Espresso Morning Call: Majors steady before key risk events

What we are looking for

• USD consolidating: Major forex pairs have settled into a phase of consolidation in recent sessions. This continues today, although performance against commodity currencies is slightly weaker. 
• Indices mixed: Wall Street closed with only minor gains last night, but futures have slipped back slightly this morning. The recoveries of the past couple of weeks are turning into consolidation.
• Commodities picking up: The main movers of the day are coming from the commodities segment. Oil is trading higher again and metals are also higher.
• Data trading: There is a big US focus today and therefore a big USD focus for traders. Consumer Confidence is the main data. A downside surprise would be risk negative and potentially USD positive. Richmond Fed Manufacturing and New Homes Sales release at the same time.

Overview

There are some huge risk events for traders in the coming days. FOMC policy and US Advance GDP will likely be significant market movers later this week. Subsequently, it is understandable that traders seem happy to keep their powder dry for now. Forex majors have settled into a phase of consolidation, whilst the equity market rallies also appear to be on pause. However, there is movement in commodities, with an uptick in prices. Oil is rising for a second day, with base metals also higher. Reports out of China of a real estate fund which could help to prop up the ailing sector seem to have steadied the ship in metals prices, for now. This is however also helping commodity currencies such as the AUD and CAD to outperform slightly today.

There is a big US focus on the economic calendar today. Consumer Confidence is the main highlight, expected to fall further to 15-month lows. Elsewhere, New Home Sales are expected to drop, whilst the Richmond Fed Manufacturing is expected to pick up slightly, but remain in negative territory.

Today’s news

Market sentiment is consolidating: Major forex is broadly flat (aside from slight outperformance from commodity currencies), with mixed moves on equities.

Treasury yields have settled: Since the sharp moves lower on yields at the end of last week, there is more of a settled feel to US yields today. This is reflected in moves across forex and indices.

Ukraine grain exports to resume: Ships could “move within a few days” according to the UN. 

Profit-warning from Walmart: US futures have slipped in the wake of a profit-warning from US retail giant Walmart. This is a signal that has hit other big retailers and dragged the market lower. 

Cryptocurrencies being dragged sharply lower: Crypto is sharply lower across the board this morning. It is a move that is coming independent of risk appetite. Bitcoin is almost -5% lower and is back close to $21,000.

Economic Data:

• US S&P/Case-Shiller Home Price Index (14:00 BST) – Price growth is expected to reduce slightly year on year in May to 20.8% (from 21.2% in April).
• US New Home Sales (1500BST) – Sales are expected to fall to 664,000 in June (from 696,000 in May) 
• US Consumer Confidence (1500BST) – Confidence is expected to fall again in July, to 97.3 (from 98.7 in June)
• US Richmond Fed Manufacturing (1500BST) – The survey is expected to pick up slightly in July to -6 (from -11)

Major markets outlook

Broad outlook: Markets are mixed amid consolidation ahead of major risk events later in the week. 

Forex: USD has been mixed over recent days and once more there is little real move. Despite this, rising commodities prices are helping currencies such as AUD and CAD to perform well. 

• EUR/USD remains in consolidation. Small bodies on the daily candlesticks reflect a lack of conviction in recent days. Resistance remains around 1.0275, but support around 1.0120/1.0130 is also still holding. A close back under the support would suggest a move back lower and re-open the prospect of parity again. The rebound is consolidating around the falling 21-day moving average. With the daily RSI struggling under 50, this adds to the suggestion that the rebound is another chance to sell.
• GBP/USD is just slightly edging higher as it has pushed through resistance at 1.2055/1.2065 in recent days. This very mild positive bias is reflected in the tick higher on momentum with the RSI edging higher towards 50 again. However, this remains in the backdrop of trading under a five-month downtrend. We still prefer to use this rebound as another chance to sell for a retest of 1.1760 in due course. For now though, the tick higher continues. Initial support is at 1.1960, above the 1.1890 higher low. 
• AUD/USD is now technically an improving chart. A break clear of resistance at 0.69895 comes with the RSI at seven-week highs. However, most important is the upside pressure on the near four-month downtrend and the resistance of the 55-day moving average. A close above 0.6965 opens for a move towards 0.7030. The old pivot band is now supportive between 0.6830/0.6895. 

Commodities: Metals are looking to rebound, with oil swinging higher again.

• Gold has improved well since rebounding from $1680. Yesterday’s decline has been countered by a move back higher this morning and the bulls will now be looking to build support between $1712/$1720. This could give the platform for a test of $1739/$1752 resistance. The RSI moving above 40 would be encouraging for the continued technical rally.
• Silver has been lagging gold in its technical rally and looks more as though it is fighting to prevent further downside than engaging in a sustainable recovery. The resistance is firming between $18.85/$19.09 with further resistance at $19.48 being a barrier to recovery. The market has ticked higher this morning but this is just taking back yesterday’s losses. Support at $18.14/$18.24 is growing. 
• Brent Crude oil has swung strongly higher again after yesterday’s intraday low at $101.60. The move is once more moving back higher to test the resistance band between $107.65/$109.65. The reaction around this resistance band is increasingly looking to be what will define the outlook on a near to medium-term basis. The six-week downtrend channel is being tested, along with the falling 21-day moving average (both around $107.50). The RSI has also unwound back towards 50 again (where recent rallies have faltered). Initial support is at $104.20.

Indices: Wall Street recovery is now consolidating, whilst European indices are mixed, with the FTSE helped by higher oil prices. 

• S&P 500 futures have settled into a phase of consolidation. However, the breakout above the resistance band 3875/3950 is still holding and this leaves the near-term bulls in control. Holding above 3950 maintains the encouraging outlook, whilst if 3875 is broken, then it would question the recovery. Above 4115 (Friday’s high) the next band of resistance is 4070/4200. 
• German DAX has continued to consolidate in recent sessions. Long upper shadows on the daily candlesticks suggest the bulls are trying but failing to grasp control again. Small candlestick bodies reflect a lack of conviction. This is coming under the resistance that is mounting between 13,360/13,430. Despite this though, building on the support area around 13,000/13,080 will retain a recovery bias. Above 13,440 opens 13,650.
• FTSE 100 ticked higher yesterday (helped by a rebound in oil) and is higher again today (helped again by oil). Subsequently, the resistance around 7335/7370 is now being tested. A close above 7370 would be encouraging, especially as it is being confirmed on the RSI which is looking to move into the high-50s. The importance of support between 7205/7229 is growing.

This material is for general information purposes only and is not intended as (and should not be considered to be) financial, investment or other advice on which reliance should be placed. INFINOX is not authorised to provide investment advice. No opinion given in the material constitutes a recommendation by INFINOX or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.