Finally, after more than a week of procrastination, the S&P 500 has burst through its February resistance to post all-time highs. The move came with encouraging newsflow on COVID treatment (US FDA authorising a plasma treatment of patients with the virus) and potential use of vaccinations in the US (although this is unconfirmed). Add to that the news that phone conversations between US and Chinese top level trade delegates over the progress of phase one of the trade deal were encouraging. With Wall Street powering to new all-time highs there is a positive attitude to risk appetite across major markets. This is reflected in a move higher on US Treasury yields and a subdued outlook on gold. However, whilst the US dollar is a shade weaker today, there is a sense of consolidation across major forex pairs. Looming large this week is a speech by Fed chair Jerome Powell which could define the path of monetary policy in the months and possibly years to come. Even though there are some interesting data points in the coming days (US Consumer Confidence today), is unlikely that traders will take too much of a view ahead of such an important speech. We therefore see EUR/USD gravitating around 1.1800, Cable around 1.3100 and Dollar/Yen around 106, all of which are old pivot areas. This sense of consolidation is also across gold and silver again. Despite this though, the rally on equities looks set to continue today.
Wall Street closed decisively higher with S&P 500 +1.0% at 3430 and way into all time highs. It does not seem to be stopping there either, with futures ticking further higher today (E-mini S&Ps +0.4%). Asian markets were broadly higher with the Nikkei +1.4% but Shanghai Composite was -0.4%. European markets also look to be set fair, with FTSE futures +0.4% and DAX futures +0.7% early today. In forex, the risk positive vibe is helping EUR and GBP rebound slightly, whilst AUD is also performing well. Once more we see NZD as the main drag. In commodities, gold and silver are trading around the flat line, whilst oil is also mixed.
There is a clutch of US data points on the economic calendar today, but the key data kicks off with the German Ifo Business Climate at 0900BST. The Ifo for August is expected to improve to 92.2 (from 90.5 in July). This is expected to be driven by improvements in both the Current Conditions component (to 87.0 from 84.5) and Expectations component (to 98.0 from 97.0). Then into the US session the data begins with the S&P Case Shiller House Price Index which is expected to improve to +3.8% in June (from +3.7% in May). US Conference Board Consumer Confidence is at 1500BST and is expected to improve in August to 93.0 (from 92.6 in July). New Home Sales also at 1500BST is expected to improve by +1.3% to 785,000 in July (from 776,000 in June). The final data will be of note as regional Fed surveys have tended to falter in August and come in with negative surprises, with the Richmond Fed Composite Index expected to remain at +10 (+10 in July).
Chart of the Day – EUR/JPY
The outlook for the euro rally has reached an important inflection point and this is reflected well on Euro/Yen. After six consecutive sessions of losses, Friday’s low was almost to the pip of the old key breakout level of 124.40. However, this appears to have been supportive and building on this yesterday with a (mild) positive candlestick the basis of support between 124.30/124.40 is holding for now. The bulls may have been disappointed that a five week uptrend has been broken, but a bigger 15 week uptrend that originated in early May is still intact (today at 124.25) and adds to the support around 124.40. The bulls need to work hard though, as a mini two week downtrend is intact (at 125.45 today) and near term momentum indicators are mixed. Stochastics and MACD lines are pulling lower whilst the RSI needs to hold above 50 to sustain otherwise the corrective outlook with gather force. For now, this is a near term correction within a medium term bull trend. However, how the market reacts around 124.25/125.40 in the coming days will be key as to whether this is a buying opportunity or not. For now we still hold a positive view of the euro but the bulls need to work hard now. A decisive close under 124.25 opens a move back towards 122/123 and seriously question the bull control. Holding 124.40 is important and a decisive move above 125.55 would help to regain bull confidence for a retest of 126.75.
It is a delicate time for major forex. The dollar has shown signs of recovery in the past few sessions and this has halted breakouts across the likes of EUR/USD. The ensuing pullback has though not done enough to back a stronger dollar (yet) and means that the market lies in a zone of uncertainty. During the late July/early August consolidation range on EUR/USD, 1.1800 was a mid-range pivot around which the market traded. This pivot has come back into play during the pullback of the past few sessions (although is now becoming slightly less adhered to). We see daily technicals having tailed off in their positive medium term configuration. MACD and Stochastics momentum indicators are falling away, but RSI remains above 50. Yesterday’s bull failure candlestick has simply added to the near to medium term mixed outlook that has formed. However, a basis of support is again forming today and the market is again around the 1.1800 pivot area. Holding above 1.1755 (Friday’s low) will maintain this mixed outlook and protect the 1.1695 key support of the past month. The bulls need to hold a move above 1.1880 (Friday’s high) to regain control.