Conflicting reports over how President Trump might respond to China have generated swings in sentiment on major markets in recent sessions. Suggestions are now coming out from Trump’s administration that they will not push for retribution over China’s role that could be perceived as having created this global pandemic. It was interesting to see that this change in tack comes after there were significant declines on Wall Street which had occurred after the original suggestion that Trump would push for punishment of some form. In any way, we now see the swing back towards more positive risk sentiment once more. Treasury yields have ticked back higher (albeit marginally), the US dollar is seeing recent gains ebbing away again and equities are rebounding. The Chinese yuan has strengthened against the dollar in the past 24 hours, which tends to be a good proxy for risk appetite. Oil has swung back higher once more as the focus can turn once more to re-opening economies and the positive impact this may have on demand. The Reserve Bank of Australia monetary policy decision was to hold rates at 0.25% as expected, and portrayed a relatively upbeat outlook. The Aussie has benefitted from this and is edging as the best performing major currency today (although the commodity currencies are all performing well).
Wall Street rallied off its lows to close marginally in positive territory with the S&P 500 +0.4% at 2842. US futures are also ticking higher this morning, with the E-mini S&P futures +0.7%. This is lending a positive bias to Asian markets, although China and Japan are still on public holiday. In Europe there is a strong look to early moves, with the FTSE futures +1.5% and DAX futures +1.4%. In forex, there is an interesting consolidation seen across the G4 majors (USD, EUR, GBP, JPY), whilst the commodity currencies are gaining ground on the improved risk. In commodities, we see gold holding once more around the $1700 mark, whilst silver is slipping. Oil is pulling strongly higher with WTI +8% and Brent Crude +5%.
The services PMIs are staggered this week with different countries impacted by Labour Day. Today it is the turn of the UK and US data on the economic calendar. The UK final Services PMI for April is at 0930BST and is expected to be downwardly revised a shade to 12.2 (from the already horrendous 12.3 of the flash reading, 34.5 final March). This would leave the final UK Composite PMI at 12.9 (12.9 flash, 35.0 final March). The focus into the US session will be on the ISM Non-Manufacturing at 1500BST which is expected to drop to 37.5 (from 52.5 in March).
Chart of the Day – Silver
The old saying is that silver is gold on steroids, and the early April rally suggests that this could be true. However, we also see that since topping out at $15.83, silver has been struggling. The move higher is threatening to correct (could this be a warning for gold longs?). This struggle for silver has once more retreated back to a key crossroads. The support of the breakout around $14.70 (the old March high) has seen repeated pressure on support in recent sessions. The level, which is once more under threat this morning, is holding for now, but for how long? There are red warning lights flashing on momentum indicators. A decisive corrective move is already underway already on Stochastics, and now the MACD lines are bear crossing lower. The daily RSI is also leading the price lower, at two week lows. This all points towards momentum leading the price for a break back under $14.70. If this is seen and confirmed on a closing basis, it would be a continuation of the corrective move that formed a lower high (with a bearish engulfing candle) last Thursday at $15.49. A break back below the spike low at $14.48 would form a new corrective trend corrective back towards $13.78 again. The market is already closing decisively clear under the 50% Fibonacci retracement (of $18.93/$11.62) at $15.28, in a move that has opened 38.2% Fib at $14.41. as the next consolidation point. The bulls have got a job on their hands to prevent this market turning decisively corrective now. They need a break above $15.49 to create strong positive momentum now.
Last week’s bull rally put to bed the dollar strength. However, a subsequent failure at $1.1015 has now left EUR/USD with a neutral outlook. There have been some wild swings higher and lower in the last three months. The market is sitting barely -100 pips below where is had been supported throughout much of the latter stages of 2019. All that volatility and nothing to really show for it. What we now see is EUR/USD increasingly trading around a pivot at $1.0890. This has been a strong gauge in the past five or six weeks. As such, the momentum indicators have oscillated around, but once more with little real direction. All yesterday’s strong negative candle has done is retrace a bull move back towards the $1.0890 pivot once more (coincidentally, the 21 day moving average has wavered within 25 pips of the pivot for the past four weeks now). This lack of trend is reflected on the hourly chart momentum indicators, whilst yesterday’s pullback has settled a shade above $1.0890 this morning. Below the pivot, there is initial support at $1.0810, whilst near term resistance is building $1.0950/$1.0970.
Cable is another market which has settled very much into a neutral medium term pattern. A trading range between the April extremes of support at $1.2160 and resistance at $1.2645. A pivot has developed within this range, in a 20 pip band between $1.2385/$1.2405 which is broadly the mid-point of the range. We see holding patterns forming on momentum, with the RSI in a tight oscillation between 45/59. Two negative candles book-ending the weekend have solidified the range and pushed the Cable bulls back once more. There is still the argument for a very slight positive bias within the range (a higher low at $1.2245 and recent strong pressure on the $1.2645 resistance). Trading above the pivot at $1.2405 also plays into this. However, this remains a market lacking decisive traction