The US dollar rally in the wake of the FOMC meeting seems to already have run out of steam. Lackluster US data yesterday (jobless claims slightly higher than expected, along with housing data marginally missing) helped to drag the dollar back. The Fed may have upwardly revised its 2020 growth forecasts but it is now very much on a looser for longer path of monetary policy. It points towards near term dollar strength still being a chance to sell. It is interesting that the Dollar Index continues to see rallies flounder in the resistance band between 93.50/94.00. Subsequently, having repelled a potential dollar rebound, forex major pairs are consolidating once more this morning. This can also be extended to the precious metals, where gold and silver have also found a basis of support again. Equities have a tinge of negative bias after the tech sector once more pulled Wall Street lower, but selling pressure appears to be limited this morning. There are some marginally constructive noises coming out from the White House (Larry Kudlow) over the prospect of US fiscal support and a $1.5rtillion package. This may add a supportive element to risk today, but agreement remains some way off. UK retail sales for August have come in fairly close to expectations early today, with little real impact on sterling.
Wall Street closed in negative territory last night but the move was well off the day lows and leaves an uncertain outlook now. The S&P 500 closed -0.8% lower at 3357, whilst futures are a shade lower this morning, with the E-mini S&Ps -0.1%. Asian markets were mixed to positive, with the Nikkei +0.1% and Shanghai Composite +1.3%. In Europe the outlook is initially once of consolidation, with FTSE futures -0.1% and DAX futures flat. In forex, there is also a mixed outlook as the USD rebound has run out of steam. NZD is the main outperformer this morning. In commodities, with the dollar rally falling over, we see that gold and silver are supported again, with marginal gains for both, whilst oil is around half a percent higher as the rally continues.
For the economic calendar, Eurozone Current Account for July is announced at 0900BST and is expected to show a narrowing of the surplus to +€12.0bn (from +€20.7bn in June). The US Current Account for Q2 is at 1330BST and is expected to show the deficit widening to -$158bn (form -$104bn in Q1). The prelim September reading of Michigan Sentiment is at 1330BST and is expected to improve slightly to 74.0 (from 74.1 final August).
Chart of the Day – Silver
The key floor of a one month trading range remains intact as the near term selling pressure in the wake of the Federal Reserve policy decision has begun to ease. Since mid-August, silver has been supported on numerous occasions around $26. We see this as an increasingly important support area for renewed moves towards what is now resistance at $28.88. Yesterday’s sell off rebounded from an intraday low at $29.29 and then pulled back into mid-range safety. Although the candlestick bodies are very small (denotes uncertainty), the lack of selling momentum is encouraging. Momentum indicators are still just in a phase of consolidation and reflect the ranging of the price of the past few weeks. The hourly chart shows momentum with a mild negative bias within the range but no decisive selling pressure. The market is consolidating around resistance of $27.00 (a near term pivot), but the bulls need to overcome the band $27.40/$27.70 to regain a positive bias within the range again. The consolidation above $26.00 support area continues.
Brent Crude Oil
The rally on oil is ever more encouraging for the bulls. There has now been three decisive positive candles in a row now, with yesterday’s session suggesting the buyers are in a strengthening position now. An intraday pullback was seen as a chance to buy. We discussed previously the reaction around $41.30 would be important as this has been an old key level in the past few months. The rebound off $41.50 has now significantly bolstered this as a support line now. Momenutm indicators are turning increasingly positive for ongoing recovery. RSI and Stochastics rising above their neutral points is positive, but the MACD lines bull crossing today is a key move too. It all suggests buying into weakness now. Rallying to test the key $43.60 resistance today, a closing break higher would open $46.50 once more.
Dow Jones Industrial Average
As the Dow has slipped back again, the fear that the market may be in the process of topping out is growing. Futures are again marginally lower this morning and the key support band 27,445/27,580 could begin to come under pressure. A closing breach would complete a near six week head and shoulders top pattern that would imply further downside of c. -1700 ticks. This would bring the market back to test the key July higher low of 25,990. Momentum indicators look to be at a medium term crossroads, and how the Dow resolves this mini trading band between 27,445/28,265 of the past couple of weeks could be of great medium term significance. The bulls are certainly not in control for now, but the outlook would turn decisively corrective under 27,445.