The last few sessions have seen an increasing tide of risk negative influences hitting on market sentiment. Concerns over economies re-opening and the potential for second wave infection rates increasing are a factor. However, markets are also having to price for a re-emergence of trade risk, as the US and China both seem to be positioning themselves for less cordial relations. The latest comes as China is preparing measures to protect itself from litigation from the US over prospective COVID-19 damages. Jerome Powell cut a very cautious tone yesterday over the outlook for the US economy. Fed speakers have spent the week briefing against the prospect of negative interest rates and chair Powell stuck to this line. He did though also suggest the need for further fiscal support in the months ahead. This all added up to risk negative impact on markets but also dollar supportive. Treasury yields have fallen (the US curve also bull flattening) whilst equities are under growing pressure. It is interesting to see gold has edged higher from its $1700 consolidation area, whilst safe haven major forex is performing well (USD and especially JPY).
Wall Street closed a second session decisively lower with the S&P 500 -1.7% at 2820 and technical top patterns are now threatening. US futures are further lower today with the E-mini S&Ps -0.4%. This is impacting across global markets, with Asian indices lower (Nikkei -1.7% and Shanghai Composite -0.8%). European markets are also under pressure with FTSE futures -1.1% and DAX futures -1.2%. In forex, there is a continuation of yesterday’s risk negative and USD positive theme. JPY is the main outperformer, whilst GBP continues to be the main underperformer. In commodities, the safe haven bias is helping gold perform well (despite the dollar strength) and hold support today, whilst silver is less of a positive outlook. Oil continues its recent consolidation.
It is quite light on the economic calendar today. The only significant data of note will be the US weekly jobless claims at 1330BST which is expected to continue to reduce, but still at an enormous 2.500m claims (last week 3.169m claims).
There will also be a two central bank governors speaking today. The Bank of England’s Andrew Bailey is speaking at 1130BST, whilst the Bank of Canada’s Stephen Poloz is speaking at 1530BST. For the FOMC, there is also Neel Kashkari (dove) speaking at 1600BST.
Chart of the Day – EUR/GBP
We remain sceptical of the strength of the euro in the coming sessions, however, with supports breaching on Cable, we are more concerned by sterling weakness developing. Subsequently with strong support forming in recent weeks around £0.8680 we are now see the Euro/Sterling cross rate rising in recent sessions. This rally is now testing resistance of a month long range at £0.8865. What is notable is that this is a move which is being led by a decisive positive shift in momentum. The RSI is gaining impetus in a move to the high 50s which is a seven week high, whilst MACD lines are beginning to accelerate higher from a bull cross and Stochastics are pulling strongly higher too. Although yesterday’s intraday move above £0.8865 could not be sustained into the close, the bulls are having another look today. They will be fighting for a decisive move clear of the £0.8865 resistance which would effectively end the month long consolidation and complete a base pattern. This would then imply a move of +180 pips higher towards £0.9040 in due course. The hourly chart shows good support now forming between £0.8805/£0.8855 and any weakness towards 40/50 on hourly RSI is a chance to buy.
The euro remains stuck in the lower half of its near six week range. Support at $1.0725./$1.0765 is holding firm but rallies still seem to be struggling to find traction before faltering again. Can the resistance of the pivot at $1.0890 be overcome? The past couple of sessions have been testing the pivot but it remains a key near term barrier. For now, the bulls are stuck in a rut and once more we see the market drifting back lower this morning. Momentum indicators do not suggest any positive traction is being called, as RSI remains anchored in the lower reaches of the month long 40/56 range, whilst MACD and Stochastics begin to fall over again. This infers a test of support is more likely, with $1.0725/$1.0765 still a key basis of a range floor. The hourly RSI is worth watching though as if this is a range, then there should be a pick up around 30/35 again (which has held for the past week). The outlook favours selling rallies towards $1.0890 and to continue to play for the bottom of the range. For now though, we expect this range to continue.
With a third successive negative candle completing yesterday, Cable is coming under increasing bearish pressure now. What is concerning is that the bulls have had their chances in each of those three sessions, only to head for the hills as the session has drawn to a close. The support at $1.2245 has now been broken, to take Cable to a five week low and open the key support at $1.2160 again. The deterioration in momentum indicators is also concerning, as RSI is now falling at seven week lows, whilst MACD lines are deteriorating decisively below neutral and Stochastics drop into bearish con