The US dollar rally in the wake of the FOMC meeting seems to already have run out of steam. Lackluster US data yesterday (jobless claims slightly higher than expected, along with housing data marginally missing) helped to drag the dollar back. The Fed may have upwardly revised its 2020 growth forecasts but it is now very much on a looser for longer path of monetary policy. It points towards near term dollar strength still being a chance to sell. It is interesting that the Dollar Index continues to see rallies flounder in the resistance band between 93.50/94.00. Subsequently, having repelled a potential dollar rebound, forex major pairs are consolidating once more this morning. This can also be extended to the precious metals, where gold and silver have also found a basis of support again. Equities have a tinge of negative bias after the tech sector once more pulled Wall Street lower, but selling pressure appears to be limited this morning. There are some marginally constructive noises coming out from the White House (Larry Kudlow) over the prospect of US fiscal support and a $1.5rtillion package. This may add a supportive element to risk today, but agreement remains some way off. UK retail sales for August have come in fairly close to expectations early today, with little real impact on sterling.
Wall Street closed in negative territory last night but the move was well off the day lows and leaves an uncertain outlook now. The S&P 500 closed -0.8% lower at 3357, whilst futures are a shade lower this morning, with the E-mini S&Ps -0.1%. Asian markets were mixed to positive, with the Nikkei +0.1% and Shanghai Composite +1.3%. In Europe the outlook is initially once of consolidation, with FTSE futures -0.1% and DAX futures flat. In forex, there is also a mixed outlook as the USD rebound has run out of steam. NZD is the main outperformer this morning. In commodities, with the dollar rally falling over, we see that gold and silver are supported again, with marginal gains for both, whilst oil is around half a percent higher as the rally continues.
For the economic calendar, Eurozone Current Account for July is announced at 0900BST and is expected to show a narrowing of the surplus to +€12.0bn (from +€20.7bn in June). The US Current Account for Q2 is at 1330BST and is expected to show the deficit widening to -$158bn (form -$104bn in Q1). The prelim September reading of Michigan Sentiment is at 1330BST and is expected to improve slightly to 74.0 (from 74.1 final August).
Chart of the Day – Silver
The key floor of a one month trading range remains intact as the near term selling pressure in the wake of the Federal Reserve policy decision has begun to ease. Since mid-August, silver has been supported on numerous occasions around $26. We see this as an increasingly important support area for renewed moves towards what is now resistance at $28.88. Yesterday’s sell off rebounded from an intraday low at $29.29 and then pulled back into mid-range safety. Although the candlestick bodies are very small (denotes uncertainty), the lack of selling momentum is encouraging. Momentum indicators are still just in a phase of consolidation and reflect the ranging of the price of the past few weeks. The hourly chart shows momentum with a mild negative bias within the range but no decisive selling pressure. The market is consolidating around resistance of $27.00 (a near term pivot), but the bulls need to overcome the band $27.40/$27.70 to regain a positive bias within the range again. The consolidation above $26.00 support area continues.
The dollar strength in the wake of the Fed meeting did not seem to last even 24 hours, as a strong rebound on EUR/USD into the close last night has once more prevented a key breach of support. Breaking the four month uptrend suggests that this is more of a consolidation range now. However, the reaction higher yesterday was telling. The dollar was threatening to go on a near term bull move (which would drag EUR/USD lower), but it was rejected around the key support band 1.1695/1.1750. Rebounding from 1.1735 has once more left the outlook neutral. Daily momentum indicators reflect this too. How the bulls react to resistance now between 1.1900/1.1920 will determine whether there is a renewed appetite to chase the market higher. Yesterday’s candlestick was a “bull hammer” and implies a near term positive bias for the swing higher. An early consolidation suggests that there is still come uncertainty over the move.
How Cable reacts around the resistance band 1.2980/1.3050 is the next important move. This band was the old key floor throughout August, and houses all the stale bulls who bought during the last run higher. Now into September, this has become a band of overhead supply of potential sellers. If this rebound is used as an opportunity to sell then the medium term neutral outlook will continue. A range between 1.2760/1.3035 has been in place since the breakdown below 1.2980 was seen last week. With momentum indicators increasingly neutral, how the market reacts to the extremes of this range will define the medium term outlook. A close above 1.3050 is bullish and would be a 290 pip base pattern. A fall back to break 1.2760 would be bearish and imply 290 pips of additional downside. For now, there is a mild positive bias still in play, with the recent rebound and positive reaction from yesterday’s low of 1.2865. Resistance is significant around 1.3000 initially and coule be a gauge as to a potential test of 1.3050.
Another decisive negative session on Dollar/Yen has pulled the market clear below 105.10. This has opened a test of 104.15 in due course. We see near term strength as a chance to sell now. The downside break of the old 105.10/107.00 range implies around -190 pips wich means 104.15 at least. Furthermore, the old lows of the range, between 105.10/105.40 is now a sell zone. There is more considerable resistance 105.75/106.00 but given the configuration of momentum and downside potential, we see a rally as unlikely to last long before selling pressure kicks in again. Yesterday’s low of 104.50 is initial resistance.
Over recent weeks, the outlook for gold has become increasingly rangebound. This has led to the development of a trading range between the extreme price moves $1902/$2015. This ranging outlook is reflected in momentum indicators flattening around their neutral points. Daily candlesticks fluctuate between positive and negative, often with small bodies (denoting uncertainty). The bulls continue to protect the 23.6% Fibonacci retracement (of $1451/$2072) at $1926 (at least on a closing basis anyway). On the hourly chart we also see the willingness to buy around the $1937/$1940 pivot too. Pulling higher overnight, back above $1950 leaves a slight positive bias this morning and potential for pressure towards $1972/$1974 whch is the next resistance area. We remain neutral in the range for now, but above $1974 would be a positive move for pressure on $1992/$2015. A close below $1937 would increase near term downside pressure towards the range lows again.
Brent Crude Oil
The rally on oil is ever more encouraging for the bulls. There has now been three decisive positive candles in a row now, with yesterday’s session suggesting the buyers are in a strengthening position now. An intraday pullback was seen as a chance to buy. We discussed previously the reaction around $41.30 would be important as this has been an old key level in the past few months. The rebound off $41.50 has now significantly bolstered this as a support line now. Momenutm indicators are turning increasingly positive for ongoing recovery. RSI and Stochastics rising above their neutral points is positive, but the MACD lines bull crossing today is a key move too. It all suggests buying into weakness now. Rallying to test the key $43.60 resistance today, a closing break higher would open $46.50 once more.
Dow Jones Industrial Average
As the Dow has slipped back again, the fear that the market may be in the process of topping out is growing. Futures are again marginally lower this morning and the key support band 27,445/27,580 could begin to come under pressure. A closing breach would complete a near six week head and shoulders top pattern that would imply further downside of c. -1700 ticks. This would bring the market back to test the key July higher low of 25,990. Momentum indicators look to be at a medium term crossroads, and how the Dow resolves this mini trading band between 27,445/28,265 of the past couple of weeks could be of great medium term significance. The bulls are certainly not in control for now, but the outlook would turn decisively corrective under 27,445.