Budget deal raises more questions than answers, Manufacturing PMI in focus

On a day where many markets around the world are closed, those that are open have posted moderate gains in light trading. US index futures are up 0.2% with the Dow still below 21,000 while the Nikkei gained and Australian stock rose by 0.2%.

Over the weekend, US legislators reached a deal to keep the government funded through to the end of the current fiscal year in September. The deal looks like a big win for Democrats and a loss for President Trump. The President didn’t get any money for a border wall, and only half of the $30B he had wanted for the military.

Meanwhile his proposed changes to environmental and other regulations were blocked, while democrat priorities like Planned Parenthood remain funded. Separately, there was chatter health care reform could take to the end of the year, potentially delaying other initiatives.

This deal raises serious questions about how much longer the Trump trade can keep going when the assumptions that ignited it (major pro-business reforms enacted and implemented smoothly and quickly)‎ continue to crumble. Clearly Congress isn’t rubber-stamping his policies and this budget deal sets the stage for either a major budget battle and government shutdown in the fall, or another major defeat for the President. One has to ask how long traders with notoriously short attention spans are going to be patient with the President.

This Democrat win may also have other implications. First, it means that September is pretty much out for a Fed rate hike putting more pressure to hike rates in June despite weak GDP. ‎Second, it means that the President is likely to take a tougher stance in trade negotiations looking for wins in foreign policy to offset his defeats in Congress. CAD remains at a lower level after getting hammered down last week.

In other news, The EU took a hard line on Brexit as generally expected. It demanded to be well on the way to settling. the divorce bill of €40-60 B before starting trade talks. EUR is steady while Cable is down slight but still holding $1.2900, its recent breakout point.

Manufacturing PMI reports for April have started to come out. Chinese results fell and we’re below expectations which adds to questions about the health of the world economy following Friday’s weak US Q1 GDP report. Australia came in strong which boosted AUDUSD back up above $0.7500.‎ Rising inflation in Australia, however, adds to the question about global stagflation which we may see play out further in today’s US personal spending and Core PCE inflation. Today also brings manufacturing PMI reports for the US and Canada, followed by an RBA meeting in Australia tonight.

Chart Signals: Dow Double Top and a potential Golden Cross for Gold

Markets are holding steady to start the week for the most part. The most significant technical action is in US indices where the US 30 and US SPX 500 continue to form double tops. Meanwhile, the US NDAQ 100 which did reach a new high propelled by late stage tech stocks, is struggling to make further headway. Meanwhile, gold’s latest downdraft appears to be ending while its 50 and 200-day averages approach a golden cross.

North American and European Indices

US 30 tried to rebound to start the week but didn’t get very far, remaining below 21,000 and keeping a double top near 21,130 intact. RSI topping at a lower high and turning downward indicates upward momentum weakening. Next support possible near 20,880 then the 50-day average near 20,760.

US SPX 500 continues to form a double top with the index stuck below 2,400 resistance. Initial support appears near 2,370 then the 50-day average near 2,362.

US NDAQ 100 is still struggling with 5,600 resistance. The recent new high for the index has still not been confirmed by the RSI. A negative divergence and overbought condition indicate uptrend slowing and the risk of a correction increasing. Initial support possible near 5,540 then 5,445 its recent breakout point.

UK 100 is closed for a holiday.

Germany 30 is closed for a holiday.


Gold continues to bounce around between $1,260 and $1,270 with next support in the $1,250-$1,255 area near moving averages and Fibonacci levels with next resistance near $1.280 then $1,300. RSI holding 50 and the 50 and 200-day averages approaching a golden cross indicate its underlying uptrend remains intact despite a recent correction.

Crude Oil WTI is holding steady near $49.00 as it continues to stabilize following a selloff. A hammer candle down toward $48.00 appears to have put a bottom in place while flat RSI indicates downward pressure easing. Initial resistance on a rebound possible near $49.75 then $50.55.


US Dollar Index is still bouncing around between 98.60 and 99.20 trading recently near 98.90. RSI under 50 and falling suggests this is more likely a pause within a bigger downtrend than a double bottom. Next potential support on a breakdown near a measured 98.00.

USDJPY is sitting on its 50-day average near 111.775 and appears to be levelling off between 111.00 and 112.00 within a Fibonacci range of 110.65 to 112.15. Rising RSI indicates upward momentum still increasing.

EURUSD is sitting on $1.0900 as it continues to consolidate recent gains between $1.0845 and $1.0945.

EURGBP is flat at 0.8435, but it remains in a downtrend trading below 0.8460 a Fibonacci level and its previous peak near 0.8520. Next potential support near 0.8400 then 0.8355.

GBPUSD is consolidating its recent rally and working off an overbought RSI between $1.2900 and $1.2940. It appears to be preparing to mount an assault on $1.3000 round number resistance as support rises up from $1.2840.

USDCAD has encountered resistance near $1.3700 and has dropped back into the $1.3640 to $1.3680 area. It’s too soon to tell if this is a pause or a peak but an overbought RSI suggests potential for a correction with next potential support in the $1.3570 to $1.3600 zone.

CADUSD looks like it’s trying to hammer out a base near $0.7300 and a trading bounce appears possible with RSI currently oversold. Initial rebound resistance may appear near $0.7340 then $0.7380.


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