The dollar has continued its recovery following the recent correction, but the rally against most markets has not been quite as emphatic as was seen during the previous week. The dollar did, however, rally to its highest level against the Yen since 2002 and reached a five-year high against the New Zealand dollar. The Nikkei continues to benefit from the weak Yen, and this week printed a new 15-year high. For a change, the S&P 500 did not print a new all-time high this week.
As mentioned above, the S&P 500 failed to print a new all-time high this week. It also failed to clear the 60 level on the RSI, which is the bear market resistance range. A break above 60 would suggest further rally to new all-time highs. But continued failure may lead to further weakness.
The Nasdaq 100, which has lagged the S&P 500 in recent weeks, came very close to breaking out to new multi-year highs, but failed to break through resistance from the 27th April high. Here too we have seen a few stabs at the 60 level on the RSI but no decisive breakthrough. The RSI closed the week at 55.51. It is possible that both of these markets will breakout to new highs this coming week, but support is also close to current price levels.
We wrote last week that having made a new 15-year high, the Nikkei had further room to the upside and my possibly rally another 1500 points from last week’s close. It rallied 305 points at one stage during this past week but gave back most of the gains. A weak Yen is good for the Nikkei, so these markets are likely to move together. With the Yen dropping to its lowest level since 2002 against the dollar this week, additional weakness should it appear, would likely benefit the Nikkei.
Coffee dropped to its lowest level since January 2014 as soft commodities and grains markets continue to remain under pressure. Soybeans and corn also traded at their lowest level since October last year and other grains markets also remain weak. Rough rice has fallen to its lowest level this month since 2006. It’s possible that we will see additional weakness in these markets over the coming days and weeks.
Gold and silver remain in directionless trade, as the consolidation pattern that has lasted for months continues. Copper, on the other hand, is starting to look very weak since the failure to break above 296. This week has seen the RSI drop below 40, which indicates further weakness ahead. This weakness may continue lower over the next few weeks towards the continuous contract low currently at 241.90.
The energy markets also remain mixed. Currently only heating oil and no leaded gas have completed trend changes to up. Brent Crude, Light Crude and Natural Gas all remain in long-term downtrends. Of these, both Crude markets are within range of testing key resistance. Natural gas remains the weakest in the complex, and we could see a test of the key April low this week.
The dollar index rallied early in the week but was unable to push higher. The RSI did poke above 60, but not in the decisive fashion that would be required to suggest that a rally back to the March highs was imminent, although that is where we expect the dollar will eventually end up.
The big currency moves came in the New Zealand dollar and the Yen, as mentioned above. The kiwi dropped to its lowest level since 2010 this week, having declined some 240 pips. The Yen shed a similar amount. Both markets could have further to run.
Interest rate futures
The 30-year T-bond continued its recent rally and broke through short-term resistance in the process. As mentioned previously, the long bond was the first market in this sector to confirm a change of trend to down. The other markets in the sector all remain in long-term uptrends.
The 3-month Eurodollar looks set to test its recent high this week. This market has rallied from support, and the RSI remains in the bull-range. We could see a breakout to new highs in the coming days.