Approaching the mid-point of the week, we take a look at the charts impacting major asset classes. In forex as we see the dollar pulling back from recent highs, is it time for a near term correction? Unwinding moves are threatening on commodities. Could European equities be ripe for a bounce?
- Inflation fears are still prevalent, but bond yields have eased slightly and this is dragging the US dollar lower today. How these multi-week trends hold will impact the near term outlook on major forex pairs.
- Commodities are already reacting to this, with gold and silver higher.
- Equity markets have also begun to pick up slightly. This could be a near term turning point.
Bond yields and USD falling today
There were notable multi-month highs on Treasury yields and the Dollar Index yesterday. However, there has been a slip back in both early today. Rising inflation fears have been driving negative sentiment in recent weeks. However, there are some interesting signs in the past few sessions of potential change. The rallies on the energy prices (natural gas and oil) are not as secure as they have been.
Firstly the price of Natural Gas (MT5 code: NG) has begun to ease off. Technically a 7-week uptrend is being threatened now. There is also a negative divergence in RSI momentum with the recent highs. A close under the first key higher reaction low at $5.30 would hint at a move just beginning to deteriorate.
Brent Crude oil (MT5 code: UKOUSD) looks a little more steady in its trend but has just eased back in the past two days. There is also a slight hint of negative divergence here too.
So with energy prices potentially easing, it is interesting to see US Treasury yields pulling back. The US 10 year yield is threatening a three-week uptrend. For now, this looks to be a minor pullback, but if the yield dropped below 1.50% then it would be something a little more interesting. Attention will be on US CPI today. The hard data on inflation (i.e. not just expectations) is expected to plateau at 5.3% headline CPI and 4.0% core CPI. If these show any negative surprises then there could be room for a sharper unwind lower on Treasury yields.
For the US dollar (USD), after hitting multi-month highs yesterday, with yields falling there has also been a drag back on the Dollar Index today. Once more, as with the US 10 year yield, the uptrend is still intact and this could simply be a near term move.
Major forex rebound against USD, for now
This is all adding up to a rebound for major forex against the dollar. However, there needs to be much more seen on these pairs to suggest any sustainable rally can be called with any conviction.
EUR/USD needs to rally through 1.1585/1.1600 resistance.
GBP/USD is building from old support around 1.3570/1.3600. However, it needs to close above 1.3650/1.3675 resistance (with the RSI holding above 55) to suggest any serious recovery can have traction.
However, two of the commodity currencies have been steadily improving against the USD in recent weeks. AUD/USD is holding on to a recovery pattern, with a move above 0.7290./0.7320 implying a test of 0.7400/0.7475. However, the USD/CAD chart is on the brink of a significant downside break (moving CAD positive). Traders will be looking at support at 1.2420 with very keen interest. With RSI momentum leading the move lower, a downside break opens the way towards 1.2250/1.2350. The only caveat is that if oil moves into reverse, then CAD strengthening would struggle.
Gold and Silver picking up
For the precious metal commodities, after weeks of consolidation, there are hints at another potential rebound. Gold (MT5 code: XAUUSD) is looking to test $1770/$1790 resistance again.
Silver (MT5 code: XAGUSD) is looking to test $22.75/$23.18 resistance.
However, our strategy continues to be one of selling precious metals into strength. We still regard the bigger downtrends as key to the outlook and a rebound on these metals would be another chance to sell.
Little chinks of light for indices
Today’s weaker dollar and a potential easing of energy prices are helping to form support on equity markets today. These moves need to continue if these little technical rallies are going to be anything more sustainable.
S&P 500 futures (MT5 code: SP500ft) are still in a decisive downtrend (of the past six weeks), with a negative configuration on RSI (consistently under 50). A move above resistance at 4383/4420 is needed to be a decisive shift in near to medium-term outlook.
However, in Europe, the German DAX (MT5 code: GER30) is showing signs of positive intent. If an intraday move above 15,267 can turn into a close above the resistance, there is potential for a near term recovery pattern. This shows on the 4-hour chart as a “head and shoulders” base pattern. It would imply a potential recovery towards 15,700.
