The polls are tightening as the UK approaches the final week of campaigning in front of the snap General Election. With the popularity of Labour seeming on the rise, for the first time since the campaign began, there is a possibility that the Conservatives far from winning a landslide, may actually lose seats. In what could be an incredible turn of events, a YouGov poll suggests that the Conservatives might actually lose 20 seats and see their current 17 seat majority wiped out, meaning a hung parliament. Whilst it is dangerous to go on just one poll, it shows an alarming trend for the Tories who have fought (yet again) a very disappointing campaign. Sterling has reacted to the tightening election polls and is under pressure again, dropping back once more to test the key breakout support at $1.2775 which seems to be something of a watershed support for the support for the Conservatives now. The uncertainty of a hung parliament would be very negative for sterling. Outside the UK, the flash China manufacturing PMI improved slightly to 51.2 (51.0 exp) and in line with last month, whilst the Non-manufacturing PMI (services) improved to 54.5 from 54.0 last month. This data is fairly supportive for risk but will do little to impact on market sentiment today as traders focus far more on the politics of the UK election, the Eurozone (Italy, Greece) and Trump.
Wall Street closed slightly lower yesterday with the S&P 500 -0.1% at 2413, whilst Asian markets were mixed overnight (Nikkei -0.1%). European indices are also mixed although the FTSE is a slight outperformer on the sterling weakness. Forex markets are fairly steady this morning aside from the sterling weakness. Commodities are slightly lower with Gold showing a further slip whilst oil is around a percent lower on rising output from Libya.
The Eurozone flash inflation number at 1000BST will be a key focus for the early European session. With German flash inflation falling back further than expected yesterday the concern will be for a potential undershoot of the +1.5% headline CPI (already down from +1.9% last month) and the core CPI falling to +1.0% (from +1.2%). Month on month Canadian GDP is at 1300BST and is expected to be +0.3%. For the US data, the Chicago PMI is at 1445BST and is expected to drop to 57.0 (from 58.3) whilst the Pending Home Sales at 1500BST are expected to be +0.7% for the month. The Fed releases the Beige Book at 1900BST.
Chart of the Day – NZD/USD
The Kiwi has been rallying well over the past couple of weeks and having broken out above $0.6970 a small base pattern implied a target of at least $0.7100. However, the key medium term resistance of the March high of $0.7090 is now under pressure, and being so close to the resistance this only increases the importance. The early part of this week has had the pressure increasing on this resistance, with yesterday’s strong bull candle closing just above, with further intraday gains through $0.7100 today. However, looking at the improvement of the momentum indicators, the bulls are ready for a breakout. The RSI is solidly above 60 for the first time in four and a half months, whilst the MACD lines are rising in bullish configuration. Intraday weakness is now being bought into, so the reaction to the drop back below $0.7090 today will be interesting. Friday’s key near term low is at $0.7005, laying the foundations of a potential higher low above the pivot at $0.6990. Confirmation of a second daily close above the breakout at $0.7090 would complete a much larger base pattern for the Kiwi and open the way for a recovery towards the long term pivot at $0.7240. The hourly chart shows positive momentum configuration with corrections being bought into and the initial support of yesterday’s low at $0.7035.
There is a corrective drift on the euro that has unwound the market back from its recent peak of $1.1267, however this drift still looks to be a chance to buy. The long term pivot that has played a key role on many occasions for turning points in EUR/USD is at $1.1100 and is supportive. Yesterday’s low at $1.1108 used the support as a rally point and maintains the positive medium term outlook. The formation of a positive recovery candle also helps to stabilise the outlook. This recent correction is a near term correction within the medium term bull market. Even if the momentum indicators have dropped off recently, they remain strongly configured on a medium term basis with the RSI above 60 and the MACD lines still trending higher. Building support above $1.1100 would be ideal for the bulls, however, there is further support back at $1.1020 on a previous breakout. The hourly chart shows resistance from yesterday’s high at $1.1205 before a lower high at $1.1235.
Sterling is coming under increasing pressure. As we move towards the final stages of the UK election campaign the polls are tightening and the market is responding. The key breakout above $1.2775 is coming under increased threat and with the momentum indicators in decline the support could easily break. A closing breach would signal a change in the outlook and be a significant blow for the bulls. It would open initially support at $1.2707 but more likely a move back towards $1.2600 (which is around where the market was trading just prior to Theresa May calling the election). The last few days have been testing $1.2775 support but the downside pressure is growing early today as resistance has been left at $1.2888. The hourly chart shows that the overhead supply that has built up around $1.2840/$1.2890 is now a significant barrier for the bulls to overcome in order to improve the outlook once more.
The drift lower may have started to stabilise slightly overnight however there is still a growing trend of yen strength again. This is reflected in the momentum indicators which continue to fall away as the market seemingly shapes up for a retest of the recent low at 110.20. The initial support at 110.85 was broken yesterday and this has opened the low once more. The hourly chart shows negative near term configuration on momentum with rallies being sold into. Yesterday’s closing breach of 110.85 suggests that the sellers are mounting. The resistance and overhead supply is building up now below the old 111.60 pivot and rallies into 111.25/35 are struggling now. Expect pressure to continue towards 110.20.
Despite previously breaking out with a close above $1261, the buyers have since struggled for traction and confirmation just has not quite been seen. Yesterday’s bearish outside day (admittedly Monday’s range was a tiny $4) suggests that there is a degree of resistance still to gold pulling strongly higher. The RSI failing to get above 60 also suggests that the bulls are not in complete control yet either. The early move today has also been one of mild correction. The hourly chart shows a slip back with a pivot now at $1265 providing resistance and momentum indicators that are mixed in configuration. However, whilst the support at $1252.50 remains intact, there will be limited selling pressure. This is a test for the bull control now. Resistance is now at $1270.50 from yesterday’s high.
The market is still looking to settle in the wake of last week’s sharp bear candle. Another contradictory candle was posted yesterday after yesterday’s negative candle followed a rally on Friday. However the concern will be that there is an old pivot band $49.60/$51.20 which is a basis of resistance and the closing price back below $49.60 would now begin to ramp up the pressure once more. The momentum indicators have turned more corrective in the past few sessions with the bear cross on the Stochastics lines a developing concern. For now though this is a market consolidating the OPEC related decline. The importance of the $48.18 low from Friday is growing as support, whilst near term resistance is now $50.30. This is evident more on the hourly chart which is reflecting a head and shoulders top pattern which would complete below $48.00 key support. Initial resistance is $50.20.
Dow Jones Industrial Average
After Friday’s marginally negative close ended a sequence of six positive closes, the prospect of coming back to fill the gap at 21,023 was growing. This filling of the gap was seen yesterday and the bulls can now begin to look once more for a chance to buy. The very mildly negative candle from yesterday does little to significantly damage the outlook in the near term. However the bulls need to respond positively today to prevent the stalling momentum indicators beginning to take on a more corrective configuration. The bulls will be looking to form another higher low above the 20,888/20,935 support band from the hourly chart. Corrections will still be seen as a chance to buy for pressure on the resistance levels. Initial resistance is 21,112 before 21,169.