Traders previously so sure of a July Fed rate cut will be sitting somewhat more uncomfortably in the wake of Friday’s surprisingly strong jobs report. A debate over the size of the cut, 50 basis points or 25 basis points has surely been shelved. There has to be a possibility that the Fed may not even cut at all now. With US data points still reflecting US relative outperformance, the argument has been of the need for an insurance cut. The significance of cutting rates should not be underestimated and would surely be a decision not taken lightly. So traders will look towards Fed chair Powell’s Congressional testimonies this week for any further clues. There has been a sharp rebound on Treasury yields from the payrolls report, including +10bps on the 10 year and +13bps on the two year. This has pulled a turnaround across other asset classes. Primarily the dollar is on a stronger path once more, whilst the bull run on gold is being questioned, whilst profits are being taken on equities. There has been a slight unwinding of these moves this morning with yields slipping back a touch, whilst the yen and gold are also a shade stronger, however, this also reflects a risk negative start to the week as equities are still looking corrective. How Powell presents and hints on monetary policy this week could be key. Further stressing data dependence would question the prospect of a July cut, especially if inflation holds up on Thursday. Another few key days ahead.
Wall Street closed weaker on Friday with the S&P 500 -0.2% lower at 2990 and with US futures another -0.3% lower today. Asian markets have played catch up with Friday’s selling pressure and this has dragged on the Nikkei -1.1% and Shanghai Composite -2.8%. In Europe, FTSE futures are -0.3% and DAX futures -0.5% lower. In forex, USD is a little mixed but there is also a slight risk negative bias, with mild outperformance on JPY and CHF. For commodities, there is a slight rebound on gold this morning as Friday’s selling pressure has just dissipated, whilst oil is consolidating.
There are no key economic releases due today.
Chart of the Day – Silver
The rally has decisively turned lower once more. A five week uptrend came to a shuddering conclusion with Friday’s big bear candle. Breaching trend support and also a near to medium term pivot around $15.10 the corrective pressure is growing again. The RSI has broken clear below 50 again and this is a signal to confirm the deterioration in the outlook. Coming with the bear cross on the MACD lines and Stochastics accelerating lower, near term rallies are now seen as a chance to sell. The pivot at $15.10 is now a basis of resistance whilst traction below the old $14.90 pivot would open $14.60 as the next support. The hourly chart shows a near term sell zone $15.10/$15.20.
Several technical support levels gave way in the wake of the strong Payrolls report on Friday and the outlook is turning increasingly corrective. Previously, the move was back to the pivot support around $1.1265 and five week uptrend channel. However, the decisive bear candle has flipped this outlook. Closing below all moving averages and confirming a breakdown on momentum, the outlook suddenly looks rather heavy for the bulls. With RSI at a five week low, whilst MACD and Stochastics also deteriorate, near term strength is now a chance to sell for a retest of $1.1180. Overhead supply at $1.1265 now looks an opportunity for the sellers. The hourly chart shows classic downtrend signals now, with RSI failing 55/60 and MACD lines consistently under neutral. There is now growing resistance $1.1265/$1.1310. Initial support at Friday’s low of $1.1205.
Sterling remains under pressure as the key medium term support at $1.2475/$1.2505 is tested. Intraday lows held on to $1.2475 and a close above $1.2505 will have come as a minor relief, but there is an expectation that the sellers will come again. With the configuration on momentum indicators, rallies are a chance to sell. RSI is falling in the mid-30s (where moves tend to hit 30 and below during the bear phases), whilst MACD lies are tracking lower from a bear cross and Stochastics are falling. The hourly chart shows that rallies tend to fail around old support levels, suggesting that $1.2555 is restrictive initially and the $1.2590 high is a level that needs to be overcome to even consider a sustainable recovery. Hourly momentum is solidly negatively configured too. Renewed selling pressure below $1.2475 would open $1.2350 and $1.2100 levels not seen since Q2 2017.
The dollar bulls look threatening again in the wake of the strong payrolls report from Friday. Breaking through several resistances on Friday, the (already once re-drawn) multi-week downtrend has again been breached and the prospect of a base pattern is growing again. We have spoken previously about the importance of decisively clearing the 108.50 resistance and although was breached intraday on Friday, this is still to be achieved. With an early slip back, the focus will be on how the bulls react to again failing around 108.50. With the RSI pulling into the 50s on Friday, this was a ten week high, and momentum indicators are leading the market higher. The hourly chart shows that as the dust settles, the bulls need to start setting up camp above 108.15 which is an old near term pivot and is supportive for the near term unwind. Support at 107.50/107.70 is growing in importance now. A closing breach of 108.80 would be a five week high but more importantly complete a base pattern. Above 108.80 there is resistance at 109.00 but there would also be 175/200 pips of upside recovery target to consider too.
With elevated levels of intraday volatility, gold is being pulled almost on a daily basis. However, the bulls are looking a little more strained now. In the past seven completed sessions, there has been only one positive candlestick. Although the five week uptrend survived an intraday breach into the close on Friday, the pressure continues to build for a potential near term corrective move. Stochastics are looking tired now, whilst the MACD lines are crossing lower. If the RSI slips into the 50s then this would be another suggestion that a correction is coming. There is a basis of support around $1399/$1400 (23.6% Fibonacci retracement and old pivot) but the hourly chart suggests that rallies are a struggle. Initial resistance at $1410, with $1424 a lower high. Friday’s low at $1386.50 is support, whilst the reaction low at $1381.10 is key.
Friday’s intraday bounce into the close on the positive payrolls report has done little to shift the outlook which is becoming increasingly corrective. A ten week downtrend is resistance at $59.15 now below the 50% Fibonacci retracement at $59.60 which has been a source of consolidation and subsequent resistance in the past week. With momentum indicators faltering in their recoveries (MACD, RSI), or turning over (Stochastics) the prospect of growing downside pressure is building. There is a pivot around $58.00 which is also resistance and the longer this remains in place, the more concerned the bulls will be. A retreat back towards the 38.2% Fib level at $55.55 is preferred now.
Dow Jones Industrial Average
There have been little signs of losing momentum in the push for all-time highs, but as yet the bulls are maintaining their control. A three week uptrend was tested at the intraday low on Friday, but there was a positive response to leave the uptrend intact and a positive candlestick. This brings the bulls into the new week still with ideas of breaking into new high territory again this week. Momentum is strongly configured but with RSI edging towards 70 there is a sense that this is restrictive to the rally now. MACD lines and Stochastics are both positively configured still, but again come with a sense of cautious optimism. The hourly hart needs to be watched for negative divergences and profit-taking signals. Friday’s low at 26,733 is initially supportive, with 26,633 and the near term higher low at 26,465. The all-time high is 26,966 above which is blue sky.