Gold rallies as traders lose patience with politics, more Canada earnings today

Stock markets around the world but particularly in the US have staged major rallies in recent wee‎ks. Gains were driven by speculation that President Trump would bring in sweeping pro-business change. Traders are starting to find out, however that the speed of government is a lot slower than the speed of business let alone the speed of markets.

Although some indices have managed to reach new all-time highs this week, the pace of gains has slowed suggesting markets may be getting priced for perfection, and it wouldn’t take much to spark a correction.

Overnight action suggests that profit-taking may be getting underway. The Nasdaq turned down Thursday and this morning, US index futures are trading down 0.3% to 0.5% while the FTSE is down 0.6% and the Dax is down 1.0%.

On Thursday, US Treasury Secretary Mnuchin indicated he hopes to pass tax reform by the end of August but tjat this could slip to late in the year. Meanwhile, ‎other reports suggested Congress may not get to infrastructure funding until 2018. Action in indices and in sectors that have benefitted from “Trump trade” anticipation like industrials and construction could indicate if traders are getting tired of waiting. Next Tuesday, President Trump is scheduled to address a joint session of Congress. The street may be looking for something big and could be disappointed if he doesn’t deliver.

Currency trading finds Gold and JPY rallying overnight and building on Thursday’s gains as ‎political risk concerns return for the US and Europe. GBP continues to attract support with Cable holding above $1.2500. Last night the Brexit cause got a big boost from a by-election that saw a big swing to the Conservatives enabling them to take a seat that Labour had held for about 80 years. Meanwhile, on the continent, France and Italy apparently have come out in support of taking a tough stance but as this early stage that is to be expected and both countries could have new leadership within six months anyway.

‎Canadian markets could attract attention today especially with US news flow light. Consumer price inflation is due, one of the last major reports before next week’s Bank of Canada meeting.

It’s also another big day for Canada earnings. Royal Bank has picked up where CIBC left off beating the street by a wide margin and raising its dividend. ‎Husky Energy had a positive report while Magna International disappointed badly.

Chart Signals

Chart Signals: Indices start to sell off, USD breaks down, GBP and gold rally

For several days momentum indicators for US indices have been flashing yellow and today, it appears corrections appear to be getting underway in earnest. The Germany 30 interestingly is leading the way downward while the US 30 is forming an Evening Star. Gold, is breaking out to the upside with Cable attracting renewed interest as it regains $1.2500.

North American and European Indices

US 30 has dropped back under 20,800 and appears to be in the process of completing a bearish Evening Star candle pattern. The index has dropped toward the 20,720 to 20,.740 area with next potential support near 20,650 then 20,600. RSI overbought and rolling over suggests upward momentum has peaked and a correction may be starting. 

US SPX 500 is rolling over as 2,366 has emerged as resistance with the index falling toward the 2,350 to 2,355 area. RSI overbought and rolling over indicates a correction pending with next potential support near 2,336 then 2,320.

US NDAQ 100 remains under pressure, continuing the decline that started Thursday. The index has dropped from 5,355 toward 5,300 with initial resistance falling toward 5,320. RSI falling under 70 from really overbought signals a correction starting. Next potential support near 5,275 then 5,235.

US Small Cap 2000 continues to fall away from 1,400 confirming a failed breakout attempt and index peak. Dropping back into the 1,383 to 1,389 area, next potential support appears near 1,373 the 50-day average then 1,345 a channel bottom. RSI testing 50 where a breakdown would confirm a downturn in momentum.

UK 100 appears to have completed a double top just above 7,300 and has started to roll downward falling from 7,270 towards 7,210. Initial support appears in the 7,180 to 7,200 area where the 50-day average, a Fibonacci level and round number cluster then 7,100 a channel bottom. RSI falling under 50 confirms momentum turning downward.

Germany 30 has turned decisively downward with its fall away from 12,000 accelerating as it dives from 11,920 toward 11,760. Next potential support at its 50-day average near 11,615. RSI diving toward 50 indicates a downturn in momentum pending.

Commodities

Gold is breaking out again today, blasting through a Fibonacci cluster, clearing $1,250 and $1,255 and advancing on $1,258 with next potential resistance near $1,264 and the 200-day average then $1,278. RSI nearing overbought  territory suggests potential for a pause to consolidate gains at some point.

Crude Oil WTI remains unable to hold above $54.00, slipping back toward $53.65 from a lower high near $54.20. RSI indicates broader sideways momentum continues. Next support possible near $53.00 with next resistance near $54.70.

FX

US Dollar Index is breaking down today, falling back under 101.00 which may become initial resistance and on toward 100.70 with next potential support near 100.40 then 100.00. RSI slipping back under 50 confirms momentum downturn.

USDJPY remains under distribution, breaking down through 112.35 a Fibonacci level and trending toward 112.20 with next potential support on trend near 111.50 previous lows then 111.25 a Fibonacci test. RSI under 50 and falling confirms downward momentum accelerating.

EURUSD has bounced up toward a test of its 50-day average near $1.0610 with support rising toward $1.0585 a Fibonacci level from $1.0500. RSI still under 50 which it needs to retake to signal an upturn. Initial resistance possible near $1.0630 then $1.0660.

EURGBP found some support near 0.8400 and has bounced up toward 0.8460, retesting its recent breakdown point as new resistance which has held so far. The pair could pause to digest recent declines. Next upside resistance possible near 0.8555 and the 50-day average with next downside support possible near 0.8350 then 0.8265.

GBPUSD has levelled off in the $1.2520 to $1.2560 area consolidating a rally up off $1.2450 and breakout over $1.2500. RSI holding 50 and climbing indicates underlying uptrend resuming. Next potential resistance near $1.2580 then $1.2685.

USDCAD has stabilized near $1.3100 holding below its 200-day average near $1.3145 and near the middle of an emerging $1.3000 to $1.3200 sideways range. RSI near 50 confirms neutral trend.

CADUSD is hanging around $0.7625 the middle of a $0.7550 to $0.7700 trading channel. It remains supported above its 200-day average near $0.7600 with initial resistance near $0.7655.

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