There is a distinctly risk positive bias that has started the new week. There does not seem to be any significant reason behind the move (so perhaps a degree of caution needs to be taken here), but Asian equity markets have been decisively bid overnight. Chinese media have been pushing a “bull market” narrative over the weekend, and it is interesting to see the Shanghai Composite over +5% higher today. This bullish theme has leaked into forex major which are taking a risk positive skew which is benefitting higher beta majors at the expense of the safer havens. The Aussie and Kiwi are strong outperformers (this coming a day ahead of he Reserve Bank of Australia expected to talk up the economic rebound prospects for Australia). After Friday’s public holiday in the US, we see Treasury yields picking up too (along the risk positive theme). However, it is important to note that many of these moves are still within ranging patterns and there would likely need to be something more substantial for a decisive breakout of recent consolidations that have taken hold across many major markets. For this morning, traders appear to be looking past elevated levels of COVID-19 infections, but if the death numbers accelerate, this may not last long.
Wall Street was shut for Independence Day holiday on Friday but futures are strong today, with the E-mini S&Ps +1.1%. Asian markets were strong across the board, with Nikkei +1.8% and the Shanghai Composite +5.5%. In Europe, there is a similar positive theme, with FTSE futures +1.7% and DAX futures +2.2%., In forex, JPY is a chief underperformer, whilst USD is also struggling. AUD, NZD and EUR are all strong. In commodities, there is a less decisive move, with consolidations on gold and silver, whilst oil is mixed (WTI flat, Brent Crude +1%)
There are a few European data points on the economic calendar this morning, but the US services data will be key later on. The Eurozone Sentix Investor Confidence is at 0930BST and is expected to improve to -11.0 in July (from -24.8 in June) which would be a 5th consecutive month in negative territory. The UK Construction PMI for June is at 0930BST and is expected to improve to 47.0 (from 28.9 in May) which is still in contraction territory. Eurozone Retail Sales for May are at 1000BST and are expected to show a sharp bounce back of +15.0% for the month of May (after falling -11.7% in April) this would though leave the year on year decline at -7.5% (-19.6% in May). The key data point for the day is at 1500BST with the ISM Non-Manufacturing which is expected to improve to 49.5 (after 45.4 in May). Given how regional Fed surveys and the ISM Manufacturing have seen positive surprises recently, could a move above 50 be on the cards?
Chart of the Day – DAX
The DAX ticked higher over the course of last week, but there are a few mixed messages still being thrown out by the technicals which suggests caution may be required. For the bulls, there are the positives from how the market has responded to the two key June gaps. The early June downside gap at 12,470 from the sell-off has now been “closed” (which is bullish), whilst the upside gap at 11,968 has been “filled” which is also positive. These are positive developments which suggest that weakness is still seen as a chance to buy. Friday’s negative session (of -80 ticks) just took the wind out of the sails of the bull run and ended the week on a slightly sour note., however, futures are suggesting a strong start today. There is still a bullish bias that with positive configuration on momentum, supported weakness is still a chance to buy for a retest of 12,915. The market will still likely look to “fill” this morning’s upside gap and this could be an opportunity. Daily RSI is consistently between 53/63, whilst Stochastics are picking up at three week highs and MACD lines are holding decisively above neutral. The old gap resistance at 12,470 is now initial support. The long uptrend from the March low comes in around 12,000 today, but there is also a tighter 6 week uptrend around 12,250. The importance of the support of the recent low at 11,957 is growing.
With Friday’s latest small bodied candle coming on a US public holiday, there is little to gain from reading too much into the consolidation. However, with US trading coming back into force today, the morning has begun with a bullish bias to EUR/USD. The question is, can this now be translated to sustainable direction? There is still a legacy of what is now a span of six small bodied candles, where a lack of conviction has been dominant on the pair and this needs to be shaken off. Several times over the past week, it looked as though direction was forming only to be retraced once more. A strong and decisive daily candle would begin to suggest conviction is returning this week. A +40 pip move higher this morning is into initial resistance now between $1.1290/$1.1300 where intraday rallies over the past week or so have floundered. This resistance needs to be broken and a new basis of support to be formed in order for this to be considered more than another part of the near term consolidation. Seeing RSI sustainably in the 60s, whilst MACD lines bottom will also add to a sense of improvement and to buy into intraday weakness. However, the barriers overhead need to be broken if the bulls are to make serious progress. Beyond $1.1300, there is a barrier at $1.1350 and then $1.1420. The bulls will point to the support now starting to kick in above the $1.1165/$1.1190 band which is growing in importance.
Cable managed to edge higher on Friday (on a very f