Resources retreat as broader markets digest Brexit chatter

World stock markets were mixed overnight but are ‎holding steady this morning between Brexit developments. The resource weighted Australian market was the top performed gaining 0.4% while the Nikkei fell 0.4%. European indices and US index futures are pretty much flat this morning.

In currency markets GBP and EUR remain in the spotlight between yesterday’s official triggering of Article 50 to start the Brexit process ‎and the first official response from the EU expected tomorrow. Germany put out a report suggesting the the UK would be worse off than the EU after Brexit, but seriously what else are they going to say? That is the kind of report where people write the conclusion first and then work backwards.

Sterling is outperforming the Euro for a second straight day indicating traders think Brexit will be better for the UK. ‎PM May including security issues in her plans reminds traders that th UK has its own areas of leverage in negotiations.  Meanwhile, a poll showing 62% of Scots support the UK Government’s positions on trade and immigration weakens the case for another independence vote.

Resources have dropped back a bit overnight in what looks like a normal trading correction with copper down 0.5% and crude oil down 0.4%‎. Gold is also down slightly. Based on this, we could see some softness in mining and energy stocks today. Natural gas could be active around the mid-morning weekly storage report.

Today brings US GDP which probably won’t have an impact unless there is a big surprise. Similarly with so many Fed speakers this week, today’s group may not spark a significant reaction unless someone seriously deviates from the party line. German consumer prices and Canada producer prices may attract some attention as they could show whether inflation pressures on central banks are growing or shrinking.

In Canada, Dollarama could be active after the retailer handily beat the street on both sales ($854M vs street $842M) and earnings ($1.24 vs street $1.12), raised its dividend by 10%, raised its long-term store growth target to 1,700 from 1,400 and indicated plans to start accepting credit cards. 

Chart Signals: EURGBP Death Cross pending as Sterling strengthens

The pound continues to gain strength following the triggering of Article 50 and the formal start of the Brexit process. Cable continues to form a head and shoulders bottom while the UK 100 trending opposite to the currency appears to be forming a head and shoulders top. GBP is doing particularly well against the Euro indicating that traders see a widening Channel gap as favouring the UK. In particular, a Death Cross of the 50-day average under the 200-day average is pending for EURGBP which would be a sign of a significant trend change favouring Sterling at the expense of the Euro. 

North American and European Indices

US 30 is trading near 20,600 about the middle of a 20,500 to 20,785 trading range above its 50-day average but below its recent breakdown point in what looks like a rest stop within a larger downtrend. RSI under 50 confirms momentum has turned downward.

US SPX 500 is hanging around 2,360 trading between 2,357 and 2,364. RSI bouncing around 50 suggests sideways momentum emerging and a 2,338 to 2,380 range emerging above its 50-day average.

US NDAQ 100 peeked above 5,436 to a new high but the advance was quickly stopped near 5,440 and the index has been knocked back toward 4,428 in what could be a bear trap top. A growing negative RSI divergence indicates upward momentum has peaked and a downturn possible.

UK 100 ran into resistance near 7,400 a lower high and has started to drop back in what looks like the right shoulder of a head and shoulders top forming with the head near 7,440. RSI back at 50 suggests momentum poised to turn downward. Next support near 7,335 then then neckline near 7,260. 

Germany 30 appears to be levelling off in the 12,200 to 12,250 area consolidating its recent breakout over 12,100 that completed an ascending triangle. RSI suggests the index’s upward march may be pausing.

Commodities

Gold is sitting on $1,250 as upward momentum slows for now and the price pauses for a rest. Upside resistance appears near $1,255 a Fibonacci level then the 200-day average near $1.260. Downside tests possible near $1,248 then $1,242 and $1,230 the first and last being Fibonacci tests.

Crude Oil WTI is sitting on $49.00 digesting the gains of the last two days as it approaches the top of a $46.50 to $49.50 trading range. Next resistance near the $50.00 round number. Initial support rises toward $48.75 from the 200-day average near $48.25.

FX

US Dollar Index is testing resistance at 100.00 on the index and 50 on the RSI where breakouts would signal the start of an upswing while failures would confirm the recent breakdowns. Next potential resistance near 100.40 then 101.00 with support near 99.55 then 99.00.

USDJPY has bounced back above 111.00 from 110.00 and appears to be forming a rounded bottom below 111.60 with initial resistance near 111.25. RSI climbing up off 30 indicates downward pressure easing. Next potential resistance on a breakout possible near 112.00 then 112.35.

EURUSD remains in a slump continuing its fall away from $1.0800 toward $1.0730 with next potential support near $1.0720 a Fibonacci level then $1.0670 the 50-day average. RSI approaching 50 where a break would confirm a downturn. 

EURGBP continues to turn downward with the recent 0.8600 Fibonacci breakdown point becoming new resistance as the pair drops toward 0.8610 with next potential support near 0.8585 where a death cross of the 50-day average under the 200-day is pending then 0.8500.

GBPUSD has established support at a higher low near $1.2400 and has rebounded toward the $1.2460 to $1.2480 area as base building continues. RSI holding 50 confirms underlying upward momentum intact. Initial resistance possible near $1.2500 then $1.2580 and $1.2600.

USDCAD is holding near $1.3330 digesting its drop back from $1.3400. RSI testing 50 where a breakdown would signal a downturn in momentum. Next support possible near $1.3300 then $1.3265.

CADUSD is sitting on $0.7500 and 50 on the RSI indicating balance between bulls and bears currently. Next resistance appears near $0.7530 then $0.7550 with next support near $0.7475 then $0.7450. 

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