06June Days like this test our mettle, but we are holding to it for now. Today’s highly correlated action accelerated the recent reversal of our Rate of Change indicators and did successfully pull some of our Momentum indicators along with more seemingly on the way. However, any turns like this since the wintertime have been short lived and essentially resulted in consolidation and a gathering of potential energy for a continuation of the larger move. The “Fedspeak” really ramps up tonight and tomorrow, where focus will surely turn to any hints at more stimulus in the U.S. We tend to feel the Fed will be forced into another round of QE as pressures mount. Unfortunately, we will be hostage to the headlines once again… Currencies: 06June More hints at intervention and accommodation has eased the Overbought US Dollar conditions. Volumes were stronger, but not explosive.
Our rising Rate of Change indicators have flipped many of our Momentum to a more US Dollar negative dynamic. This should be watched closely. Additionally, we are back at the mercy of the headlines with events in Europe unfolding at a rapid pace and the FOMC meeting on 20June. In the interim, there will be plenty of opportunity for them to telegraph their next move. Aussie:
06June Aussie GDP more than doubled expectations:http://online.wsj.com/mdc/public/page/2_3063-globalEconom
The bottoming action we have been noting seems to be taking hold That said, as we noted yesterday, the last time we saw a positive turn in our Momentum indicator, in mid April, the currency essentially consolidated with a modest upward bias before another substantial leg to the downside. Keep an eye on our Rate of Change for signs when/if this may be happening again.
Today’s rally has taken the market above the falling channel that has been in place since 30Apr and above the previous highs (0.9885), which is near near the 5/15 low and the 5/21 high. A sustained move higher targets the 38.2% retracement (1.0005) of the Mar-May decline. Old support from mid April (1.0142) should offer new resistance and also aligns with a 50% retracement.
The recent lows lie in a zone that traces back to support from last November. Our noted bear flag formation from last week is losing some of its luster on some sloppy chart action. If it the pattern reinstates itself, look for a sustained move lower on stronger Volume to break this major support area and target the 0.9000 level.
Seasonal Snapshot (cash): The 5-year pattern’s upward bias extends until the end of July.
The 15&30yr patterns chop much higher until 20June, and then both fall out of bed throughout the rest of the month. British:
06JuneMore counter-US Dollar recovery has the currency recovering off its lows and easing well off ots recently Oversold conditions. We may call “close enough” for the second objective for our previous bear flag formation. The ultimate target from the 4/30 peak (550 points) was near 1.5225. As noted, this is where support held on reversal moves in early October and mid-January. It may again, as the Sterling remains was in extreme Oversold conditions (10) and may be entering a consolidation phase after steep losses.
Old support mid March, then again in late May, around 1.5600 may offer new resistance. The falling 200-day moving average comes in at 1.5755.
Seasonal Snapshot (cash): All three patterns fall until 09June. The 15yr then rallies until 20June while the 5&30yr patterns consolidate with an upward bias. Canadian:
06June The lower Bollinger Band (-2STD at 0.9555) was the brake for the recent weakness. The currency has added to yesterday’s gains in a big way. Watch the 29May high (0.9792) on more strength.
A continuation of our previously noted bear flag formation targets the 0.9200 area. Initial stops should be around the series of previous lows: 9497 on 25 Nov and finally, 9367 on 04Oct.
Seasonal Snapshot (cash): All three patterns consolidate wildly until the end of June. Dollar Index:
06June More negative action is confirming Friday’s action forming a bearish engulfing Thursday’s Doji candle. While this may not be all that strong of a signal and Volume is not setting the world on fire, we remind readers that there are plenty of gaps to fill all the way down to 79.615 (04May).
Today’s action fell through the old resistance from late May (82.60). Sustained weakness through this area may target the previous peak (81.93), which also aligns with a 38.2% retracement of the Apr-May rally.
Our falling Rate of Change has pulled our Momentum indicator negative. If this indicator acts like it did throughout the first part of the year, it may mean instability (for the indicator) and consolidation (for the index) may be ahead.
Seasonal Snapshot: All three patterns exhibit a positive bias from02-15June. Then the 5yr’s weakness until early Aug is much more pronounced than the 15&30yr’s consolidation with a downward bias. Euro-FX:
06June Much like the Dollar Index (in reverse), Friday’s action forged a bullish engulfing pattern, signaling a potential reversal. The trouble is that Thursday was a Doji Candle, which waters down the pattern. Volume was stronger, but has been suspect ever since.
The possibility of bailouts and more stimulus from the powers-that-be have trumped weak Euro GDP and German Industrial Production releases this morning. The ECB kept rates unchanged and Draghi noted that they stand at the ready to help, if help is needed.
Bigger picture, the Euro has and probably will probably remain under pressure so long as the political crises continue to roil the Euro-zone. This leads us to believe the currency may be entering a consolidation phase.
The currency has broken out above falling trend line resistance (1.2500) that forms the upper boundary of a falling channel that had been in place since 01May. The falling 21-day moving average at 1.2640 may cap more strength. The previous highs (1.2826) were made on 21May.
A sustained move lower should first target psychological support at the round pennies down to 1.2000. The June 2010 low was 1.1874 and the lower boundary of the falling channel that has been in place since May 2011 is at 1.1770.
Seasonal Snapshot: The 5&15yr patterns consolidate and the 30yr pushes lower until the end of June. Yen:
06June The Yen has lost its toehold above its 200-day moving average (1.2730) and our technicals are losing their positive luster.
Support remains near the 12465 level, which was resistance going back to late February and the rising 200-day moving average at 1.2600).
Watch the release of Machine orders tonight and tomorrow night’s GDP.
Seasonal Snapshot: Modest weakness in all three patterns will turn positive for a week on 1May, then consolidation into the first part of June. Metals:Gold:
06June The August contract has broken out above this week’s low Volume consolidation into a mini bull flag and is currently testing falling trend line resistance (1636) that has been in place since the $90 drop on 29Feb. A break out above would sustain Friday’s break out above our previously noted symmetrical triangle. Both are looking to be occurring on stronger Volume. If the pattern plays out, it would ultimately project a rally above 1700.
That said, currently at 73, our RSI indicator has catapulted off previously developing Oversold conditions, but there is still room to go higher.
Bigger picture, we see a giant descending triangle formation that extends back to the Sep 2011 high (1923.7). The bounce off our noted support level at the 26Dec low (1523.9) registers a triple bottom, aligning with the previous low (26Sep 1535). Stay tuned for updates.
Below is a slippery slope to 1500 psychological support, then a cluster of lows between 1462.5 (02May) and 1478.3 (27June). The 38.2% retracement of the Oct 2008- Sep 2011 rally comes in at 1456.8.
Seasonal Snapshot: The 15 & 30 yr patterns sag until 14June. The 5yr pattern consolidates until 06July. Copper:
06June With recent global economic data pointing to a slowing economy, Copper has benefited as expectations ramp up for action by some or all of the global central banks.
Technically, Monday’s probe to the downside found support at the –2STD below the 21-day moving average. This lower Bollinger Band (currently at 3.2580) has acted as a brake on any sell offs. Our Rate of Change indicator has been rising for the last two sessions and is about to pull our shaky negative Momentum indicator back to a positive bias. We remind readers that when this indicator has been negative for most of this year. After four attempts since March, the positive turn in late April/early May did not last long and could not yield a higher high for the move.
Old support on two moves to 3.3800 should offer new resistance. Additionally, falling trend line resistance that has been in place since the lower high on 01May comes in at 3.4030.
An additional negative dynamic is the falling 21-day moving average (3.4600) is accelerating below the 200-day (3.6420), but may be relegated to the background if central banks start acting.
Seasonal Snapshot: The 5&15yr patterns are decidedly weaker until 09June. The 30yr is in consolidation mode with a slight downward shift until 16June.Disclaimer:
The information presented in this report is taken from sources we believe to be reliable and accurate. This information is not guaranteed as to accuracy or completeness. The opinions expressed are based on our best judgment at the time of writing and are subject to change without notice. These opinions should not be construed as an inducement or advice to enter into any Futures or Options on Futures transaction except where explicitly stated. There is risk of substantial loss in trading futures and options. One's financial suitability should be considered carefully before placing any trades. Past performance is not indicative of future results.