Despite still being incredibly oversold as yet there seems to be little sign of any imminent technical rally for the dollar. Selling pressure has been more restricted in recent days as the discussions over fiscal support in Congress have continued. However, as House Speaker Nancy Pelosi has suggested that a deal is unlikely this week, we have seen the dollar faltering once more. It comes as Treasury yields have resumed their path lower. The US 10 year yield jagged lower last week around the Fed decision, and has now dropped under 54 basis points (the April low) to now sit at its lowest since the spike low of early March (which hit 0.32%). The key beneficiaries of a weaker dollar and falling yields has come in the precious metals space. Silver has been launched higher once more and gold is now above $2000 for the first time ever. With yields continuing to fall and the dollar pressured, the path higher for gold remains clear. Agreement over the next phase of fiscal support in the US could be the trigger point for a reversal in the precious metals, but whilst Congress dithers, there is little resistance ahead.
Wall Street closed higher last night, with the S&P 500 +0.4% at 3306, whilst US futures are similarly higher again today (E-mini S&Ps +0.3%). Despite this there was a slightly mixed look to Asian markets, with the Nikkei -0.3% and Shanghai Composite all but flat. In European markets, the outlook is looking positive today, with FTSE futures and DAX futures both +0.6% in early moves. In forex, USD is again edging lower, with underperformance across the major pairs. AUD and NZD are performing well. In commodities, we see silver another +2% higher, whilst gold is around 0.7% higher. After two days of decent gains, oil is once more edging higher by around +0.2%.
It is a day of services PMIs for July today on the economic calendar. The Eurozone final Services PMI is at 0900BST and is expected to be unrevised at 55.1 (from the flash reading of 55.1, up from 48.3 final June). The Eurozone final Composite PMI is expected to be unrevised at 54.8 (54.8 flash July, up from 48.5 final June), but considering the upside surprise in the manufacturing data there is another risk of a positive surprise here. The UK final Services PMI is at 0930BST and is expected to be unrevised at 56.6 (flash July 56.6, up from 47.1 final June). The UK final Composite PMI is expected to be unrevised at 57.1 (flash July 57.1, final June at 47.7). Into the US session, the ADP Employment change for July is often seen as a lead for Friday’s payrolls, with an expectation of 1.500m (down from 2.369m in June). The US International Trade Balance is at 1330BST and is expected to see the deficit narrow slightly to -$50.1bn in June (from -$54.6bn in May). The ISM Non-manufacturing is at 1500BNST and is expected to slip slightly to 55.0 (from 57.1 in June). EIA Crude Oil Inventories are at 1530BST and are expected to show a drawdown of 3.3m barrels (after a huge drawdown of -10.6m barrels last week).
There is also a Fed speaker to keep an eye out for, with the FOMC’s Loretta Mester (voter, leans hawkish) at 2200BST.
Chart of the Day – GBP/JPY
It is interesting that a sterling rally is beginning to hit the buffers on Cable, but this also comes where Sterling/Yen is hitting important resistance. On GBP/JPY the trading band between 138.85/139.75 was an old range support in Q4 2019 that restricted the June rally. Now we see this latest rally into the band of resistance but again beginning to struggle. Yesterday’s negative candle was the second successive close lower, with a session failure at the 138.85 resistance but also comes at a point where the RSI is tailing off over 70 (again similar to the June rally high). It is still early days though in calling for a correction. The Stochastics are crossing lower, but would only really confirm a corrective signal on a move into the low 60s, whilst MACD lines are still rising. Essentially, with the acceleration higher over the past week now faltering, this could be the latest set up for a slide back towards the uptrend that has been in place since March (comes in around 134.80 today). A move below initial support at 137.70 would begin to see the retracement set in at least towards the mini breakout 136.60. The bulls will still have designs on breaking through the ceiling of resistance though. A close above 139.75 would be the break to open the upside for the next key resistance band at 141.00. The caveat is the market consolidating at a key crossroads ahead of the Bank of England on Thursday.
After a couple of sessions of attempted dollar rally weighed on EUR/USD, the path to upside resumed during yesterday’s US session. There had been the threat of a near term topping pattern but support around 1.1700 was used as a springboard for a decisive positive candle into the close. This helps to maintain the market in what is now essentially a mini consolidation range of just over 200 pips, between 1.1695/1.1910. Momentum is still stretched but is not yet suggesting any sell (or profit-taking) signals. We continue to consider the potential that this is a very similar set up forming to the early June consolidation, where an overbought bull run consolidated for the next four weeks without really seeing any real correction. How the market responds around the support now around 1.1700 will be important in the coming days/weeks. The hourly chart shows moving decisively back above 1.1800 helps to maintain a sense of bull control in this consolidation.
As with several of the dollar major pairs, consolidation has set in recently. Such is the weakness of the dollar in the past few weeks, that despite being significantly oversold, there is still little sustainable sign of a retracement. As such, Cable is consolidating the upside move but holding at bay any profit-taking. We now see something of an indecisive market developing, with three successive small-bodied candlesticks. An initial breach of 1.3000 did not hold and the market rebounded off 1.2980. Once more, this morning, we see the ranging continue as yesterday’s rebound begins to roll over. The hourly chart shows r