Major markets are seeing a slightly more risk positive outlook for the new trading week, although it is only really in the equities space where the impact is being truly felt. Futures in the US are breaking to all-time highs today. The dollar rally on pause today is helping this, even if forex majors look a little tentative in a risk rally, whilst bond yields are all but flat. In the US, the FDA authorising a treatment for COVID patients is seen as encouraging. Asian markets held a positive bias overnight, whilst US futures are pushing to record highs this morning in the US. There is a sense of stability in the forex majors today, where the dollar rebound that was a feature of the latter part of last week is settling down. The short covering dollar rally that set in following the FOMC minutes last week, is on pause for now. Traders will be spending the next few days weighing up their options ahead of a key note speech by Fed chair Powell at the Jackson Hole economic symposium on Thursday.
Wall Street closed higher, with the S&P 500 +0.3% at an all time high on Friday. Futures have pushed on this morning, with the E-mini S&Ps over 3400 and +0.4%. This has helped a mild positive in Asia, with the Nikkei +0.3% and Shanghai Composite +0.2%. European markets are also positively biased into the cash open, with FTSE futures +0.8% and DAX futures +0.9%. In forex, there is a risk positive bias, with GBP and AUD outperformers, whilst JPY and USD are slipping slightly and NZD is the main underperformer (albeit mildly). In commodities, risk positive means gold and silver lower for now, with the legacy of recent slips still weighing. Oil is slightly higher.
There is no key data of note on the economic calendar today.
Chart of the Day – NZD/USD
With volatility ramping up in recent sessions across major forex pairs, the potential for a key breakdown on the Kiwi has taken hold. The support at 0.6500 was a July low which was effectively a pivot from a basis of resistance in June. However, as the market has shied away from 0.6715 in the past few weeks, the recovery momentum has been lost and pressure has grown back on 0.6500 again. Forming a run of lower highs and lower lows, the support at 0.6500 has become increasingly important. Tested last Thursday, it held into the close, but if the Kiwi were to close below 0.6500 it would be a seven week low and mark a key technical shift in outlook, one which would also complete a reversal top pattern (arguably a head and shoulders top). The deterioration in momentum indicators already threatens the breakdown, with MACD at 10 week lows, whilst RSI is already leading the market lower. A closing breach of 0.6500 would complete a -215 pip top pattern and certainly imply a test of the key June higher low at 0.6370 in the coming weeks. The rebound to 0.6650 (last week’s high) is now a key resistance now and any bull failure under 0.6600 area will increase the negative pressure now.
The dollar has engaged in a rather sizeable short covering rally in recent sessions. Currently there is little real damage done to the positive EUR/USD outlook, but the bulls need to be on alert. The failure at 1.1965 has left key resistance and been followed by a couple of decisive negative candles towards the end of last week. The near term move remains negative into the new week. Breaking under 1.1800 leaves a negative bias still, as this was a basis of an old mid-range pivot previously and still acts as a gauge of sentiment. Given the corrective momentum that has formed in recent days, the bulls will be looking to pull the market back above 1.1800 initially today. Beyond that, if this corrective drift is to be shifted, then the bulls need to break this sequence by moving above 1.1880 (to break the lower high form Friday). Momentum is drifting lower and reflecting the near term price move, with MACD and Stochastics falling, but RSI remains fairly stable in the mid-50s. The big move would be a close under 1.1695, but for now, we are still looking for this move to build the next line of support above 1.1695 and to be used as another chance to buy in due course.
Cable has been swinging wildly around in the past week. A run of four incredible candlesticks, closing either higher or lower by over 150 pips leaves the market almost exactly where it was almost a week ago. However, the bulls will be still fairly happy that the key support band 1.2980/1.3000 of the August lows remains intact and he market is trading above all the moving averages. Although not a true trend line yet (needs three points of contact) there is a gauge of support from an eight week trend coming in around 1.2990 today which adds further importance to the 1.2980/1.3000 support area. Cable is again looking to form support around 1.3055/1.3060 today (as it has done in the last two sessions) and the bulls will be looking to hold a position back above 1.3120 which has previously acted as a gauge of improving outlook. Momentum indicators are less positive on the daily chart than they have been previously, but for now reflect a near term unwind that should still be seen as a potential opportunity. The hourly chart is a little more choppy and the dust needs to settle before making a call of more conviction. A close below 1.2980 would signal a key shift that this move is something more corrective.