There is a sense that a consolidation that has run through the weekend is still broadly present across major markets today. However, this comes with a slight renewal of USD weakening too. There has been a mild sense of relief that a six month review of the US/China phase one trade agreement progress has been postponed, with some reports suggesting it is to give the Chinese more time to increase US imports. This delay to the US/China trade review is a release of a degree of risk in trade tensions, and should help to support risk appetite early this week. The Dollar/Yuan rate is testing recent lows again (often a barometer of risk sentiment). The nascent dollar rebound which had threatened into the middle of last week is now tailing off once more and consolidation ranges are forming across major forex. Despite this, the big moves seen in US bond markets and precious metals are moderating now. Adding into the mix of conflicting newsflow today is the announcement that Japanese growth came in slightly worse than expected. The New York Fed manufacturing data could shape sentiment this afternoon, but focus will already be turning towards the Fed minutes on Wednesday.
Wall Street closed mixed into the weekend, with the S&P 500 losing -1 tick to 3373, however, futures are higher this morning (E-mini S&Ps +0.3%). Asian markets were mixed overnight, with the Nikkei -0.8% in the wake of the GDP miss, whilst the Shanghai Composite was +2.1%. In European markets, the outlook seems to be more cautious, with mild early weakness on FTSE futures -0.1% and DAX futures -0.2%. In forex, the USD negative bias is coming through the major pairs, with only really NZD not feeling the mild benefit. In commodities, the precious metals of gold and silver are running higher along the lines of dollar weakness, whilst oil is between a half and one percent higher.
It is a quiet European morning on the economic calendar so we look ahead to the US session. The New York Fed’s Empire State Manufacturing is at 1330BST and is expected to show the recovery of the past few months just rolling over slightly in August with a drop back to +15.0 (from +17.2 in July).
Chart of the Day – EUR/AUD
We continue to see a broadly improving outlook developing on Euro/Aussie, although a decisive break higher is yet to be seen. Breaching the last of the multi month downtrends, the pair has been steadily building a floor of support in recent weeks. This includes a pivot of support between 1.6350/1.6400 which is a higher band of support above the key floor 1.6030/1.6100. The market is close to forming a base pattern now. As the momentum indicators remain in their improving configuration, the potential for a breakout above 1.6585 is growing. If seen, this would be a key change in sentiment towards a more bullish euro positioning. The RSI has been holding above 50 for the past few weeks, Stochastics are also consistently positively configured and MACD lines are above neutral. It points towards weakness being bought into and anything towards 1.6350/1.6400 is seen as an opportunity to buy. The market seems to be positioning for a test of 1.6850 initially but a close above 1.6585 would be a two month high and complete a base pattern that would imply +550 pips of additional recovery in the coming weeks. Although the market is still stuck in this consolidation, it certainly seems that there is something of a recovery developing. Initial support 1.6460.
There is a growing sense of resilience in moves on the euro. A threatened dollar rally has lost its way in recent sessions and a positive bias is beginning to take hold once more on EUR/USD. With tests of the key support at 1.1695 having been contained, the bulls have now pulled together three consecutive positive candlesticks. Momentum indicators have moderated a threatened corrective slip and are looking to now regain a positive configuration once more. On the hourly chart, we have discussed a pivot around 1.1800 being an indication within the 1.1695/1.1915 trading range. With the market now holding consistently above this (using a support band 1.1780/1.1800) the bulls are looking to build a stronger position again. Essentially, though, the market is still stuck in what is now a three week consolidation range and until there is a decisive breach of 1.1695 support or 1.1915 resistance, there is a lack of conviction. It is just now that we are developing a mild positive bias within the neutral near term outlook.
In a similar configuration to EUR/USD, a near term trading range also continues to develop on Cable. However, there is a less prominent positive bias on Cable. It is interesting to see that the long upper shadows of the candlesticks continues to be seen, which are reflective of a string of bull failures. How prominent these bull failures are will come to light if the dollar bulls begin to find some traction once more. There is a mild negative drift still present on MACD and Stochastics. This is not an issue now, but the strength of the Cable bulls is questionable and if tide does turn again and the dollar strengthens once more, there could be a more considerable swing lower. The market is trading around what is essentially mid-range resistance in the band 1.3100/1.3120, but unable to pull above it. There is a minor higher low around 1.3045 that needs to hold to prevent another drop back to pressure 1.2980/1.3000. After another bull failure on Friday at 1.3140, this needs to be overcome quickly to prevent becoming a basis of a mid range l