Traders digest Bank of Japan and prep‎ for Brexit talks

Stock markets around the world have been bouncing back a bit today. While the morning finds US index futures for the Dow and S&P sitting just below all-time highs, the Nikkei remains below 20,000 and the FTSE below 7,500.

In currency markets today the USD had been giving back some of its recent gains in what looks like a normal trading correction following a rally.

The worst performing currency on the day has been JPY following the Bank of Japan’s stand pat meeting. The decision to maintain negative rates and QQE had 2 dissenters, but none of that was a surprise. Meanwhile, Governor Kuroda indicated there’s no end in sight for stimulus.

The JPY and Bank of Japan reaction provides an excellent example of how currencies are a relative trading game. While the Bank of Japan didn’t change and didn’t surprise anyone, other central banks have. This week the Bank of Canada, Federal Reserve Board and Bank of England have acted or hinted hawkishly, leaving ultra-doves like the BOJ looking lonely. It’s like being at a party where some guests hear sirens and scatter ‎while others are left standing alone looking guilty when the cops show up.

Today’s calendar is light for data headlined by second tier numbers like housing starts and consumer sentiment, which could provide fodder for the weak hard data vs strong soft data debate.

We could see some positioning in European markets ahead of the weekend with Brexit talks scheduled to start on Monday. News of another band aid deal for Greece may attract some attention. It appears that some arrangement has been reached to make sure Greece doesn’t default on next month’s debt payments and ‎try to kick the can past September’s German elections. As usual, though, it doesn’t do anything to solve the underlying problem so it does nothing to reduce the risk of social unrest this summer.

Chart Signals: Big technical tests underway today

A number of markets are testing significant technical pivot points today. Most notably, USDJPY has a big breakout underway as JPY underperforms. The US30 is testing its all-time high near 21,400. The UK 100 and GBPUSD are testing levels related to head and shoulders tops.

North American and European Indices

US 30 is bumping up against 21,400 where a breakout would set another all-time high with next measured resistance possible near 21,540. RSI getting overbought and a negative divergence suggest upward momentum could be peaking. Initial correction support possible near 21,345 then 21,290. 

US SPX 500 is holding steady near 2,435 bouncing around in a 2,423 to 2,447 zone. Signals are mixed with RSI indicating slowing upward momentum but an ascending triangle indicating continuing accumulation.

US NDAQ 100 has stabilized near 5,700 for now, still trading below 5,755 its recent breakdown point but above its 50-day average near 5,635. RSI stuck below 50 indicates an emerging downtrend. Next support near 5,580 a 23% retracement of the recent uptrend.

UK 100 has bounced up off of 7,400 with support moving up toward 7,430 but it is struggling to get back above 7,500 and 50 on the RSI indicating emerging distribution. It would need to clear 7,545 to call off a head and shoulders top that continues to form. 

Germany 30 is holding steady just above 12,700 uptrend support which also is near the middle of a 12,475 to 12,900 trading range. RSI holding 50 indicates underlying accumulation remains intact but a downturn still possible. Initial support near 12,620 with initial resistance near 12,825.

Commodities

Gold has found some support near $1,250 but remains in a downtrend with resistance dropping from $1.260 toward $1,256. RSI below 50 and falling indicates momentum turning increasingly downward. Next potential support near $1,246 then the 200-day average near $1,240.

WTI crude oil has attracted support above $44.00 up from May’s low near $43.50 and is trying to rebound. It would need to retake $50.00 to signal an upturn with next potential resistance near $45.50 then $46.00 if successful. 

FX

US Dollar Index has levelled off in the upper half of its 96.45 to 97.65 trading range, holding above 97.00 but struggling to make headway beyond 97.50. RSI sitting on 50 where its next move could confirm an ongoing downtrend or signal an upturn.

USDJPY is breaking out again today. The pair has cleared 111.00 and its 50-day average while RSI breaking out over 50 has confirmed the start of a new uptrend. Next potential resistance appears near 112.10 a 38% retracement of the previous downtrend.

EURUSD is trading in the lower half of a $1.1120 to $1.1290 trading range, below $1.200 near $1.1165. RSI testing 50 support where success would keep the broader uptrend intact but failure would signal a downturn in momentum. Resistance has dropped toward $1.1180 with next support possible near $1.1080.

EURGBP is sending mixed signals today. The pair has dropped back from 0.8870 under 0.8800 and on toward 0.8745, while RSI suggests momentum rolling over. On the other hand, it remains in an uptrend above 0.8700 support with more possible near 0.8655. 

GBPUSD is testing $1.2790 a Fibonacci level and the neckline of a completed head and shoulders top, as resistance having established higher support near $1.2700 and $1.2745. RSI steady just below 50 suggests we could be seeing a pause within a larger downtrend between $1.2635 and $1.2790 both Fibonacci retracements.

USDCAD remains in a downtrend, falling back toward $1.3230 after a trading bounce up from $1.3175 ran out of gas at a lower high near $1.3300, a Fibonacci level. RSI near oversold likely sparked the bounce so we could see a range bound pause to consolidate losses in the near term.

CADUSD is starting to climb again up from a successful test of $0.7500 and 200-day average support. The pair has regained $0.7540 a Fibonacci level and is climbing toward $0.7560 with next potential resistance near $0.76700 then $0.7635. Overbought RSI suggests potential for a near-term pause.

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