Broad market sentiment remains cautious and will not have been helped by comments from White House trade advisor Peter Navarro last night who suggested that the trade deal with China was “over”. In what must have been a stinging behind the scenes rebuke for Navarro, this prompted him to put out an almost instant clarification comment that his words had been taken “out of context”. It also prompted a tweet from President Trump that the deal was still fully intact. Another instance of an astounding lack of clarity, mixed messaging and professionalism, but ultimately, nothing overly surprising. Markets reacted with a spike into (and then out of) safe haven assets over night. Interestingly though, that aside there are beginning to be some signs that perhaps a shift in positioning is taking place again. Yesterday saw the Dollar Index form a “bearish key one day reversal”, whilst there have been moves out of the yen too this morning. These forex moves may only be minor for now and yet to be confirmed, but could they begin to signal something more positive again? The yen and dollar have been performing much better in the past couple of weeks as the risk rally has corrected. Signs of traders moving away from the dollar and yen could be a sign of improving risk appetite again. For that to be sustainable, the second wave re-infections in the US probably need to be kept under control. The flash PMIs for June will be watched today for signs of improvement in economic prospects as economies continue to move through their re-opening procedures.
Wall Street closed higher last night with the S&P 500 +0.6% at 3118. US futures are beginning the day on a positive note, with E-mini S&Ps +0.2%. This has helped a positive close across Asia, with the Nikkei +0.5% and Shanghai Composite +0.2%. European markets look well set up early too, with FTSE futures +0.5% and DAX futures +0.8%. In forex, there is a risk positive bias, with JPY being a main underperformer, along with an edge of USD weakness too. In commodities, gold is -$5 whilst oil is consolidating its recent gains.
In a fairly quiet week for the economic calendar, the flash PMIs for June could be key for sentiment today. Eurozone data is at 0900BST, with the Eurozone flash Manufacturing PMI expected to improve once more to 44.5 (from a final 39.4 in May), whilst Eurozone flash Services PMI is expected to improve to 41.0 (from a final 30.5 in May). This would mean the Eurozone flash Composite PMI improving to 42.4 (from 31.9 in May) although this is still deep in contraction mode. UK flash Manufacturing PMI is at 0930BST and is expected to improve to 45.0 (from a final 40.7 in May), whilst UK flash Services PMI is expected to improve to 40.0 (from a final 29.0 in May). The UK flash Composite PMI is expected to improve to 41.0 (from 30.0 in May) although once again this is still deep in contraction territory. Into the US session, the US flash Manufacturing PMI is at 1445BST and is expected to improve to 48.0 (from a final 39.8 in May), so now far from moving out of contraction. The US flash Services PMI is expected to improve to 46.5 (from a final 37.5 in May). We are also on the lookout for US New Home Sales which are expected to improve by +3.5% in May to 640,000 (from 623,000 in April).
Chart of the Day – AUD/JPY
The battle for control of Aussie/Yen could have a wider reaching implications for broader market sentiment. This is why, with the Aussie having been corrective for the past couple of weeks, the bulls need to start the fight back. After a strong bull candle yesterday, this may just now be happening. The unwind of the March to May bull run has already completed a small top pattern that implied a correction towards 72.25, but the support of 72.50 (also an old support area) has held in the past week. The market has approached an interesting crossroads, where support of a three month uptrend (around 72.30) converges with resistance of a two week downtrend (around 73.55 today). Given that we see this move as being a bull market correction (where downside targets are likely to be undershot), and a near term correction will be seen as a chance to buy, it is interesting that the downtrend is being challenged now. Momentum backs the assertion that this is a pullback into support, with the RSI again holding above 50, but also Stochastics threatening to “bull cross”. A breach of this downtrend this morning, suggests the selling pressure is waning and that the bulls are growing in strength once more. Support at 72.50/72.75 is being bolstered. The hourly chart shows improving hourly momentum configuration now and holding a decisive move above 73.90 would be a strong signal for the bulls. Key near term resistance of 74.50/75.05 can then be tested.
After almost two weeks of corrective drift, we have been looking for signs that this retracement on EUR/USD is being bought into. Is yesterday’s strong positive candle the trigger for a market ready to pull higher once more? On a technical basis, a lot of positives are showing now. The corrective drift has found support at $1.1167, at a five week uptrend which is also just above the breakout support of the March high at $1.1145. Daily momentum indicators look ready. Unwinding a bullish configuration, the RSI has picked up from 50 whilst Stochastics are threatening to bottom out with a bull cross around 30. A little two week downtrend is being breached this morning as the market is consolidating too. There has been no overt buy signal yet though. On the hourly chart, a move above $1.1295 would suggest the bulls are buying into weakness. The hourly chart shows $1.1200/$1.1230 is supportive now and needs to be built from to continue the recovery.
It is interesting to se