Market Overview


We noted previously the importance of the $1.1180/$1.1200 band which has become pivotal in recent sessions. Having broken out decisively on Tuesday, a failure below the pivot would have been a negative signal for EUR/USD. Although the outlook is still in the balance, only holding the breakout above $1.1180/$1.1200 marginally this morning. It is a positive step though. The momentum indicators are pointing towards the recovery holding, with the bull cross on MACD and Stochastics rising well. However, there is still work for the bulls to sustain the move. What we see likely is that negative outlook has been neutered by the rebound in the past week. Although we do not see the euro gaining hugely from here, equally, sustainable downside is looking less likely and the outlook far more mixed now. Resistance is at $1.1250 initially under more considerable $1.1280. Support under $1.1180 comes in at $1.1160.


Amidst all the volatility of other forex majors, Cable has barely budged in recent sessions. In the massive dichotomy of performance versus the US dollar on the majors (safe havens versus higher risk commodity currencies) Cable has found a quiet corner to rest. Within the context of the negative medium to longer term outlook, Cable is consolidating. A shade above support at $1.2100, Cable has edged a few pips higher, but in reality this is a market going nowhere for now. There is still room for a bounce were one to start to edge higher, but resistance at $1.2250 protects the bigger $1.2380/$1.2440 resistance band. A three month downtrend comes in at $1.2415 today, whilst the 21 day moving average (a basis of resistance) is at $1.2355 today. We continue to look to use any near term rallies as a chance to sell and expect further pressure on $1.2100 in due course. A close below $1.2100 opens $1.1980.


Similar to the outlook on EUR/USD we see the rebound on Dollar/Yen back around a key pivot. The old support of 106.75 is new resistance and the failure of yesterday’s rally to recover the breakdown will now be a concern for markets. With the recent breakdown, there is now a key area of overhead supply 106.75/107.50 from all the recent key lows. Yesterday’s bounce failed at 107.07 and with a renewed slip back today the prospects of recovery remain small. Momentum indicators have picked up marginally, but again, this is limited, whilst perhaps tellingly, the sensitive Stochastics are not posting any by signal for now. The hourly chart shows the bounce having rolled over and the resistance building under 106.75. Expect further pressure back on 105.50, whilst a retreat towards 104.50/105.00 long term support area looks likely still.


The bulls look to be on a run now and there is little by way of resistance to stop them. Gold has broken out to close at multi-year highs in the past two sessions. Two decisive bull candles and once more, early today we see the market running further higher. Momentum remains strong and the bulls remain in control of the move. The RSI into the high 60s along with the bull cross on MACD lines reflects this. However, this is a run to be careful with. We remain bullish of gold for further upside, but also are a little guarded for chasing the immediate run higher. Moves of the past couple of months show that strong bull candles are often followed by near term retracements which ultimately give better entry points for longs. Perhaps this is a little conservative of us, given the June bull run went into the mid-80s on RSI before the consolidation set in. SO we are watching the near term indicators for signs of exhaustion. There is breakout support now from yesterday’s high around $1475, also watch for potential reversal signals such as a bear cross on hourly MACD. We continue to be buyers into near term weakness and the breakout support between $1433/$1452 is an increasingly key area of underlying demand now. With gold at over 6 year highs, the next upside level of note is the psychological $1500.


Given the huge outperformance of Silver during July, it is interesting to see more of a consolidation into August. We retain a bullish outlook on silver whilst the market continues to find buyers as the market unwinds back towards the $16.20 breakout. It is therefore interesting to see silver now beginning to follow gold in a breakout today. Gold broke to multi-year highs recently, but silver has been stuck under the mid-July high at $16.64 for the last couple of weeks. A breakout above $16.64 as now been seen this morning and will be a strong move on a closing breakout. This is the next step in the bullish outlook, having broken out above $16.20, this is now a key basis of underlying demand. A closing break of $16.64 is the next leg higher and would open upside towards the Q2 2018 highs of $17.35 in due course. Momentum indicators have unwound throughout the recent consolidation, retaining a bullish configuration and weakness as a chance to buy. A close below $16.20 would be a disappointment now, with the recent intraday lows between $15.88/$16.10 providing further support.


Given the outlook of broad market sentiment remains muted at best, and oil futures in backwardation (implying a market set up for shorting oil), the technicals are also in agreement for a negative outlook. In the wake of the sharp bear candle of last Thursday, the market has never managed to muster any significant recovery. The initial bounce has been used as a chance to sell and intraday rallies are struggling. Two subsequent negative candles have resulted in intraday breaches of $53.60 and a closing break would be bearish. With the momentum indicators negatively configured, and the 38.2% Fibonacci retracement a barrier to gains (at $55.55) expect further negative pressure. A close below $53.60 opens the key support around $50.50. Intraday rallies are a chance to sell.

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