Sterling rallies on Queen’s Speech and more hawkish BOE comments; RBNZ preview

Currency markets had been relatively quiet overnight until the last hour where action has picked up in GBP pairs on two significant events. The Queen’s speech kicks off a parliamentary session focused on enacting legislative changes related to Brexit including new national policies on immigration, sanctions, nuclear safeguards, farming, fishing, data protection and more. The big question now is whether the Conservatives can cobble together a coalition to pass the legislative agenda (which would be positive for the pound) or remains stuck in talks and political uncertainty (which has weighed on GBP since the election).

Even more significantly, hawkish change appears to be in the air at the Bank of England. Building on the three hawkish dissenters at last week’s vote to hold rates and QE, MPC member Haldane, one of the more dovish members in the group indicated that he favours starting to withdraw stimulus in the second half of 2018. This leaves BOE Governor Carney looking increasingly lonely on the dovish side and facing growing pressure to at least start cutting back last year’s emergency stimulus. 

The see-saw trend of recent days in the markets sees stocks in a downdraft this morning‎. Major indices are showing a sea of red with US index futures down 0.1%, the Dax down 0.6%, the FTSE down 0.75% and the Nikkei down 0.3%. The one positive area was China mainland indices which rose over 1% +, on reports that MSCI is planning to include China A shares in global indices starting in late 2018.

Crude oil is down slightly overnight. There was a shakeup in Saudi Arabia succession plans with a new Crown Prince being named. API inventories fell 2.7 mmbbls. We could see more action in oil today around the DOE report.

Later this afternoon, an interest rate decision is due from the Reserve Bank of New Zealand. The RBNZ is expected to hold rates steady and with the Kiwi Dollar trading lower since its last meeting, appears unlikely to threaten intervention either. NZD has been steady so far heading toward the decision. Comments on its slowing housing market could be relevant to Canada who also faces a bursting bubble.

Chart Signals: Sterling rebounds while indices retreat

GBP is bouncing back today against both USD and EUR. Meanwhile, indices appear once again to be running out of gas but signals are mixed over whether we are moving into a sideways consolidation or deeper correction phase.

North American and European Indices

US 30 was unable to hold above 21,500 having encountered resistance near 21,545. The index may need to pause or correct in the near term to work off an overbought RSI. Initial support possible near 21,415 then 21,355 with next resistance possible near 21,720.

US SPX 500 is starting to drop back having met resistance near 2,454 and failing to hold above 2,450. The index has slipped under 2,440 toward 2,436 with next potential support near 2,428 where a 23% Fibonacci retracement and uptrend support converge. RSI indicates a deepening correction.

US NDAQ 100 continues to decline, dropping back toward 5,700 after confirming a lower high and break of a former uptrend near 5,785. RSI still under 50 indicates distribution. Next potential support near 5,655 then 5,580 the 50-day average and a 23% retracement.

UK 100 continues to trend sideways between 7,400 and 7,600 with RSI bouncing around 50 confirming neutral momentum. A head and shoulders pattern suggests a top may be forming which would be confirmed by a break of the 7,405 neckline. Resistance drops form 7,525 toward 7,475 indicating emerging distribution.

Germany 30 is sending mixed signals. It remains in an uptrend trading above 12,700 with an ascending triangle forming below 12,900 and RSI holding 50. On the other hand, the index looks close to breaking an uptrend support line while the RSI looks close to breaking 50. Either of these would signal a downturn with next potential support near 12,625 a recent low, or the 50-day average near 12,560.

Commodities

Gold has stabilized just above $1,240 and its 200-day average while RSI levelling off near 40 suggests recent selling pressure may be subsiding. The price would need to retake $1,254 to signal an upturn and a breakout from an emerging sideways range. 

WTI crude oil has bounced up off of $42.60 toward $43.35 in a normal trading bounce to work off an oversold RSI. It would need to regain $43.60, however to call off yesterday’s breakdown. Next resistance near $44.35 if successful, next support near $42.00 if it breaks down again.

FX

US Dollar Index is testing the top of a 96.30 to 97.50 trading range. RSI back above 50 and higher lows forming an ascending triangle indicate renewed accumulation. Next resistance on a breakout possible near 98.10 then a measured 98.70.

USDJPY is consolidating recent gains between 111.00 and 111.60, holding above its 50 and 200-day averages and 50 on the RSI to indicate renewed accumulation. Next potential resistance near 111.80 then 112.15.

EURUSD appears to have peaked and come under distribution with the pair falling away from a lower high near $1.1200 toward $1.1145. RSI slipping under 50 signals momentum turning downward. A break of $1.1118 a 23% retracement would signal a new downleg starting with next potential support near $1.1010 a 38% Fibonacci retracement. 

EURGBP failed to overcome channel resistance near 0.8860 and has dropped back under 0.8800 toward 08780. RSI indicates upward momentum fading but the pair remains in an uptrend above 0.8745.

GBPUSD dipped under $1.2600 then rallied, in what could be a bear trap turnaround. The pair has rallied back up toward $1.2700 with net potential resistance near $1.2745 then $1.2815. A double bottom in the RSI suggests downward pressure may have peaked and could be starting to fade.

USDCAD appears to be forming a near-term bottom between $1.3200 and $1.3300. RSI climbing up from 30 indicates downward pressure easing. On a breakout, initial resistance may appear near $1.3340 the 200-day average then a measured $1.3400.

CADUSD has slipped back under $0.7540 but essentially continues to consolidate recent gains between $0.7515 and $0.7575 above its 200-day average near $0.7500 and below $0.7600 resistance. RSI rolling over indicates upward momentum slowing and a correction possible.

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