Any improvements in sentiment right now seem to be somewhat fleeting. Within this, the dollar which looked to be regaining its poise, has been hit once more. There are a couple of factors driving moves on the dollar. Firstly, the PBOC seems to have been looking to support the yuan through selling yuan-denominated bonds (seen as a method to prop up the currency). This is weighing on the dollar, but additionally another catalyst seems to be linked in no small part to the comments or tweets on a daily basis from President Trump. His latest salvo has turned attention back on currency valuations. Trump believes that currencies such as the euro and Chinese yuan are being devalued against the dollar. As part of this, he also had time to fire off at the level of interest rates for the Fed, which he believes are too high. Trump’s comments come a week ahead of the latest FOMC meeting which could be one which marks a shift in guidance towards a more dovish positioning on monetary policy. The Fed and Jerome Powell will argue vehemently of its independence, but Trump’s comments just add to the whole sense of dovishness that is surrounding central banks right now. Treasury yields have slipped back and the dollar has seen a prospective recovery questioned once more. Unless US CPI inflation posts a positive surprise today, it may be a struggle for the dollar in front of next week’s Fed meeting. However, could Mario Draghi lend a hand? The ECB President speaks this morning and any hint towards a dovish shift for the ECB will be picked up on.
Wall Street ended a run of six positive sessions as equities fell marginally yesterday (S&P 500 -1 tick at 2886). With US futures also slipping today by -0.2% this has weighed on Asian markets (Nikkei -0.4%, Shanghai Composite -0.5%). European markets also show an air of correction with FTSE futures -0.5% and DAX futures -0.6%. In forex there is a mixed outlook, with a mildly negative sentiment bias. This is seen through JPY and CHF outperformance in addition to AUD underperformance. In commodities, the dollar slip and risk aversion creep, there is a rebound on gold. This is also weighing on oil which has the added weight of the EIA cutting demand expectation and API inventories building.
The big event on the economic calendar is US CPI inflation at 1330BST. Consensus forecasts are expecting headline US CPI for May to drop back to +1.9% (from +2.0% in April), whilst core US CPI is expected to have remained at +2.1% (+2.1% in April). EIA oil inventories at 1530BST are expected to show crude stocks in drawdown by -1.0m barrels (+6.8m barrels last week).
Chart of the Day – AUD/USD
Last month’s decisive break below $0.7000 was a key outlook changing move. Near term rallies on AUD/USD are now a chance to sell. As the dollar has suffered some corrective pressure in recent weeks, there has been a rally but the overhead supply of this old floor at $0.7000 has become a key factor. With resistance around $0.7000 limiting the recovery, this rally has now started to roll over again. With a key bear candle on Monday and backed up by a second negative candle yesterday, the market is trading at a one week low. This is now pulling near term negative signals on daily momentum. The RSI confirms the swing back lower with a move under 50, whilst the Stochastics are now finding traction from a bear cross sell signal (similar to the April rally). Furthermore, the recovery on MACD lines look set to fail under neutral, another signal of renewed medium term negativity. A breach of the two week uptrend today is threatening today and would be another signal which would then open the higher low support around $0.6900 before the key May low of $0.6860. The hourly chart shows resistance initially between $0.6960/$0.6970 today.
Having looked like the breakout above $1.1265/$1.1300 was coming under some threat earlier in the week, the bulls have responded well. A solid positive candle yesterday has steadied the market above $1.1300 and the bulls are looking to build higher once more today. This comes with the continued improvement in momentum indicators, with RSI camped in positive configuration in the mid-60s, whilst MACD lines rise strongly. The breakout above $1.1265 is now a key floor, whilst the market trades above all the moving averages and the old long term downtrend is at $1.1270 to add further support. Whilst the market maintains these improvements, intraday weakness will be seen as a chance to buy. A break above $1.1347 opens the next leg higher, towards the March high of $1.1450. The hourly chart shows a trend higher in the past week, whilst 40/50 is supportive on hourly RSI and neutral supportive on MACD.
The prospects of a recovery base pattern have been wavering on a day to day basis in the past week. Whilst the resistance around the late May lower high of $1.2755 remains intact, there is a restriction on how positive the outlook can be. However, equally, there is limited downside, resulting in a positive candle yesterday which has again left support around $1.2650. The market has subsequently spent the past week stuck in a tight range of around 100 pips. This is reflected in oscillating momentum signals on the hourly chart and little real sign of a breakout (once more overnight the MACD lines have crossed back lower). It might just be a chain of events that drives the next direction, but eyes will be on any surprises in the US CPI data this afternoon. A clsing break above $1.2755 completes a c. 200 pip base pattern. A close below $1.2650 re-opens the $1.2555 low.
Once more the dollar bulls have struggled to sustain any strength and the reins have been pulled on a recovery. Another attempted intraday breakout yesterday to move clear of 108.50 has been pulled back, leaving a rather disappointing gain of 7 pips for the bulls and a neutral candlestick. The attraction of 108.50 cannot be broken for now. The result though is that on the hourly chart there is a loss of the positive bias that had been forming, and the market is distinctly forming an oscillating range now. The worry for the dollar bulls is that this was meant to have been a time of recovery within the downtrend channel. All the while the trend indicators are falling. The 21 day moving average (which has capped every rally since the beginning of May) is now falling at 109.15. The downtrend channel is now resistance at 109.25. Daily momentum indicators are also struggling for any traction. This does not all bode well as if there is a notable deterioration in market sentiment, the downside could quickly kick in again to retest the lows at 107.80. Initial resistance is at 108.80 today.
The corrective pressure has pulled gold back to the support around the March breakout at $1324. This seems to be an area which is holding. An intraday breach of $1324 could not be sustained into the close and the rebound off $1320 (support on the hourly chart) has induces another rebound. Whether this is decisive buying pressure could be determined today. A move through resistance of a near term pivot at $1330 on the hourly chart has improved the outlook. A close above this pivot would be a positive signal (already showing as a bull candle today). Holding the RSI above 60 is important for the bulls too, especially if the Stochastics and MACD lines tick higher again. The importance of the support at $1320 is also now growing. Moving decisively above 70 on hourly RSI is also a positive signal near term. The key resistance remains $1348.
A failure for the recovery to reignite yesterday would have been a concern for the bulls, and this will only have been exacerbated by the early selling pressure today. The recovery of late last week which held the support above $50 is once more in jeopardy. Turning over for what looks to be a third negative candle this week, the market has broken below $52.60 (higher low support on the hourly chart). This has also taken the hourly momentum signals into negative configuration and intraday rallies are now a chance to sell. There is now resistance at $53.00 towards $54.00 and any move unwinding the hourly RSI into 50/60 is a chance to sell. Pressure is once more growing back on the support confluence of $50 (psychological), $50.50 (the old 23.6% Fibonacci) and $50.60 (the June low).
Dow Jones Industrial Average
Is the rally rolling over again? Just as risk appetite across major markets begins to seep away again, the recovery on the Dow is beginning to show the cracks. A mini uptrend (albeit only of the past week) has been broken by a second consecutive negative candlestick. Having pondered the potential corrective implications of Monday’s candle, yesterday’s bearish engulfing (bearish key one day reversal) candle simply accentuates the growing sense of impending correction. It comes with RSI rolling over around 60, MACD lines struggling under neutral and Stochastics also close to a bear cross. A close now below the breakout support at 25,958 with a third negative candle today would really start the ball rolling on renewed near term downside. Support then comes in around 25,710 and 25,320. Resistance is now at yesterday’s high of 26,249.