As the negotiations between Democrats and Republicans over fiscal support seem to be dragging and is just beginning to weigh slightly on sentiment today. Treasury yields have dropped back marginally (in the process, pulling a mild bull flattening move through the yield curve). Furthermore, there is a slight pullback on equities too. With the yield curve bull flattening, a dollar rally that has been threatening in recent sessions has just taken a step back once more. This is allowing the sharp sell-off on gold to ease somewhat. The questions will begin to be asked as to whether the past few sessions have been a blip, allowing the bigger trends of dollar weakness and gold strength to renew with trend potential. It is too early to determine, but the next few days could be telling. The longer that the US fiscal support package takes to agree, the more nervous that markets will become that the package will underwhelm.
Wall Street closed strongly higher once more, with the S&P 500 +1.4% at 3380 and a sneeze away from the all-time high of 3393. However, US futures are a shade back this morning, with the E-mini S&Ps -0.2%. This has though still enabled Asian markets a positive session overnight, with the Nikkei +1.8% and Shanghai Composite +0.1%. However, European markets are looking far more cautious, with the FTSE futures -0.9% and DAX futures -0.3%. In forex, there is a USD slip, with underperformance across major pairs aside from NZD which is still struggling in the wake of the RBNZ. In commodities, the selling pressure on gold has stabilised with the price +0.8%, whilst silver is +1.2%. Oil closed as multi-month highs yesterday but has just pared this move today, around -0.5% lower.
It is a relatively quiet day on the economic calendar. The US Weekly Jobless Claims will be of primary interest at 1330BST with a further improvement to 1.12m (from last week’s positive surprise of 1.19m claims).
Chart of the Day – NZD/USD
The Kiwi has looked rather vulnerable in the past week, and the reaction to the RBNZ meeting yesterday was a decisive downside break of the previous breakout support at 0.6585/0.6600. It is interesting to see that as the European session takes over today, the US dollar is ticking lower across every major pair apart from NZD/USD. Having posted a lower high at 0.6690 (under 0.6715) a new negative trend of lower highs and lower lows is now beginning to take hold. Even though the market rebounded into the close last night, this looks to have been a minor technical rally within what looks to be a deteriorating outlook, and another chance to sell. The daily momentum indicators are faltering on a consistent basis now, with RSI at near three month lows and under 50, whilst MACD lines are falling at multi month lows and Stochastics also taking negative configuration. The market now seems to be selling into near term strength, with yesterday’s high almost 0.6600 to the pip, and this morning’s early high also failing at 0.6600. It means that Tuesday’s failure at 0.6625 is a gauge of increasingly important resistance, making a mini sell-zone now between 0.6585/0.6625. The market looks set to test the mid-July support at 0.6500, whilst if the selling momentum really takes hold, 0.6370 comes into play.
Although the dollar has been looking stronger in recent sessions, there has been a pick up in EUR/USD which has prevented the market from topping out. We have discussed previously the importance of 1.1695 support, and this is clearly a level that the euro bulls want to defend, at least for now. Yesterday’s candle rallied from 1.1710 to post a positive close which keeps the dollar bulls at bay. Furthermore, there has been a move above 1.1800 which has once more neutralised the immediate potential for a top pattern. The hourly chart shows that throughout the past couple of weeks, 1.1800 has been the basis of a mid-range pivot and in moving above this pivot today, the outlook begins to improve once more. Hourly indicators show a ranging configuration developing, with hourly RSI between 30/70 being the classic representation of this. Initial support is now 1.1780 to maintain the neutral aspect of this move. Initial resistance is at 1.1850. We are still on alert as to how this more that two week consolidation range will develop and given the slide back in daily momentum, we believe there is still a risk of a top pattern formation. However, a second positive candle completing today, with a move above 1.1800 would maintain this neutral stance.
There is a growing ranging look to several of these major forex pairs as the dollar bulls just take a step back again this morning. This is pulling Cable marginally higher once more within its 205 pip two week trading band. Despite this, there is also the ongoing sense that a corrective move (dollar strengthening) is still threatening. Daily momentum indicators are sliding back, with the most pertinent signal being the negative cross on the MACD lines. This is the first negative cross since mid-June, when Cable then was forming a near three week corrective slide. The support at 1.2980 has held so far this week and there is no price confirmation of a corrective move. However, we see the balance of candlesticks forming a negative bias now, where intraday rallies are seen to be a chance to sell. The lower high this week at 1.3130 adds to this negative bias and a failure to overcome this resistance will see the threat of correction persist. The hourly chart indicators have a mild negative bias and we prefer to fade rallies towards the 1.3100 area (a basis of a mid-range pivot) for pressure back towards 1.2980 in due course. A closing breach of 1.2980 would complete a top pattern and imply a move to test the previous breakout support at 1.2810 as a minimum.