There is a mildly positive tone to risk appetite today through major markets, but it is also interesting to see the dollar also holding strength. With Treasury yields ticking higher and a “bull steepening” on the yield curve developing (longer dated yields rising faster than shorter dated), the dollar is beginning to look primed for recovery. Although it had roots in extremely oversold positioning and a better than expected payrolls report on Friday, there does not seem to be too much to drive which is driving the move today. Notably the tit-for-tat deterioration in diplomatic relations between the US and China continues, as both put sanctions on individuals, leaving questions over the trade talks which are scheduled for the this week. Despite this, the risk positive tone is supporting equity markets, but along with support for the dollar, we are finally seeing gold beginning to correct. The yellow metal is back under $2000 this morning. Also silver (which should be renamed “gold on steroids”) is turning sharply lower. Sterling traders will be watching the reaction to UK unemployment which was announced early today and broadly came in better than expected for the June data, although the July claimant count was higher than expected.
Wall Street closed mixed last night. The Dow closed decisively higher, but after days of huge tech gains, a degree of profit taking hit the sector, dragging the NASDAQ lower, and weighed on the S&P 500 (+0.3% at 3360). Despite this, the mildly positive tone to risk is helping US futures slightly higher today (E-mini S&Ps +0.1%). Asian markets were positive overnight with the Nikkei +1.9% after returning from public holiday on Monday, whilst the Shanghai Composite was -1.1%. European markets look set fair, with FTSE futures c. +1% and DAX futures +1%. In the forex majors, the risk positive vibe is resulting in the USD just pulling back slightly after a couple of days of recovery, and JPY underperformance. In commodities, gold is over -1% lower, whilst silver is -3%. Oil is mixed although supported by the risk positive bias and news of Iraq looking to improve its compliance with OPEC+ production cuts.
On the economic calendar, euro traders will be looking out for the German ZEW Economic Sentiment at 1000BST which will given further indication of how the German economy is re-emerging from the pandemic. Consensus is expecting a slight deterioration in to 58.0 in August (from 59.3 in July), with the current conditions component improving to -68.8 (from -80.9 in July). US factory gate inflation is at 1330BST with the US PPI which is expected to see headline PPI improving slightly to -0.7% in July (from -0.8% in June), whilst core PPI is expected to drop back to zero (from +0.1% in June).
Chart of the Day – Silver
So much focus has been on the incredible run higher of precious metals in recent weeks. Gold always takes the headlines, but the performance has been dwarfed by that of silver. The threat of a dollar rally has weighed on several major markets, and silver has been holding up relatively well, that is until this morning. A big bull move in the past week has formed a run of higher daily lows, but with a move below yesterday’s low at $27.85, this sequence has now been broken. This is an initial breach of the bull trend, but is it moving into reversal? A retreat to the three week uptrend could be seen, which is way back around $26.15 today. Positive daily momentum, is beginning to falter, but there is no outright corrective signals yet, with RSI still above 70, Stochastics above 80, whilst MACD lines are higher and. However, given the strong run higher, we have to still be mindful of retracement signals. The hourly chart shows the importance of $27.35 as support is growing, as it could become a neckline of a top pattern. A close below $27.35 would complete the reversal and imply-$2.50 of downside target. Initial resistance around $28.50 is a near term pivot and at $29.40 under the multi-year high of $29.84.
We have been recently discussing the acceleration higher on EUR/USD through July which formed a succession of steeper uptrends. However, these uptrends are now being broken as the euro has formed a second negative one day candlestick. A three week uptrend breach on Friday has been followed by the shallower four week uptrend being broken. The threat on support at 1.1695 key reaction low is now growing. Momentum indicators are taking on more of a corrective configuration now too, with a “bear cross” on MACD lines, Stochastics falling away and RSI now back to the low 60s. Despite all this, there is still no decisive sell signal on the price yet. These momentum signals suggest the end of bull control but without a price breakdown, there is no outright deterioration in the outlook, as this could simply still just be a trading range between 1.1695/1.1915. There is a negative near term bias on the hourly chart which suggests that intraday rallies are a chance to sell. If the hourly RSI continues to fail around 50/60 and hourly MACD lines are under neutral, then the pressure on 1.1695 will grow. Continued failure under 1.1800 (which is now a mid-range pivot) will also see this pressure grow.
We have seen the dollar starting to regain some of its lost ground in recent sessions. This has dragged Cable back from its recent multi-month highs a shade under 1.3200 and also break a three week uptrend. However, there is yet to be decisive traction in a correction. Yesterday’s positive candle has held up any corrective move and formed what looks to now be a near term consolidation range between 1.2980/1.3185. It is interesting that the momentum indicators are not as advanced in a corrective bias as they are on EUR/USD. There are no bear crosses or sell signals on RSI or MACD and only a drift lower on Stochastics. Sterling is holding up relatively well. An early consolidation has set in, but on the hourly chart we see that Cable is struggling slightly under the $1.3100 pivot within the range. Although this lends a mild corrective bias still, whilst the support at $1.2980 remains intact, there is a near term neutral outlook on Cable.
The dollar bulls may be struggling for traction in their attempted recovery, but they are hanging in there. Friday’s positive candle could not be translated into the new week as the market formed an almost doji candle (denoting uncertainty) yesterday. The fact that this came once more around the resistance of the 106.00/106.60 overhead supply makes it even more uncertain. That is now five sessions since the rally from 104.17 where the market has tested above 106.00 but failed to generate a closing breach. We continue to favour another failure in the 106.00/106.00 band. Once more this morning we see the dollar bulls trying to get something going, with a tick above 106.00. There is a slight improvement coming through on momentum indicators now, with the bulls encouraged by the MACD lines crossing higher. However, the daily RSI and Stochastics are now into an area where previous rallies have failed. The bulls would need to realistically pull above 107.50 to suggest there is sustainable traction to a recovery. This still has the look of a market unwinding into resistance and building for the next lower high. The reaction to support at 105.30 will be key to this, as a break back below would see the recovery rolling over once more.
After such a strong run higher on gold, the Nonfarm Payrolls report seemed to trigger a shift in sentiment on gold (also the dollar and Treasury yields too). Gold has since formed two negative candlesticks and the move is accelerating lower this morning. There have not been three successive negative closes on gold since May. There is a considerable negative move through momentum indicators (should the market close around current levels today) with RSI back under 70 being the first real negative signal. However, MACD and Stochastics are also beginning to deteriorate and this would weigh on the outlook. The hourly chart shows a decisive move below the initial low of $2015 from Friday, meaning that there are now lower highs and lower lows. On a technical aspect too, the failure at $2049 yesterday afternoon was also the old support of a mini top and plays in to the corrective momentum building. The aggressive nature of gold decline early this morning (when there was little move across forex majors), suggests that the corrective momentum could be quick if it goes. A retreat into the $1940/$1984 consolidation band looks increasingly likely now. There is a band of resistance $2015/$2030 now as a near term sell zone.
Brent Crude Oil
The recovery on oil is really difficult to get excited by. After the upside breakout above $45 last week, the bulls would have been looking to extend their targets, only to have their enthusiasm curbed into the weekend. However, despite this still being a case of two steps forward and one step back, once more, it is the corrections that seem to be the opportunity to buy, and not the breakout. A move back into the support band $42.90/$44.90 has started to build support again. With Friday’s reaction low at $44.25 we see oil edging back higher once more. A continually positive bias to momentum indicators (RSI between 50 and mid-60s, Stochastics between 50/85 and MACD lines above neutral), reflect this mildly positive bias. So it is still all about timing the entry points and using weakness as a chance to buy. Support at $41.30 is increasingly important, whilst the bulls will now look to build again from $42.90. A close above $45.20 would be another step forward whilst resistance is at last week’s high of $46.25. Beyond that the bulls can look towards $50 again.
Dow Jones Industrial Average
With seven successive positive closes, the Dow has pushed decisively forward once more. The market has also now driven through the key resistance of the June high at 27,580 with a solid bullish candlestick. This is the next important step forward for the Dow. The NASDAQ has been hitting all-time highs consistently, whilst the S&P 500 is less than 1% off its own all-time high. Now in removing the resistance of the June rebound high, the Dow bulls can now look towards its own all-time high at 29,569. Momentum is strong although there is a slight caveat in the sluggish MACD lines. Despite this, RSI is in the high 60s and Stochastics extremely strong too. The breakout above 27,580 means that 27,070/27,580 becomes around 500 ticks of strong breakout support now to use to bolster any near term slip. The next resistance is the old February bear gap, with 28,400 up towards 28,890.