Wall Street bounced back yesterday to see risk appetite swing back to a more positive skew. There has been little to really drive this move, with surging mega-cap tech stocks certainly playing a role. However, it is also notable that the extended risk positive bias of assets are playing into this move. Although Treasury yields are all but anchored now (as markets price for some sort of yield curve control), the dollar is suffering, as the Dollar Index falls to four week lows this morning. There has been some uncertainty over the outlook of the dollar in recent weeks, but traders seem to be increasingly positioning for a structural dollar weakening. It is interesting that amidst the worsening of newsflow over COVID-19 infections in the US, the dollar seems to be the main casualty here. It would suggest that the view is that as Q3 develops, the US economic recovery from lockdown will be scaled back, at least relative to other major economies. China seems to be a beneficiary here as the yuan has strengthened below 7.00 to the dollar for the first time in almost four months. China inflation was mildly encouraging overnight, with the Producers Prices Index inflation coming in slightly higher than expected and has helped the yuan strengthening. Also we see traction beginning to come from the euro too, The dollar weakness has also helped to propel gold through $1800 for the first time since 2011. This dollar negative bias is once more evident this morning, with USD underperforming across major currency pairs. Equities are edging positive (even though US futures are ticking slightly lower) as an edge of positive risk appetite builds.
Wall Street closed solidly higher again with the S&P 500 +0.8% at 3170. Although US futures are a touch lighter today (E-mini S&Ps -0.1%) there is a positive bias to Asian markets (Nikkei +0.4%, Shanghai Composite +0.8%) whilst European indices also look to be set fair (FTSE futures +0.5%, DAX futures +0.9%). In forex, there is an ongoing USD negative move, with EUR and GBP continuing to pull higher from yesterday’s near term breaches of resistance. JPY is a relative underperformer. In commodities, gold is building support following is key upside break yesterday, whilst silver is also maintaining good support. The oil price consolidation continues as the bulls are unable to find traction recently.
It is a another quiet day for the economic calendar today. The US Weekly Jobless Claims at 1330BST are always a key focus though. Consensus expectations suggest another 1.375m claims in the past week (marginally down from 1.427m previously). This is expected to leave around 19m continuing claims.
Chart of the Day – Silver
A decisive breakout on the precious metals! In the past 24 hours we have seen gold with a big upside move above $1800 and also a move above key resistance on silver. For silver, the market has been consolidating in a range (between $16.93/$18.36) since peaking the rally in May. However, the bulls have been massing in recent sessions, using the support of a now nine week uptrend to accelerate higher. Resistance at $18.36 has been tested over the past week, but yesterday a decisive bull candle burst through $18.36 for the highest daily close on Silver since September 2019. The move has come with increasingly positive configuration on momentum, which suggests near term weakness is a chance to buy. The RSI is accelerating into the high 60s (but also still with upside potential as twice in May the RSI hit the mid-70s), whilst Stochastics pull above 80 and the MACD lines bull cross. The reaction to a breakout is always interesting, with initial weakness today being bought into. We are happy to back this breakout (there is an upside target of around $19.50 to be derived from the June consolidation range) but also look to use any near term pullback to the breakout support around $18.36 as a chance to buy. A 100% retracement to the February high of $18.93 is about to be tested but should be little barrier to gains. The implied upside target suggests a move towards a test of the crucial September 2019 high of $19.64 in the coming weeks could be on. The nine week uptrend adds further support at $18.15 today, whilst the bulls are in control above the $17.74 higher low.
Price action on EUR/USD in the past few sessions suggests that the bulls are gaining in strength. An initial look at the resistance of $1.1350 was rebuffed earlier in the week and also once more yesterday. However, the bulls seem to be made of sterner stuff now and the market has pushed above this resistance this morning. A decisive closing break above $1.1350 today would suggest that this is a break to back. This time we see the momentum indicators really going with the move, as the RSI confirms the move (at a three week high), Stochastics pull decisively higher and most encouraging of all, the MACD lines are on the brink of a bull cross. All this points towards a test of the five week range high at $1.1420 in due course. Although we are more confident of this break, we are still mindful that the euro has struggled to sustain upside breaks through this range. We would still be looking to use weakness as a chance to buy though, with a mini-uptrend coming in as support around $1.1275 today. The hourly chart shows $1.1300 is a key pivot over the past week and is supportive, meaning that with the hourly RSI a little stretched this morning, we look for buy signals between $1.1300/$1.1350. A move under $1.1250 support confirms the bulls have faltered.