We still see the development of a constructive outlook for risk appetite in the market. This has driven equities strongly higher early this week. This risk acceleration has just had the reins pulled slightly early today as Treasury yields have just pulling marginally lower and the dollar has reclaimed some of yesterday’s lost ground. However, it is interesting to see the Australian dollar holding up relatively well (which would reflect a broadly improved risk environment), whilst we are also seeing gold continuing to correct back. Wall Street sits on the brink of a breakout to multi week highs and with futures looking mixed, this could be “will it, won’t it” day for a move which could herald the next bull leg in the recovery. It is interesting to see that which this improvement in risk has been taking hold, there has also been significant renewal of selling pressure through oi. The sabre rattling of a war of words between Donald Trump and Iran over gun ships in the Persian Gulf has not escalated and the focus has turned back on the massive oversupply due to the plunge in demand, and also the lack of storage capacity in the US. This is not a cocktail that supports oil prices for long.
Wall Street ended another session with good gains, as the S&P 500 closed +1.5% higher at 2878. However, with the E-mini S&P futures a shade lighter today (-0.1%) there has been a consolidation in Asia overnight, with the Nikkei -0.1% and Shanghai Composite -0.1%. European markets look supported early today, with FTSE futures and DAX futures both +0.3%. In forex, there has been a slight paring of yesterday’s losses. NZD is the main underperformer, with marginal weakness across the rest of the majors, aside from JPY which is holding up relatively well. The big moves continue to be seen in commodities, with gold -1.0% and back under $1700 whilst silver is -2.0% lower. Being long of oil is also being very damaging with WTI -13% and Brent Crude -4%.
We are looking towards US data on the economic calendar today. At 1500BST the Conference Board’s Consumer Confidence data is released. Perhaps unsurprisingly, confidence is expected to have taken a nose dive in April (the first full month of lockdown) and plummet to 87.9 )down from 120.0 in March). This would be the lowest reading since June 2014. The Richmond Fed Composite index is at 1500BST and is expected to join other regional Fed surveys and slide hugely in April, down to -34 (from +2 in March).
Chart of the Day – AUD/USD
The Aussie seems to be a leader in the risk recovery right now. Since the March low, AUD/USD has embarked upon two separate bull legs higher and is now threatening a third. Finding resistance in early and mid-April, the pair has formed two flag consolidations before breaking higher. The early April breakout above $0.6210 hit resistance at $0.6445 before the second flag consolidation. With another closing breakout in yesterday’s session the market is now primed for the next bull leg higher. This could now be a move that drives the pair towards the next key resistance at $0.6685. A confirmed break through $0.6445 is doubly significant as it also looks to clear the 61.8% Fibonacci retracement (of the $0.7030/$0.5505 sell-off) at $0.6450. The move leaves $0.6250 as a key higher low support now (also around the 50% Fib at $0.6270). Momentum indicators are positively configured for the next bull run, with the Stochastics swinging higher, MACD lines accelerating above neutral and RSI above 60. This points to the Aussie being bought into weakness now. The hourly chart shows $0.6400/$0.6440 as a near term buy zone now.
The dollar has come under some corrective pressure in the past couple of sessions and this has pulled EUR/USD higher. However is this enough to sustainably change the corrective outlook? For now, this still looks to be a rally on somewhat shaky ground. After the market engaged in a couple of intraday breaches of the support at $1.0770 last week, Friday’s strong bull reaction looked to be one that turned a corner. However, Monday’s candle has been a little disappointing, as the bulls gave up over half of their recovery gains to close with a highly questionable positive candle. Is this a bull failure? Today’s early stuttering under the 23.6% Fibonacci retracement (of $1.1490/$1.0635) at $1.0835 does not help the recovery momentum. Although the Stochastics have ticked higher, we also see RSI and MACD lines struggling for traction in recovery. The hourly chart shows the resistance at $1.0890 is key overhead but the market turning back from $1.0860 is a potential lower high now. The old pivot at $1.0810 will once more be a gauge of support.
A fourth positive close in a row for Cable is helping the bulls just to edge back into control of the near term outlook. Using the 50% Fibonacci retracement (of $1.3200/$1.1405) as a basis of support around $1.2300, the market has now moved decisively higher from this Fib, with the bulls now having their sights set on 61.8% Fib again around $1.2515. Momentum is looking to swing back towards positive once more, but this is very much within the context of what is increasingly a medium term range now. The market has traded between $1.2160/$1.2645 since late March, several swings back and forth in recent weeks. With the daily RSI having spent all that time between 45/60, there is a lack of overall direction in what is becoming a medium term range play. However, on a near term basis, the market is looking to generate positive momentum once more. We are now seeing a tick back above $1.2405 which has been a near term pivot and this is improving the near term outlook again. The hourly chart shows $1.2375/$1.2405 is now a near term buy zone for upside pressure towards $1.2485/$1.2520.
There is a mild negative bias that is weighing on the outlook of Dollar/Yen. This comes as the past few sessions have seen negative closes and daily momentum indicators begin to roll over again. However, the bulls have once more defended the key April lows and support at 106.90. A rally into the close yesterday prevented what would have been a rather bearish looking candle from taking hold. Instead the hourly chart shows that how the bulls react in the resistance of overhead supply between 107.25/107.35 will be key today. Early indications are that this resistance is weighing on the outlook again, and this little rebound is again turning over. If this rally does fail at 107.35, then it would suggest mounting bear pressure and re-open a test of 106.90 once more. Hourly momentum suggests this is already building, and is increasingly correctively configured now. Hourly MACD lines are consistently below neutral and RSI failing around 50/60 before falling towards 30 again. This all points to selling into strength now. This near term outlook would turn considerably more negative on a decisive (closing) breach of 106.90 which would open 105.85 and then the old 104.50/105.00 band. A close above 107.60 would be a strong enough reaction to suggest the bulls are still fighting hard near term.
With a second close lower in the past two sessions, already threatening to turn into a third today, the outlook for gold is deteriorating. We have been talking about the near term importance of the pivot at $1702 and the support of this pivot has been decisively broken today. With this coming as momentum indicators are starting to deteriorate, we must turn at least cautious of the outlook for now. With RSI and Stochastics ticking lower, MACD lines are crossing lower. This at least suggests our bullish outlook is on hold for now. In recent weeks, the old March high at $1702 has become a gauge for the near term outlook. Breaking back underneath it this morning puts the bulls on the defensive again. Looking on the hourly chart, at the least, it looks as though the near to medium term outlook is now a range play. We have previously discussed the mini top and bottom patterns that form based around the $1702 pivot, and another downside break of the pivot has opened the $1660/$1670 band of support now. The hourly chart shows support now of a range between $1660/$1670 and resistance of $1738/$1746. The pivot is now a barrier to gains and although there is a minor initial support at $1690 which is holding early in the European session but a breach would effectively open the range lows again. A confirmation (closing) breach of this pivot will suggest that playing this range is now the near to medium term strategy.
Brent Crude Oil
We have had our concerns over the longevity of last week’s rebound on oil. It seems that these concerns were well founded as oil has resumed it negative pressure once more. After a tentative run of candlesticks (despite the positive closes), yesterday’s decisive decline has once more re-engaged the bears. The downtrend of the past two and a half weeks continues to shadow the move lower and comes in as resistance around $21.00 today. Momentum indicators never really got going in their recovery last week and have all turned negative again in bearish sequence. The hourly chart shows the breach of initial support at $19.90 yesterday has effectively opened the massive $16.00 low once more, whilst hourly momentum takes on renewed corrective configuration. This suggests that intraday rallies are a chance to sell, with initial resistance $19.90/$21.15.
Dow Jones Industrial Average
Wall Street is on the brink of a move to multi-week highs again as risk appetite has improved again. Another solidly strong candle in yesterday’s session is eyeing a test of the 24,265 April high. A near term range of around 1300 ticks has developed over the past two and a half weeks, between the support at 22,940 and resistance of 24,265. Meaning that a closing upside break of 24,265 would now imply a move towards 25,550 area. Pulling decisively clear of the 50% Fibonacci retracement (of 29,567/18,213) at 23,890 would also open the 61.8% Fib level at 25,230 as an upside target zone. Momentum is strongly configured, with Stochastics ticking higher in bullish territory, whilst MACD lines are rising above neutral and RSI is pushing higher above 50 again. The bulls need another good session today to make the breakout. Perhaps a degree of cautious is coming early today though with futures a shade lower, but the hourly chart shows that there is good near term support 23,420/23,885.