Dollar Bulls Gain Confidence

h2 Market Overview

The constant rumour-mill and drip feed of newsflow over developments in Greece is creating constant intraday fluctuations that are pulling markets all over the place, so let’s just take a step back and go with the line that until Sunday’s referendum in Greece, there is little else concrete that will happen. At least that is the line of Angela Merkel and she seems to be fairly adamant on that.

So, it is with some relief almost that markets can focus elsewhere, and that means US data and Non-farm Payrolls. The dollar bulls are back on a bit of a charge again after the positive read through on the ISM Manufacturing and ADP Employment Report. This sets us up nicely for Non-farm Payrolls Thursday (not Friday this week as the US is on public holiday in lieu of it being 4th July on Saturday). At 1330BST today, the payrolls are expected to come in at 233,000 which although being below the 280,000 last month, would still be a strong reading.

However Janet Yellen and the FOMC will be paying attention to the average earnings data as with unemployment expected to dip back to 5.4%, earnings growth is beginning to come through. This has a lead through to potential inflation down the road. Average earnings are expected to grow by +0.2% which would be again a positive month and be stable at an improved 2.3% for the Year on Year data.

In front of the Payrolls data, Wall Street had a decent day yesterday. Driven by the ISM and ADP numbers, the S&P 500 pushed 0.7% higher, whilst Asian markets were also positive overnight with the Nikkei1.1% higher (helped by a weaker yen). European markets have opened under a little pressure, but if the focus turns to the payrolls report then the usual reaction is for markets to settle down.

In forex markets there has been little real movement in front of the payrolls report, and as with equities (probably even more so) the moves are likely to be fairly muted through the morning. Gold remains under pressure in the early part of the session.

Aside from the Non-farm Payrolls, there is also the weekly jobless claims at 1330BST which are expected to be 270,000 although this will take very much of a back seat position to the payrolls. There is also US Factory Orders at 1500BST which are expected to fall by -0.5% for the month.

h3 Chart of the Day – USD/CHF/h3

With comments by the SNB’s Thomas Jordan suggesting the bank was going to be active in preventing a strengthening Swissy this week, the Dollar/Swiss pair has climbs strongly. Yesterday was a second straight strong bull candle, that has now broken above the key near term resistance at 0.9416. This move completed something of an upside breakout and has changed the outlook. It should also mean a retest of the May high at 0.9545 should be seen. The move is also interesting as it has seen the Stochastics swing into a positive configuration and the RSI is also suggesting the bulls are gathering momentum.

It is also interesting to note that the daily Bollinger Bands are in the process of breaking out of a narrow band formation (low volatility leading to a period of higher volatility). Overnight there has just been a slight dip back as the near term momentum has unwound from overbought but any dip back towards the breakout support around 0.9400/0.9420 should be a chance to buy. There is further support around 0.9340.

h2 EUR/USD/h2

The euro has come back under pressure a touch in the last couple of days. Having looked to be settling down, the bears then gained control for much of yesterday’s session and this is having an impact on the medium term outlook now. I have been seeing the medium term pivot level around $1.1050 as a gauge for sentiment, where trading above it suggests the euro is on the positive side of this range trade, whilst trading below it the euro takes on more of a negative slant.

This pivot is being tested today. The outlook on the daily momentum indicators is now deteriorating with the RSI at 1 month low and the Stochastics turning lower again. The intraday hourly chart shows that having lost the near term support around $1.1150 this level has turned into something of a resistance overhead now.

There has been an overnight dip back below $1.1050 which was reclaimed, but expect this to be retested again today. The way the market is shaping up suggests that Monday’s spike low at $1.0953 could easily be tested again. With all hourly moving averages in decline the pressure is mounting on the euro and near term traders could see rallies as a chance to sell. Initial resistance comes in at $1.1110.

h3 GBP/USD/h3

Yesterday, having lost the support at $1.5665, Cable broke the 130 pip range that it had been trading in for about a week, which implies a downside move towards $1.5535. Having closed clear of the range this certainly now suggests the correction is continuing. The daily momentum indicators also suggest continued move to the downside, with the Stochastics accelerating lower (yesterday’s close towards the bottom of a big bearish candle is driving that move), whilst RSI confirms the move on the price.

I continue to see a correction possibly coming back towards the support of the old pivot level at $1.5450. The hourly chart shows there is some near term consolidation around the old support within the uptrend around $1.5600. I would look to use any intraday bounce as a chance to sell. As has happened previously in this correction, the old support becomes new resistance (strongly at $1.5800), so this means that $1.5665 is the key overhead resistance now.

The next support on the way down is $1.5540 which is close to the implied downside break target.

h2 USD/JPY/h2

The bulls have fought back again. A strong positive candle has flipped the near term outlook around and built the support in place around 122.00. The momentum indicators on the daily chart are still configured to suggest this whole medium term phase is a bull consolidation which is allowing the momentum indicators to unwind and renew upside potential.

The intraday hourly chart shows the consolidation around the 38.2% Fibonacci retracement of 118.86/125.85 at 123.20 but this is now being broken through today. The continued trading above this level is a positive near term. Be mindful of the slightly waning hourly momentum indicators, which could suggest a near term dip, but I would now see a correction as a chance to buy. There is near term support now 122.87/123.20, but the outlook is improving again.

Upside resistance comes in around 123.70 before the 23.6% Fib level at 123.20 and the near term key level at 124.43. As yet there is no decisive move but the outlook has certainly improved near term.

h3 Gold/h3

A third consecutive bearish candle has resulted in a close below $1170 for the first time since mid-March. This could be very important as there have been several intraday dips below $1170 over the past month or so, but no closing confirmation break. This clearly now puts serious pressure on the June low at $1162.35. Although there is no decisive confirmation move on the RSI, the Stochastics have broken lower and look fairly negative now.

I spoke yesterday about the downtrend that had been forming on the intraday hourly chart and this move continues to be in place, dragging the price lower and taking the hourly momentum indicators into far more of a negative configuration, whilst the hourly moving averages are all falling in bearish sequence. This again suggests using rallies as a chance to sell.

The near term resistance comes in now around $1175. A breach of the June low at $1162.35 would re-open the key March low of $1142.90.It would now really take a move back above Monday’s high at $1186.90 to defer the bulls.

h3 WTI Oil/h3

The selling into rallies strategy is working well now and the breach of the 61.8% Fibonacci level at $58.74 has heralded a full retracement of the move back towards $56.83. The oil price is now falling back to put pressure on the key range lows again of the May low at $56.50. The concern on the daily chart is that the drift in the price has seen the daily momentum indicators lose impetus and drift away, with the RSI at a 3 and a half month low and the MACD lines at a 3 month low. This suggests bear pressure is growing.

For now the support is holding, and as I do not think that this range is quite ready to be broken to the downside, I must change my stance of being happy to be short, towards a more neutral outlook whilst the support is negotiated. There key support for the range between $56.50/$56.83. The hourly chart shows the initial resistance is now around$58.00, with the 61.8% Fib level at $58.74.

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All of the views or suggestions within this report are those solely and exclusively of the author, and accurately reflect his personal views about any and all of the subject instruments and are presented to the best of the author’s knowledge. Any person relying on this report to undertake trading does so entirely at his/her own risk and Hantec Markets does not accept any liability.

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Written By: Hantec Markets