Market Overview
There is a distinctly risk positive bias that has started the new week. There does not seem to be any significant reason behind the move (so perhaps a degree of caution needs to be taken here), but Asian equity markets have been decisively bid overnight. Chinese media have been pushing a “bull market” narrative over the weekend, and it is interesting to see the Shanghai Composite over +5% higher today. This bullish theme has leaked into forex major which are taking a risk positive skew which is benefitting higher beta majors at the expense of the safer havens. The Aussie and Kiwi are strong outperformers (this coming a day ahead of he Reserve Bank of Australia expected to talk up the economic rebound prospects for Australia). After Friday’s public holiday in the US, we see Treasury yields picking up too (along the risk positive theme). However, it is important to note that many of these moves are still within ranging patterns and there would likely need to be something more substantial for a decisive breakout of recent consolidations that have taken hold across many major markets. For this morning, traders appear to be looking past elevated levels of COVID-19 infections, but if the death numbers accelerate, this may not last long.
Wall Street was shut for Independence Day holiday on Friday but futures are strong today, with the E-mini S&Ps +1.1%. Asian markets were strong across the board, with Nikkei +1.8% and the Shanghai Composite +5.5%. In Europe, there is a similar positive theme, with FTSE futures +1.7% and DAX futures +2.2%., In forex, JPY is a chief underperformer, whilst USD is also struggling. AUD, NZD and EUR are all strong. In commodities, there is a less decisive move, with consolidations on gold and silver, whilst oil is mixed (WTI flat, Brent Crude +1%)
There are a few European data points on the economic calendar this morning, but the US services data will be key later on. The Eurozone Sentix Investor Confidence is at 0930BST and is expected to improve to -11.0 in July (from -24.8 in June) which would be a 5th consecutive month in negative territory. The UK Construction PMI for June is at 0930BST and is expected to improve to 47.0 (from 28.9 in May) which is still in contraction territory. Eurozone Retail Sales for May are at 1000BST and are expected to show a sharp bounce back of +15.0% for the month of May (after falling -11.7% in April) this would though leave the year on year decline at -7.5% (-19.6% in May). The key data point for the day is at 1500BST with the ISM Non-Manufacturing which is expected to improve to 49.5 (after 45.4 in May). Given how regional Fed surveys and the ISM Manufacturing have seen positive surprises recently, could a move above 50 be on the cards?
Chart of the Day – DAX
The DAX ticked higher over the course of last week, but there are a few mixed messages still being thrown out by the technicals which suggests caution may be required. For the bulls, there are the positives from how the market has responded to the two key June gaps. The early June downside gap at 12,470 from the sell-off has now been “closed” (which is bullish), whilst the upside gap at 11,968 has been “filled” which is also positive. These are positive developments which suggest that weakness is still seen as a chance to buy. Friday’s negative session (of -80 ticks) just took the wind out of the sails of the bull run and ended the week on a slightly sour note., however, futures are suggesting a strong start today. There is still a bullish bias that with positive configuration on momentum, supported weakness is still a chance to buy for a retest of 12,915. The market will still likely look to “fill” this morning’s upside gap and this could be an opportunity. Daily RSI is consistently between 53/63, whilst Stochastics are picking up at three week highs and MACD lines are holding decisively above neutral. The old gap resistance at 12,470 is now initial support. The long uptrend from the March low comes in around 12,000 today, but there is also a tighter 6 week uptrend around 12,250. The importance of the support of the recent low at 11,957 is growing.
With Friday’s latest small bodied candle coming on a US public holiday, there is little to gain from reading too much into the consolidation. However, with US trading coming back into force today, the morning has begun with a bullish bias to EUR/USD. The question is, can this now be translated to sustainable direction? There is still a legacy of what is now a span of six small bodied candles, where a lack of conviction has been dominant on the pair and this needs to be shaken off. Several times over the past week, it looked as though direction was forming only to be retraced once more. A strong and decisive daily candle would begin to suggest conviction is returning this week. A +40 pip move higher this morning is into initial resistance now between $1.1290/$1.1300 where intraday rallies over the past week or so have floundered. This resistance needs to be broken and a new basis of support to be formed in order for this to be considered more than another part of the near term consolidation. Seeing RSI sustainably in the 60s, whilst MACD lines bottom will also add to a sense of improvement and to buy into intraday weakness. However, the barriers overhead need to be broken if the bulls are to make serious progress. Beyond $1.1300, there is a barrier at $1.1350 and then $1.1420. The bulls will point to the support now starting to kick in above the $1.1165/$1.1190 band which is growing in importance.
Cable managed to edge higher on Friday (on a very forgettable session due to the US public holiday) but the market is looking to pull higher once more today. The key test for the market to suggest direction is building, comes with the resistance at $1.2530/$1.2540. There has been an improvement across momentum indicators in the past few sessions, but this is not yet a move of conviction. Stochastics and RSI are rising, but the moves are a little tentative. The MACD lines need to bull cross too. The trigger would be a closing break above $1.2540 which would suggest that the sterling bulls are in the driving seat within the medium term range once more. This would then re-open the range resistance levels, with $1.2685 and $1.2810 then in focus. However, this is still a very uncertain moment for the outlook, with these moves still being near term in duration. The bulls will point to the hourly chart showing improved momentum configuration, and a basis of support around $1.2450. This needs to solidify for a near term positive outlook to really take hold now.
Even by Dollar/Yen’s standards, a daily range of just 14 pips (admittedly on a day where US bond markets were shut), makes Friday just about one of the most forgettable sessions on record. There is still a neutral outlook to the market even as there is a slight risk positive bias that has taken hold early this week. This is dragging the market mildly higher in a move which is at least looking to neutralise momentum again. On a near term basis, a move higher was restrained by a “bearish engulfing” candle last week, the legacy of which will still be weighing until a move above 108.15 is seen. However, 107.35 is growing in importance as a near term support too. The hourly chart shows a tick higher early today, but the bulls need a sustained bout of upside pressure to really suggest there is something in this move that is more than an oscillation around the mid part of the 106.00/109.85 medium term range. Until 108.15 is broken, it is difficult to read too much into bull moves.
Anyone trading gold on Friday may just as well have gone back to bed, as the market completed the smallest daily range (just $5) of 2020. Last week we focused on the four week uptrend, which had been briefly breached by the Nonfarm Payrolls volatility but essentially remained intact. This support of the uptrend could well be broken simply by consolidation this week. What this does mean is that the bulls who have been driving the market to new multi-year highs last week, are just taking a breather. The question is whether this turns into a near term slip or is the precursor to the next leg higher. Support in the band $1757/$1764 will determine this. A closing breach of $1764 could see a drift back towards $1744/$1747 which is the next area of old breakout support. Momentum in the run higher is just beginning to tail off slightly, but for now retains its positive configuration (with daily RSI above 60 and Stochastics above 80). Trading above $1764 we are still bullish on the near term prospects of gold to push above $1789 and into the $1800s (an upside implied target for the next few weeks can be derived around $1820). Below $1764 we look to use supported weakness towards $1744 as a chance to buy.
Brent Crude Oil
The market continues to edge tentatively higher towards a test of resistance at $43.95 (the June high). Whilst the bulls are no longer storming higher (as they were in May and for much of June), there is still a positive bias to momentum. Daily RSI is in the 60s and Stochastics rising towards 80. The slight caveat comes with the MACD lines which have flattened of. The (redrawn) seven week uptrend comes in to support at $41.90 now and is a key gauge near term. If the trend breaks before the June resistance does, then it would suggest that the bulls are struggling. The coming sessions will tell us much for the outlook. Above $43.95 the market still needs to “close” the $45.20 big March gap.
The two candles prior to the public holiday on Friday suggest a continuation of the range outlook of the past few weeks. However, futures today are pointing to a decent pull higher in early moves and an immediate test of the resistance band 26,315/26,610. How the bulls react around this resistance will be a strong indication of whether this near term ranging outlook is to continue, or whether a decisive phase of trading higher is about to resume. Daily RSI reflects the consolidation, oscillating for the past three weeks now between 44/56, whilst MACD lines are flattening around neutral. Can the move be sustained? A close above 26,610 is needed but then the market still needs to “close” the gap at 26,940. Whilst above the key support 24,765 the medium term recovery still holds true.
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