Market Overview
The euro has had a wild ride in the past day or so as the market turned from trepidation to a state of relief over the Italian referendum. Matteo Renzi lost the referendum and subsequently tendered his resignation however it seems that the prospect of an early election has receded and this has calmed the nerves for markets. The euro unwound by close to 300 pips at one stage before drifting off overnight. With the euro holding on to its recovery gains, markets will now begin to look ahead to the ECB meeting on Thursday with an expectation of a QE extension of maybe 6 months but could the ECB also allude to potential future tapering of asset purchases? With the euro recovering and Treasury yields consolidating in the past few days, the trade weighted dollar has made a downside break below the support at 100.6 which completed a small top pattern and implies around a 1.5% corrective move now. Equity markets have reacted positively to the Italian referendum with Wall Street positive into the close (S&P 500 +0.6 at 2205) and the Nikkei up +0.5%. European markets are looking mildly positive in early moves.
In forex markets there is little real direction today, although sterling is performing well, whilst the Aussie has been the underperformer on the announcement of RBA monetary policy in which the bank held steady on rates at 1.5% but cautioned about growth prospects. Gold and silver have been supported in early moves but are still struggling to show any real signs of recovery. Oil has dropped back a touch in early moves by just under a percent.
Traders will be watching for US Trade Balance at 1330GMT which is expected to deteriorate to $-41.8bn (from -$36.4bn). The US Factory Orders are at 1500GMT which are expected to jump by +2.6% for the month (+0.3% last month) which would be the best month on month improvement since June 2015.
Chart of the Day – USD/NZD
The outlook for the Kiwi has been mixed in the past week with a variety of bullish, bearish can neutral candles. This comes as the market has been unable to push back above last week’s high at $0.7170 and looks ready to form a slightly lower high. Also interestingly the market is finding resistance at the 144 day moving average (currently $0.7140) and the underside of the old bull trend channel. The Stochastics are unwinding positively but the MACD lines are laboured in their recovery and the RSI has unwound back to neutral around 50. Is this around the limit of the recovery now? The hourly chart shows momentum indicators of ranging conditions. The bulls would point to the series of higher lows, with the latest at $0.7065, however the market seems to be stuck now in a range $0.7040/$0.7170. The recent recovery points hints at an upside break but the lack of impetus in the recovery is a concern. A break of the range will be key for the near term outlook.
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