Sentiment is cautious once more with Greece still dampening confidence

Market Overview

Markets are again in a state of uncertainty as Greece once more dominates sentiment. Negotiations are ongoing (as per usual) but without any resolution (as per usual). The fact that the IMF pulled out of yesterday’s discussions amid talk of “major differences” has certainly not helped matters. Subsequently, despite a strong reading on US retail sales yesterday (the first genuinely positive reading for several months) markets have been hamstrung again by the Greek negotiations. Wall Street barely mustered some gains with the S&P 500 up 0.2% whilst Asian markets have not been able to take any lead overnight with the Nikkei up just 0.1%. European markets are also set to start on the back foot.

Forex trading is showing a bit of a mixed bag, with little real direction across the majors. The euro is weaker against the dollar, whilst gold and silver continue to consolidate. There is not too much data for traders to get their teeth into in the early European session, with US PPI at 1330BST. The core PPI is expected to drift slightly back to +0.7% for the year on year data (from +0.8%). The first reading of the University of Michigan Consumer Sentiment is at 1500BST and is expected to pick up slightly to 91.5 from the final reading of 90.7 last month.

Chart of the Day – DAX Xetra

The DAX has been incredibly volatile in the past couple of weeks, with an average high/low range of 205 ticks in June (the historic 10 year average is 114 ticks). This volatility has been in evidence through the past couple of days with a sharp rebound. However, this rebound looks to be ready to give another chance to sell again as there are a confluence of factors overhead that suggest this bounce may not be moving too much further. Yesterday, the rally hit the 23.6% Fibonacci retracement (at 11,440) of the 8355/12,390 big bull run, to within just a few ticks before selling off to close below the Marubozu point (mid-range) of the day’s candle (which suggests the bulls lost conviction). The falling 21 day moving average at 11.486 which has been a good gauge on the DAX is also adding to the resistance. I also see the momentum indicators are now in far more of a corrective configuration now and this would also suggest that rallies are a chance to sell. I would watch out for any sell signals now which could trigger the next lower high which I would now expect to see under the 11,620 old pivot level which is now resistance. It would really need a move above 11,920 to abort the corrective outlook now.

EUR/USD

The bull rally that saw the pressure on $1.1380 seems to have just run out of steam in the past couple of days as the buyers have lacked the impetus to really make a push towards the key overhead resistance levels. Momentum indicators are beginning to drift lower again and this looks like another corrective phase coming potentially now. The intraday hourly chart shows that the near term pivot around $1.1200 is still intact and whilst this is the case the outlook will remain fairly neutral near term. However a decisive breach of $1.1200 would once more re-open the key medium term pivot level around $1.1050/$1.1065. The hourly momentum indicators have taken on more of a corrective configuration over the past 24 hours with the euro now forming a series of lower highs in a drift back to test $1.1200. Resistance comes in at $1.1324, with $1.1384 the key near term resistance.

GBP/USD

There is a battle for control near term with Cable on knife edge. I have been talking about the prospect of Cable having posted another lower high (below $1.5700) at $1.5552 (which is again a historic resistance). However the recovery bulls are hanging on and fought back yesterday to leave a very rare candle, a “dragonfly doji”. Coming around resistance this makes the reading of this candle rather uncertain as it suggests that there was an appetite for selling (or taking profits) but the bulls fought back to close the day broadly flat. The candle today will determine the outlook now. A negative candle will suggest Cable is looking corrective, but if the bulls can break through $1.5552 then it would be a bullish move. The fact that this is all happening around the resistance of the 23.6% Fibonacci retracement of the $1.4563/$1.5814 bull run is adding to the uncertainty. Also interestingly, Cable once again yesterday used the old $1.5445 level as a pivot for the rally. The hourly momentum indicators have rolled over and are not suggesting an imminent break higher. Cable is really interestingly poised.

USD/JPY

I believe that the retracement is still in process. The sharp correction of Wednesday induced confirmation of a corrective outlook on the momentum indicators and I see that yesterday’s rebound candle is simply part of the current phase. The fact that the rebound lost impetus towards the end of the session and closed around the mid-point of the day is a suggestion that the bulls were not in control. I am interested to see the Fibonacci retracements of the 118.86/125.85 rally being used as the basis of the turning points, whilst the rebound falling over again around the resistance band 123.50/124.00 is also noteworthy. With the corrective momentum indicators and the overhead resistance I expect that there is further to go in this retracement, with the 122 old breakout looking to be an ideal entry point for the next long positions. A move above the resistance at 124.62 would defer the corrective outlook.

Gold

Having broken below the key support at $1178 the outlook has taken a turn for the worse and the subsequent price action is still trading on the legacy of this break. The price has formed a downtrend over the past few weeks and the three day rally at the front end of this week simply unwound the breakdown back to that downtrend resistance only for the price to fall away again. The price also continues to trade below all the moving averages which are now falling in bearish sequence and suggest the outlook is negative. This would suggest that rallies are now being seen as a chance to sell. Although the RSI has picked up it is still below 50 and this rebound look to be a chance to sell now. The intraday hourly chart shows there is a near term pivot around $1185 and trading below this suggests that the pressure is growing to the downside again. There is resistance at $1192 whilst a move above $1196 would suggest that the sellers have lost near term control.

WTI Oil

Just as has happened on the previous three attempts since the retracement high was posted at $62.58, the WTI price has fallen over under the resistance. The range pay subsequently continues. Again the RSI which had previously been pushing into the 70s can now only just muster 60 (which suggests a ranging momentum). Traditionally, now we can expect the oil price to begin to drift lower again within the range, having posted resistance at $61.82 on Wednesday. Having broken the 23.6% Fibonacci retracement of the $56.83/$61.82 rally this now opens the 38.2% at $59.91 and 50% at $59.33. There was a lower high yesterday posted again around $61.50 and this is the initial resistance now.