Markets have actually been remarkably quiet, settled and devoid of selling pressure today, which is certainly a positive given the volatility of yesterday. There has been little fundamental newsflow, however there are reports from Brussels that the EU is not planning any further sanctions on Russia. This has helped to ease tensions slightly after reports that there would be legislation in Russian to allow the courts to seize foreign assets.
The recent sharp spike higher in the VIX volatility index just shows how nervous investors are becoming. Despite the fluctuations in the index in the past few days there is a definite trend towards increased volatility in recent weeks. However, equity markets are just beginning to rebound slightly, whilst fixed income markets are pulling back from gains earlier in the morning.
Wall Street futures are looking supportive and the S&P 500 looks set to open around 2 points higher. The final reading of US GDP for the second quarter is unlikely to throw up many surprises at 13:30BST with 4.6% annualised (from 4.2% annualised) expected. Furthermore the final reading of the University of Michigan consumer sentiment suggests a similar story, with a slight upward revision at 14:55BST to 84.8 (from 84.6). It could end up being a pretty quiet session all round on the final Friday of the month. This is likely to help bring the VIX lower this afternoon.
As the morning has progressed, the precious metals have moved well back from their session highs, with the news out of Brussels seemingly bringing a rebound under wraps. The outlook for both gold and silver remains weak and these intraday rallies should still be viewed as a chance to sell. I am looking for a sell on gold somewhere around $1230 for an ultimate move towards $1200. For silver the outlook is even weaker and the recent downside break implies a move towards $16.70.
Once again, this morning on Cable we have seen another test of the key near term support at $1.6282. Once again he support is holding… for now. This is the 4th time on an intraday basis that this support has held in the past week. However the more times the support is tested, the more the bearish pressure increases and the likelihood of a downside break grows. I would be very concerned that if there is a decisive breach (yesterday’s low was briefly $1.6274 on a couple of occasions before rebounding), there will be immediate pressure on $1.6250, but the key reaction low in the recovery at $1.6160 would quickly come back into view.
The Dollar/Yen chart continues to consolidate between 108.24/109.45 as it has done for the past week. I still anticipate an upside breakout, and that weakness should be viewed as a medium term opportunity to buy for 110.65. It almost goes without saying that the chart of Euro/Dollar remains incredibly bearish. Once more the rally from yesterday afternoon appears to have run out of steam and the sellers are regaining control. All technical studies remain deeply bearish and further weakness towards the next key low (from November 2012) at $1.2660 seems likely now.