Market Overview
Risk appetite has been relieved over the weekend as the G20 summit avoided the worst case scenarios, but also threw up some surprising positives too.
The meeting between US President Trump and Chinese President Xi was never going to be ground breaking, however, the two maintain their apparent positive relationship and a potential deal is still possible. It could just be a matter of time. For now, no extension of any tariffs, but also no rollback.
Risk appetite has been buoyed by this, but also in a very surprising move, President Trump also met with North Korean leader Kim Jong Un. Better geopolitical relations in Asia all round then.
This could help to foster positive outcomes on trade and geopolitics, which means a move out of the safe haven assets that traders move to during times of elevated fear. Subsequently, this all adds up to sharp moves away from the safe haven currencies (yen and Swissy both under pressure).
There has also been a jump in Treasury yields which is helping the dollar, especially against the euro. Stronger dollar, out of safety and yields higher also adds up to a correction on gold taking shape. Equity markets are also strongly higher, with major markets positioning for renewed upside breaks again. An unambiguously positive start to the week.
Wall Street closed solidly higher on Friday with the S&P 500 +0.6% at 2941, whilst the US futures have taken off again early today. This has certainly been felt through the Asian session, with the Nikkei +2.1% and Shanghai Composite +2.1%. European markets are also running with the move as the FTSE Futures are +0.8% and a risk positive outlook helping DAX futures +1.5% higher.
In forex, the safe havens are under pressure, with CHF and JPY both decisively underperforming. EUR is also under pressure, whilst USD is making ground across the major pairs.
In commodities the big move is coming with gold which is sharply lower on dollar strength and risk positive outlook, losing -$24 (or -1.7%). Ahead of the OPEC meeting oil has jumped by over +2.5% on the expectation that production cuts will be extended.
The first trading day of the month is also key on the economic calendar, with the manufacturing PMIs for June. The final Eurozone Manufacturing PMI is at 0900BST and is expected to be unchanged from the flash at 47.8 (47.8 flash, 47.7 final May).
The UK Manufacturing PMI is at 09:30 BST and is expected to remain in contraction territory at 49.3 (49.4 in May). The Eurozone Unemployment rate for May is at 1000BST and is expected to remain at 7.6% (7.6% in April). The US ISM Manufacturing is at 15:00 BST and is expected to slip back to 51.5 (down from 52.1 in May).
We are also on the lookout for the communique from the bi-annual OPEC meeting. As ever production levels are the key factor here. The meeting has been reportedly delayed until after the G20 to see the outcome of the US/China trade discussions which could impact the demand for oil and therefore OPEC’s supply outlook with a view to balancing the price.
Chart of the Day – DAX Xetra
DAX is set to make a decisive breakout above the key resistance band 12,435/12,460. The May rally tailed off just shy of the September 2018 key lower high at 12,458. This was again a barrier a couple of weeks ago. However, with a decisive bull candle on Friday, and strong open today the bulls far better positioned to hold a breakout this time around. The RSI has pulled higher into the 60s, whilst the Stochastics are crossing higher with renewed upside potential. This is all coming with the support formed at a six week pivot at 12,200 as a higher low. A closing breakout above 12,460 would imply an upside projection target of 12,625 as a minimum of the move, with the August high as resistance at 12,597. Breaking resistance at 12,440 means that this becomes supportive initially, whilst the hourly chart shows strong configuration on momentum and initial support at 12,335.
The bulls have seen their control slipping away in recent days. Constant testing of the support at the breakout around $1.1350 the candlesticks have been small bodied and lacking conviction. However, the support seems to be decisively failing this morning as the market has gone sharply lower. A closing breach of the support band $1.1325/$1.1350 would be a signal that the market is into reverse once more. There is an old pivot of note around $1.1300, whilst the $1.1265 old breakout is also a basis of support which could be tested. The hourly chart shows RSI at its weakest since mid-June, whilst MACD lines falling with traction from neutral is also a concern for the euro bulls. The old $1.1350 support is now an intraday basis of resistance, with $1.1390 a lower high.
Cable continues to trade within a tight band of the past week or so. It is interesting to see that whilst EUR/USD has fallen sharply today with the dollar strength, Cable is (for now) relatively steady. Momentum indicators continue to flatten in a somewhat mixed configuration. RSI is flattening a shade under 50, whilst Stochastics are flattening in mild positive territory and MACD lines are edging tentatively towards neutral. This all reflects the ongoing neutral positioning below $1.2760 (a potential neckline of a base) but in the absence of selling pressure. A close below $1.2650 turns the outlook negative for $1.2505 again, but for now there is little real direction. Moving averages all but flat on the hourly chart, with RSI oscillating between 30/70 and MACD hovering around neutral. A mild negative bias this morning could see the market gravitating towards $1.2650 again, with resistance at $1.2735.
A sharp opening rally on Monday morning has looked to create a far more positive picture for the dollar. For more than two months, a downtrend channel has been pulling the market lower. This channel has now been broken. Crucially too, the pair is trading above the 21 day moving average for the first time in those two months. The technical implications of breaching an indicator which has been withholding rallies for weeks now, almost to the pip, could be significant. This move today is coming with momentum looking to breakout. The RSI breaking above 50 would be significant, whilst Stochastics and MACD lines are also improving now. The bulls need a closing breakout above 108.80 which would be a confirmed breach of a lower high. This would then put them on to a new trend higher. Support is now at 107.55 from Friday’s higher low. The hourly chart shows a basis of support initially around 108.15. This move has the potential to be a decisive one, but the bulls need to hold the improvement.
Gold
Since the market topped at $1439, there has been a run of corrective candles. Friday’s failure at $1424 to form what was close to being a “gravestone doji” has now been followed by a sharp open lower today. We have previously discussed the importance of the support around $1400 (a confluence of Fibonacci, price support and psychological). This has been decisively broken this morning and also becomes a basis of resistance now. The correction is now on. A decisive close below the 23.6% Fibonacci retracement (at $1398) opens 38.2% Fib at $1374 as the next target area. The momentum indicators are turning lower, and should the RSI move below 60 and MACD lines cross lower it would be an indication of the correction really taking hold. There is plenty of room for an unwind, with the 21 day moving average back at $1362 today. There is a gap open at $1406 now and how the market reacts to this gap could be key. A “breakaway gap” is often not filled and could be the start of a deeper move. Resistance at $1324 is key as a lower high now.
WTI Oil
The oil market is seeing elevated volatility around the G20 and also the OPEC meetings which kick off today.Friday’s orrective move has found support at $57.75 and the opening strong gain this morning shows that the bulls are still happy to buy into weakness. There is resistance around $60.00 (from an old May low), but a closing breakout would be another really positive signal. Momentum remains on a path of improvement, with the RSI higher around 60, and MACD lines still rising. The bulls also now have a strong marker post as a higher low at $57.75. Closing decisively clear of the 50% Fibonacci retracement of the $76.90/$42.35 sell-off at $59.60 should not be ignored though. It would open 61.8% Fib at $63.70 as a next target area.
The Dow has been slipping back in the past week in a mild unwinding move. However, the corrective momentum has never really taken control and looks to have simply helped to renew upside potential again. With Friday’s mild gains leaving a basis of support at 26,465 the Stochastics are bottoming out, whilst the RSI is holding above 60. With US futures pointing to a strong open today the bulls are eyeing a test of the recent high at 26,907 and the all-time high from October at 26,951. A closing breakout at an all-time high would open the way for another leg higher into blue sky.
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