The sense of that major markets are now starting to brace themselves for the impact of the key note speech of Fed chair Jerome Powell at the Jackson Hole Economic Symposium. Powell gives his speech tomorrow at 1410BST and it could be a momentous occasion. He is expected to lay out the pathway of forward guidance as the Federal Reserve navigates for monetary policy in the coming months and potentially years. This could have a significant impact on Treasury yields, the US dollar and across major markets. This morning we see that yields have picked up, the dollar a shade higher and precious metals drifting lower. Equities are also consolidating. To an extent this is unwinding some of yesterday’s dollar weakness that came in the wake of the significant downside surprise of US Consumer Confidence which fell back to multi-year lows. However, with a limited economic calendar today, markets are likely to settle down now in readiness for Powell’s speech tomorrow.
Wall Street had a mixed session yesterday, although the S&P 500 managed to post further all-time highs+0.4% at 3443. US futures are cautious today though, with the E-mini S&Ps -0.1% early today. In Asian, there was cautious, with the Nikkei almost deaf flat, although the Shanghai Composite was -1.4%. In Europe, the sense of consolidation is also there, with FTSE futures +-.1% and DAX futures -0.1%. In forex, there is a mixed look to majors with little real direction. EUR is slipping slightly and NZD is gaining (once more a turnaround on yesterday’s moves) with other currencies mostly hovering around the flat line. In commodities, there is an ongoing drift back on gold (another -0.5%) whilst oil is consolidating two days of gains as the Gulf of Mexico prepares for Hurricane Laura.
It is a quiet European morning for the economic calendar today. Into the US session, focus turns to the core Durable Goods Orders (ex-transport) at 1330BST which is expected to improve by +2.0% in July (after +3.6% in June). The EIA Crude Oil Inventories at 1530BST are expected to show another drawdown of -3.8m barrels last week (from -1.6m barrels the previous week).
Chart of the Day – USD/CAD
The US dollar has shown hints of recovery across several of the major pairs, however, there appears to be little sign of it on USD/CAD. The market may have consolidated over the past week, but there is nothing of real note on momentum that suggests an imminent recovery. A pivot resistance at 1.3230/1.3245 has continually capped the upside. Even if there was to be a tick higher, the resistance overhead is huge now. We have previously discussed the importance of the old long term pivot band around 1.3300, a level which is now key resistance. The break below the June low of 1.3310 came in early August and we believe that this has opened the way to test the key December/January support around 1.2950. A major trend lower of the past five months now sits bang on the 1.3310 old breakdown level, whilst there is a slightly sharper downtrend channel of the past month at 1.3250 today. This channel is now a confluence of the resistance from the August pivot at 1.3245. Subsequently we would see any near term attempt at a rally likely to falter between 1.3245/1.3300 which is a sell zone now. We favour a retest of initial support at 1.3130 before the way is open towards 1.2950. Above 1.3400 would abort.
A decisive positive session for the euro which added around +40 pips has just steadied the outlook once more. The pullback from 1.1965 of the past week has threatened to turn the outlook, but again the move seems to be stabilising around the 1.1800 level which has previously acted as a range pivot. Since last week’s low around 1.1750 the market has formed further support at 1.1780 and this is helping to moderate the corrective element to momentum indicators. The market looks to be in a wait and see mode around this 1.1800 area now and with a crucial speech by Fed chair Powell tomorrow, this is understandable. The near term levels of note are the initial support at 1.1750 and the resistance at 1.1880 (essentially the range from Friday). The market reaction around these levels and how aggressively they are breached could determine the next move. Key support is still at 1.1695 which is a one month low where a breakdown would also complete a top. Given the strong medium term positive outlook we still favour weakness to be bought into and for a retest of 1.1965 again in due course. Once the volatility settles down in the wake of Powell’s speech we will know a lot more.
A decisive positive candlestick for yesterday’s session has steadied some nerves for the bulls, but this remains a market in consolidation above an increasingly important 1.3000 support area. The big swings of the past week have reduced somewhat, however there is still an element of uncertainty to the near term outlook as Cable drops back again today. The daily momentum indicators show a market in a bull trend consolidation, unwinding overstretched momentum. This should be the source of another chance to buy in due course, but the near term outlook is uncertain for now. This is shown on the hourly chart, with the market oscillating over recent days. We discussed the 1.3120/1.3150 pivot area yesterday and the market seems to be trading within this now amid consolidation. Once more, Fed chair Powell’s speech will be very much on the minds of traders in the next couple of days and this may see the consolidation continue. Support at 1.3050 protects 1.2980/1.3000. A decisive move above 1.3170 opens the recent highs again at 1.3255/1.3265.
This is an important little rally now on Dollar/Yen. As a rebound has kicked in, our conviction for the pair finding continued resistance in the band between 106/107 is being tested. However, we still see this as a near term move that is likely to find renewed selling pressure in the zone between 106/107, where all the old lows between April and July were formed. Old support becomes new resistance. Yesterday’s decisive move into the 106/107 band is something that we are now eyeing as a move that could negate our conviction, however, it is interesting to see this move moderating this morning. Stochastics crossing higher, RSI above 50 and MACD lines lend a slight positive bias, but watch the 55 day moving average (at 106.60) which has so often capped the upside in recent months. However, a near term run of higher lows forms a mini uptrend at 106.05 today, so if the bulls can now begin to hold above a 106.00/106.20 near term pivot area then the pressure can grow to the upside. A decisive break above 107.00 would leave 105.10 as a key higher low and potential new recovery trend formation. This shows how importance the resistance at 107.00 has now become. This early consolidation today may leak into tomorrow and Jerome Powell’s speech, after which we are sure to know whether this rally can shift the outlook. Until we know more, we have to still see Dollar/Yen as a sell into strength.
With Treasury yields rising, gold is on a negative drift, something which is a pretty standard play. How gold sits after the next 48 hours though could be key for the ongoing outlook. We are expecting a decisive move on the back of Fed chair Powell’s speech tomorrow. In the run up to this there has been a sense of consolidation, but within this there is a mild corrective drift too. The past few sessions has seen gold slipping back in a series of small-bodied but negative candlesticks. This is pulling the market back towards the support of an 11 week uptrend which sits at $1905 today. For now, last week’s low at $1911 is intact but the hourly chart shows a pull towards a test of $1906/$1911 support band. The hourly chart also shows that the old basis of support around $1929 has turned into resistance this morning, leaving $1929/$1936 as a near term barrier to gains today. A breach of $1900 would open the way for a move back to test $1863. We still see the medium term outlook as positive, but this near term corrective move still seems to have some room to play out as the negative drift continues. A move above $1955/$1961 resistance would begin to breach a three week corrective downtrend and put the bulls in a better position, but only above $2015 would the market be truly bullish once more.
Brent Crude Oil
A second successive positive close and bullish candlestick with a decisive move higher has shifted the near term outlook once more. This seems to be a fairly consistent playbook for oil right now. A consolidation that is bought into that leaves another higher low before a breakout above resistance. The problem is that time and again, the breakouts almost immediately are then beset by the next phase of consolidation. From Friday’s low of $43.60 (leaving a support band $43.60/$43.90 in place), the market has pushed above initial resistance of last week’s high (at $45.55) and also that of the week before (at $45.80). This now opens a test of the August multi-month high of $46.25. However, given previous bull failure on breakouts, this is not a market to be chasing breakouts. Invariably there is a better opportunity a few days after any breakout, to buy into weakness. Despite there being little real resistance until $53.10/$53.90 it is still a very slow and steady run higher not to get too excited about.
Dow Jones Industrial Average
A pullback has just tempered the bulls slightly, but the breakout to multi-month highs remains on track. Moving strongly higher in recent sessions the Dow has bolstered support at 27,525/27,580 as a key near term gauge for the bull run. Breaking through 28,000/28,155 resistance this week means that this has become the first area of support. This held up well to an initial intraday slip yesterday and it seemed that the buyers were happy to come back in again. There is strength to the momentum, but also a risk that with the rally just hitting the buffers yesterday, with the RSI around 70 this could lead to a near term stumble. We would still be looking to use weakness as a chance to buy though, with any supported slip into an area between 27,525/28,000 being an opportunity. Below 27,525 would disappoint but the bulls are broadly in control above the near five month uptrend at 27,075 today.