UK snap election, US-Canada dairy trade and resource markets in focus

Markets have remained volatile overnight as the shockwaves from yesterday’s announcement that the UK government is looking to hold a snap election on June 8, worked their way around the world. Hong Kong and Australia indices fell 0.5%. ‎ Bourses have stabilised and in some cases bounced back slightly this morning. The FTSE is flat today, while the Dax and US index are up 0.2%.

Meanwhile in currency markets, GBP and EUR have held on to Tuesday’s gains against the US Dollar. They may be active again today with the UK House of Commons set to vote on a snap election. A two-thirds majority is needed to overturn a fixed election date law, but a simple majority needed if a non-confidence motion is required.

The greenback has been sinking following yesterday’s disappointing housing starts and declining manufacturing production. Signs of softness in the US economy appear to be pulling back the reins on rate hike expectations. Today’s Beige Book regional report may impact expectations further.

Resource currencies like CAD and AUD have remained under pressure overnight, setting the stage for more activity in oil, metals, plus the shares of miners and energy companies. Copper has rebounded 0.6% but this is small relative to Tuesday’s 2.1% tumble, let alone the 4.5% drop in Nickel and the 6.1% drop in Lead as base metals were crushed. The loonie also appears to have been impacted by comments from President Trump attacking the Canadian dairy industry as part of a wider talk about Buy America policies. This indicated that Canada cannot afford to get complacent about trade with the US and because of the ongoing risk of disruption, the Bank of Canada may need to keep a potential emergency rate cut in its back pocket after all.

Crude oil is trying to stabilise after sliding yesterday in choppy trading. The 0.8 mmbbl decline in API crude oil inventories was less than expected, dampening expectations for today’s DOE report.

It’s another big day for earnings reports. ‎Morgan Stanley beat the street handily this morning. Last night, IBM beat slightly on EPS but missed on sales. After the US close today, Canadian Pacific, American Express and Qualcomm are due to report results.

Chart Signals: Sterling keeps climbing, Loonie loses altitude 

A number of markets around the world have paused to digest Tuesday’s big swings, but the UK market which started it all remains active. Trading corrections in GBP pairs were brief and limited and Sterling has continued to build on its recent gains against USD and EUR. On the other hand, concerns about a potential Canada-US dairy trade dispute has sent the Loonie lower.

North American and European Indices

US 30 has stabilized near 20,500 in what looks like another pause within an ongoing downtrend. Resistance drops toward 20,545 from 20,665 with next downside support possible near 20,445 then 20,270 a 23% retracement of the Trump election rally. RSI still under 50 confirms ongoing downward momentum.

US SPX 500 has paused near 2,340 for a rest but remains under distribution with RSI still under 50 and downtrend of lower highs forming a bearish descending triangle above 2,325. Initial resistance near 2,350 then the 50-day average near 2,356 with next support near 2,313 a 23% retracement of its previous uptrend.

US NDAQ 100 continues to find support near 5,400 having bounced up off of its 50-day average near 5,355. RSI back above 50 suggests it may be turning back upward but it needs to retake 5,445 to call off the formation of a head and shoulders top right shoulder.

UK 100 found some support near 7,100 and bounced back toward 7,150 but this rebound already appears to be failing. It’s downtrend appears to have resumed. Next potential support near 7,000 where a round number and the 200-day average converge.

Germany 30 has regained 12,000 and its 50-day average having found some support overnight near 11,950. It remains to be seen if this a successful retest or the first crack in support. The index remains below a broken trend line with RSI under 50 confirming a downturn. Initial resistance has emerged near 12,040 with more possible near 12,060.

Commodities

Gold continues to pause in the $1,275 to $1,300 range, consolidating recent gains and working off an overbought RSI. Recent trading between $1,280 and $1,290.

Crude Oil WTI has stabilized in the $52.30 to $52.60 area but still appears to be rolling over with more resistance in place near $53.00 and next downside support near $52.00 then the 200-day average near $51.20.

FX

US Dollar Index has paused to lick its wounds near 99.60 after getting hammered back under 100.00 Tuesday. Initial support has emerged near 99.35 but RSI under 50 and falling indicates downward pressure still increasing. Next potential support near 99.00 then 98.65.

USDJPY is testing its 200-day average once again, having bounced up off of support in the 108.00 to 108.30 area. RSI back above 30 from oversold indicates downward pressure easing and a bounce starting.  Initial resistance possible at a Fibonacci cluster between 109.00 and 109.25 then 109.55 and 110.00.

EURUSD is sitting on $1.0720 a Fibonacci level digesting Tuesday’s big rally up off of $1.0640 just below $1.0740 resistance. RSI back above 50 suggests momentum turning back upward. Initial support moves up toward $1.0700 with next resistance possible near $1.0765.

EURGBP has stabilized near 0.8340 with a feeble bounce up off of 0.8300 toward 0.8370 failing way short of Tuesday’s 0.8460 breakdown point. An oversold RSI suggests it may need to rest in the short term. Next downside support near 0.8260 a Fibonacci level.

GBPUSD remains in a uptrend, building on Tuesday’s massive rally up off of $1.2500. A trading correction held $1.2800 and the pair has resumed climbing, trading up toward $1/2860 with next potential resistance near $1.2900 then $1.3000. An overbought RSI suggests it may need to pause at some point but is confirming upward momentum for now. 

USDCAD is breaking out of a two month downtrend today, clearing $1.3400 and advancing on $1.3440 with next potential resistance near $1.3460 and $1.3500. RSI rising up off 50 confirms upward momentum increasing once again.

CADUSD remains under pressure, falling away form $0.7500 for the pair and 50 for the RSI to indicate increasing downward momentum. Resistance falls toward $0.7480 with the pair trading near $0.7445 and next support possible near $0.7430 then $0.7410 and $0.7380 the latter two Fibonacci levels.

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