Market Overview
In a period of ranging markets, once more traders were given a sign that the dollar has seen its peak for the cycle. The FOMC’s July meeting is not until the end of the month, and it seems as though, whilst they can, Fed speakers are trying their hardest to guide for a new rate cutting cycle. The latest could be the defining one though. John Williams (NYSE:WMB) (New York Fed President) has previously leant mildly hawkish, however came out with some overtly dovish comments yesterday. His speech has had a significant impact across markets. Williams believe that if the economy and inflation is slowing then the Fed should get ahead and move for a pre-emptive move. Whilst the New York Fed has tried to clarify that Williams’s comments were simply academic and not of potential current policy moves, there was also a speech by FOMC vice-chair Richard Clarida (seen as leaning a touch dovish) which backed these views of Williams. The fact is that Williams is a centrist and can be seen as a swing voter on the FOMC. He would be a strong gauge of the mood on the committee and this absolutely nails on 25 basis points cut at least. The market is also now busy factoring in a number of further cuts too. The swing against the dollar has further gone to neutralise EUR/USD, but crucially the move has driven gold back above resistance to multi-year highs and levels not seen since 2013. Although there has been a mild moderation of the dollar weakness this morning, this should not go too far with the tide amongst FOMC voters turning decisively dovish. Williams has also boosted Wall Street into the close. They have changed what previously had looked to be a cautious corrective move on equities into one where the bulls are bolstered again. It would seem the data does not matter, it is all on the Fed.
Wall Street closed with a rebound as the S&P 500 +0.3% higher at 2995, with US futures a further +0.3% today. The move has enable a strong bounce on Asian equities, with the Nikkei +2.0% and Shanghai Composite +0.7%. In Europe, markets are looking for a solidly positive open, with FTSE futures +0.5% and DAX futures +0.6%. In forex, there is an unwind of yesterday’s USD weakness, as the greenback has bounced this morning across the major pairs. How far this rebound can go today will be the question.
In commodities the huge run higher on gold yesterday is being retraced slightly today, with a slip back of around $7 (-0.5%). Oil has also manage to rebound on the news that the US has shot down what is believed to be an Iranian drone in the Persian Gulf.
On the economic calendar, traders will be watching for the Eurozone Current Account impacting on the euro this morning at 09:00 BST. The surplus for May is expected to be +€21.2bn (+€20.9bn in April). The UK Public Borrowing requirement is at 0930BST which is expected to come in at +£3.2bn in June (which would be better than the +£3.3bn borrowing in June last year and down from the +£4.5bn borrowing in May). The key data point for today is the prelim Michigan Sentiment at 1500BST which is expected to improve to 98.5 in July (up from 98.2 in June).
There are further Fed speakers today, with the FOMC’s James Bullard who is set to speak at 1605BST (voter, dove) whilst FOMC’s Eric Rosengren (voter, leans mildly hawkish) at 2130BST. Of the two, Rosengren would be the one to watch to gauge the mood of the FOMC.
Chart of the Day – Brent Crude
Oil has come back under pressure in the past week. The run of five consecutive negative candles has resulted in a breach of the recovery channel. The move has now broken what is the key higher reaction low at $62.10. Momentum is deteriorating (Stochastics accelerating lower, MACD lines now bear crossing), and now the RSI has closed below 40 at a four week low. This confirms the breakdown. There is an initial knee-jerk reaction higher today, but looking on the hourly chart, this seems to be little more than a move to unwind stretched momentum and renew downside potential. There is resistance in the band $63.20/$64.75 an initial sell zone today, whilst hourly momentum is configured to sell into strength. There is growing resistance overhead, with the basis around the 38.2% Fibonacci retracement at $64.00. This has played consistently as a pivot line throughout 2019. Selling into strength is now favoured for further downside towards the key June low at $59.45.
EUR/USD
Just when it looked as though the dollar bulls were threatening something, once more any sense of trend has been aborted again. A decisive positive candle in yesterday’s session has bolstered what is becoming a band of key support between $1.1180/$1.1200. Breaking a three week downtrend, the rebound is now back around the mid-point of the five month trading range $1.1110/$1.1410. Once again we see momentum indicators being neutralised by the move, with the RSI band on 50 and MACD lines almost entirely flat at neutral. The resistance at $1.1285 which capped last week’s rebound has again limited the rally and needs to be watched as a growing barrier overhead. With hourly chart momentum just losing impetus overnight, another mini near term range of around a hundred pips is forming. It needs a close above $1.1285 or below $1.1180 to enable any sense of trend now.
Cable has jumped decisively in the past couple of sessions. Near term factors swinging against the dollar (a dovish FOMC’s Williams) and for sterling (positive retail sales and UK Parliament moves to avoid a “no deal” Brexit) helped to provide the rocket fuel for the move. However, traders now face an issue. Is this a chance to sell. The formation of decisive resistance would be a sell signal now. The fact that Cable has not managed (yet) to break above the lower high of $1.2585 is a hurdle that needs to be overcome. Although the resistance of a three week downtrend has been marginally breached this morning, if the market were to slip back from yesterday’s high at $1.2558 without breaching it, then the bulls will quickly move into retreat again. The hourly chart already shows a MACD bear cross. Hourly RSI below 50 would add to renewed negative momentum. Back under initial support at $1.2505 would re-open the lows at $1.2380 again. A closing break above $1.2585 would continue the recovery back towards $1.2650.
With the market finding negative traction on two bear candles in the past couple of sessions, the prospects of a sustainable recovery have been scuppered. A decisive close below 107.50 has taken out two important near term supports in a move that opens 106.75. The market may have bounced early this morning, but this should be seen as a chance to sell for what we see as pressure on the key June low again. The old support 107.50/107.80 is now a basis of overhead supply and resistance in the market. The resistance of a mini downtrend comes in at 108.10 today. With momentum indicators increasingly deteriorating again, the market has become one to sell into strength. The MACD lines are now forming a bear cross just under neutral, whilst RSI confirms yesterday’s breakdown. Initial support today at 107.20.
Gold
Another breakout to multi-year highs. In a move that ends the recent consolidation, gold has just formed two decisive positive candles for the first time since the early June bull run. Two very strong bull candles, closing at the day high shows how strong the market is right now and that corrections should be seen as a chance to buy. This is reflected in the momentum indicators, with the Stochastics swinging decisively higher, along with MACD looking to turn higher and RSI pulling up. All of these indicators also have renewed upside potential. The market has just pulled back a touch initially today towards the $1439 breakout, but there is a band of support now $1426/$1439 that the bulls will look to form the next higher low and push on. Initial resistance is at $1462 from this morning, but the bulls will be eyeing the next big milestone, $1500.
WTI Oil
The market is accelerating lower and has now breached the higher low at $56.05 to turn the outlook negative again on a medium term basis. This breach of the higher low means that a new technical trend lower is in formation. No longer is a run of higher lows and higher highs of the past month intact as the bears build a new trend lower. This comes amidst confirmation on RSI well below 50, whilst the MACD lines have bear crossed for the first time since the sell-off began back in April. The 38.2% Fibonacci retracement at $55.55 and old breakout at $54.85 are a basis of support initially, but the bear pressure is growing. Intraday strength is seen as a chance to sell. The hourly chart shows resistance initially $56.20/$57.30.
A bull hammer candlestick completed over yesterday’s session has changed the complexion of the near term outlook. The earl part of this week has been one of unwind, however, the bulls have been in control of the move. It has all played out within the scope of what is now a five week uptrend, but also the support of the latest breakout at 26,965. Yesterday’s session low of 27,069 formed just prior to an intraday rebound to close higher on the day. Momentum indicators remain positively configured and if the bulls continue to support the market today (futures are nicely higher initially) then the bulls will be looking to push on again. The recent all-time high at 27,399 is resistance now. The hourly chart indicators all turning a corner suggests this is a chance to buy for running the trend higher. Initial support at 27,069 with the importance of the breakout support at 26,965 growing.
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