Market Overview

Traders have completely turned their view on the dollar once more as Fed chair Powell has opened the door wide open to  rate cuts by the Federal Reserve. In his Congressional testimony, Powell talked about the impact of the slowing global economy, the ongoing trade dispute and muted inflation. Powell seems to have been far more dovish than expected. Coupled with a set of FOMC minutes which suggested that many on the committee were open to more accommodative monetary policy, a July rate cut is now a foregone conclusion. It is just a question of size. The potential for it to be a 50 basis points cut is elevated, although still not likely (around 30% probability on Fed Funds futures). With a 10 basis points decline on the US 2 year Treasury yield, the dollar has come under pressure across major pairs. A sharp rally on gold, along with Wall Street pulling all-time highs (3000 on the S&P 500 has been hit for the first time ever). Has this called the top for the dollar in 2019? Traders will be looking at the US CPI data today to confirm the “muted” inflation that Powell talks about. If there is a downside surprise (especially in the core reading) there will be an even greater pricing for a 50bps cut, and in turn additional dollar weakness. Away from the dollar there has also been a breakout on oil. Powell’s dovish comments could be construed as positive for demand, but of greater significance are supply issues, with oil platforms being evacuated in the Gulf of Mexico and further threats to oil tankers from Iran in the Persian Gulf.

Market Overview

 

Wall Street took Powell’s dovish comments and ran with them. The S&P 500 was +0.5% higher to 2993 (which also included an intraday peak of 3003). US futures point towards additional upside today and this has helped Asian markets higher with the Nikkei +0.5% and Shanghai Composite +0.1%. European markets are set for a boost at the open with the FTSE futures +0.2% and DAX futures +0.3% higher. In forex, the move out of USD is continuing, with underperformance across the majors. It is interesting to see outperformance of JPY on this move. In commodities, gold is holding on to its sharp gains from yesterday, with oil another +0.5% higher.

US inflation dominates the economic calendar today, however, before that the ECB Monetary Policy Meeting Accounts at 1230BST will give an idea of the ECB’s thoughts on a move towards easing policy. After Fed chair Powell’s testimony focused on “muted” inflation, how will US CPI for June fare at 1330BST today? The consensus forecast is for headline CPI to drop to +1.6% (from +1.8% in May), with core CPI expected to remain at +2.0% (+2.0% in May). Also look out for Weekly Jobless Claims at 1330BST which are expected to stay around current levels at 223,000 (221,000 last week).

With Fed speakers in focus throughout this week, today is the turn of the FOMC’s Randal Quarles (voter, centrist) at 1830BST.

Chart of the Day – USD/CAD

A very interesting period of trading on USD/CAD has the market at a key crossroads. A trading band of 110 pips between 1.3035/1.3145 has formed. Yesterday’s session almost perfectly summed up the crossroads. A hugely volatile session with wild swings throughout (an apparent dovish lean from the Bank of Canada and a dovish confirmation from Fed chair Powell). The outcome seems to be pushing for dollar weakness as the market edged to the range lows again. However, momentum indicators have been threatening to form recoveries, so this is not a cut and dry scenario pointing to a downside break. Hourly chart momentum indicators are still in a ranging configuration. How the market responds to 1.3035 will be key. There is a near term resistance at 1.3080 to watch today. A move above would suggest a swing back higher once more. A decisive close below 1.3035 opens 1.2920 initially.

USD/CAD

 

EUR/USD

In the wake of Powell’s dovish testimony, another big shift in pricing for the dollar has seen the outlook swing around once more. The strong bull candle yesterday, being followed swiftly by additional upside today shows how there is legs in this move now. A move back above the pivot line at $1.1265 is a strong signal and means the overhead resistance levels are under threat. Momentum has swung around, with the RSI picking up off 40 (again) and back above 50 today. MACD lines are bottoming around neutral and Stochastics are also looking to post a bull cross buy signal. . How the bulls respond to an intraday slip will be a key indicator to the continuation of the move. The hourly chart shows the strength of the move, with the breakout this morning looking to build near term support $1.1250/$1.1265. If this holds then the next upside test is $1.1310/$1.1320.

EUR/USD

 

GBP/USD

Clearly Jerome Powell’s dovish comments have had a massive near term impact across forex majors, so much so, that even Cable is rallying. A decisive positive session yesterday (the first in almost three weeks) is being followed by another today as a technical rally sets in. Technicians will point to the RSI again picking up from 30, a move which historically means a rebound to 45/50 at least. Stochastics are also threatening a bull cross. The hourly chart shows the first real technical barrier is the lower high at $1.2540. This comes just under the $1.2560 pivot. So there is a resistance band $1.2540/$1.2560 to overcome today. Hourly momentum is more positive for a rally. We continue to view near term strength is a chance for medium term selling opportunity, but this rebound looks to have legs in it for now. Initial support at $1.2490/$1.2500.

GBP/USD

 

USD/JPY

The correction on the dollar in the wake of Powell’s dovish testimony has significantly shifted the near term outlook on Dollar/Yen and threatens to do some lasting damage to the recovery prospects now. Yesterday’s “bearish engulfing” candlestick (bear key one day reversal) has flipped the bears back into control. There has been a small uptrend channel which has been building the market higher over the past couple of weeks, and this has now been broken by further downside today. Momentum indicators are all rolling over, with the RSI back under 50 and Stochastics crossing lower. The hourly chart shows a breach of 108..15/108.25 which should now be seen as a pivot band of near term resistance. The key support of the recovery is the higher low at 107.50. If this were to be breached then the bears would be in full on control for testing the low at 106.75 again. There needs to be a decent reaction from the dollar bulls, or this could become a move that gathers decisive momentum.

USD/JPY

 

Gold

We have talked about the elevated volatility on gold in recent weeks. The way that gold reacted to yesterday’s dovish testimony from Fed chair Powell, shows that this volatility remains a key factor.  Adding $21 into the close on a day range of $30 is a big move. Closing at the day high, gold has burst through several near term resistances (at $1400, $1410 and $1423) to salvage what was an increasingly corrective near term outlook. Subsequently, the volatile three week range between $1381.50/$1439 continues. Although stopping at $1426 this morning, there is little real resistance before a test of the $1436/$1439 highs. The hourly chart shows a degree of stalling of the move overnight which needs to be watched, but the bulls will be much happier now. Given the intraday volatility, there is a near term pivot band of support $1406/$1410 now.

Gold

 

WTI Oil

The stars aligned yesterday to give a massive boost to oil and a breakout on WTI. A dovish Fed, larger than expected EIA inventory drawdown, storm fears in the Gulf of Mexico and geopolitical tensions in the Strait of Hormuz. This all adds up to oil pulling strongly higher. WTI has subsequently broken the ten week downtrend, moved decisively above the 55 day moving average. Most importantly though, has been the breakout above the June highs. Resistance built around the 50% Fibonacci retracement (at $59.60) with a breakout above a pivot at $60. Momentum is more positive now as RSI ticks above 60, Stochastics turn higher and MACD lines begin to pull higher again from neutral. The question now is whether the breakout can be sustained. Will the 50% Fib become a basis of support. Subsequently, watch $59.60/$60 as a basis of support. If this can hold then the 61.8% Fib level at $63.70 is open.

WTI Oil

 

Dow Jones Industrial Average

The bulls have returned to prominence with a positive close and a move to a new intraday all-time high. However, this has been a somewhat tentative move which saw a close 120 ticks below the day high and a few questions still left unanswered. Momentum indicators are positive, but it is difficult to call them bullish. The RSI holding above 60 is the main strong point, but MACD continues to threaten to cross lower, whilst Stochastics are hovering around positive territory. A closing breakout above 26,966 would certainly help to break the shackles, but this still looks to be a market with the handbrake applied. The higher low at 29,665 is the support to base around now and near term corrections are still a chance to buy. This is a market to still play with cautious optimism.

Dow Jones Industrial Average

Risk Warning for Financial Promotions

Hantec Markets' various market reports and commentary are issued by Hantec Markets Limited, who is authorised and regulated by the Financial Conduct Authority (FCA) in the UK, No. 502635. The reports are prepared and distributed for information purposes only.

Trading in Foreign Exchange (FX), Bullion and Contracts for Differences (CFDs) is not be suitable for all investors due to the high risk nature of these products. Forex, Bullion and CFDs are leveraged products that can result in losses greater than your initial deposit. The value of an FX, Bullion or CFD position may be affected by a variety of factors, including but not limited to, price volatility, market volume, foreign exchange rates and liquidity. You may lose your entire initial stake and you may be required to make additional payments. Please ensure you fully understand the risks involved, seeking independent advice if necessary prior to entering into such transactions. Before deciding to enter into FX, Bullion and/or CFD trading, you should carefully consider your investment objectives, level of experience, and risk appetite. You should only invest in FX, Bullion and/or CFD trading with funds you are prepared to lose entirely. Therefore, only your excess funds should be placed at risk and anyone who does not have such excess funds should completely refrain from engaging in FX and/or CFD trading. Do not rely on past performance figures. If you are in any doubt, please seek further independent advice.

The reports do not constitute personal investment advice, nor do they take into account the individual financial circumstances or objectives of the clients who receive it. All information and research produced by Hantec Markets is intended to be general in nature; it does not constitute a recommendation or offer for the purchase or sale of any financial instrument, nor should it be construed as such. All of the views or suggestions within the reports are those solely and exclusively of the authors, and accurately reflect their personal views about any and all of the subject instruments and are presented to the best of the authors' knowledge. Any person relying on these reports to undertake trading does so entirely at his/her own risk and Hantec Markets does not accept any liability.

© 2014 Hantec Markets Limited

Analysis feed

Latest Forex Analysis

Editors’ Picks

EUR/USD: Doji on D1, 1.1040/45 resistance question latest recovery

The EUR/USD pair’s latest recovery seems to be challenged soon considering Monday’s Doji candlestick formation on D1 and nearness to the key resistance-confluence. The quote currently takes the bids to 1.1030.

EUR/USD News

GBP/USD: Inside day makes Tuesday's close pivotal

GBP/USD created an inside bar candlestick pattern on Monday, making Tuesday's GMT close pivotal. An inside bar occurs when the daily high and low falls within the preceding day's trading range. The pair hit a high at 1.2650.

GBP/USD News

USD/JPY unchanged on 108 handle in Tokyo opening hour, eyes on key events

USD/JPY is steady in Tokyo's opening hour, down -0.02% despite the concerns over the 'Phase1' deal made between China and the US on Friday. Looking ahead, eyes are on US Industrial Production and Fed speakers.

USD/JPY News

UK jobs report preview: GBP/USD set to react to figures that go with the Brexit mood

Finding a job in the UK is more accessible than in the past and pay is rising – but that does not move the pound these days. The employment report is scheduled two days ahead of the critical EU Summit and 16 ahead of Brexit Day. 

Read more

Gold: Bears look for a break below the trendline support

The price had been sent lower below the 21 and 50-day MA converging and the 7th Oct lows. Trendline support guards a test of a 50% mean reversion of the late June swing lows to recent highs around 1480 will be encouraged. 

Gold News

Forex Majors

Cryptocurrencies

Signatures