivot now becomes supportive with further support at $48.00 and then $46.85 being key.