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.