Market Overview
The rebound on the dollar has continued over the past few sessions. However, there is little to suggest that this move has any grounding, other than perhaps for now the dollar is the best of a bad bunch. Treasury yields have been treading water, whilst yield differentials are hardly shouting for continued dollar strength either. The rhetoric surrounding the US/China trade negotiations remains positive, with Treasury Secretary Steve Mnuchin suggesting the talks are “very productive” and is expected in China for continued meetings next week. There is a sense that it is the newsflow surrounding other currencies which may be playing a role.
Brexit uncertainties are a factor, with rhetoric from the various EU presidents talking about Brexiteers going to hell, hardly setting the platform for positive discussions with Theresa May on potential renegotiations today. The euro and sterling have both suffered relatively.
Furthermore, the dovish shift from the Reserve Bank of Australia has also hit sentiment and driven a move back towards safety, where the dollar again benefits. This near term dollar strength has undoubtedly impacted through markets, but EUR/USD remains stuck in a range, whilst Cable is mid-range and gold is unwinding back towards key support. These are all near term dollar positive moves, but this could begin to dissipate. With the lack of dollar positive drive through yield differentials, it would not be a surprise if that were to be the case.
Wall Street closed marginally lower with the Dow off by -0.1% and the S&P 500 -0.2% at 2731. The US futures are also continuing the move lower, by around -0.2%. Asian markets remain impacted by Lunar New Year, but the Nikkei was lower by -0.6% overnight. European markets are also following the trend lower with FTSE futures and DAX futures both around -0.3% lower early today.
In forex, there is still a sense of mild dollar strength pulling through the majors, with an added risk averse vibe. This is showing with the yen and Swissie marginally gaining, as all other majors are giving up ground slightly to the dollar.
In commodities, the dollar gains have pulled gold back towards the key $1300 support area which is holding for now, whilst the equivalent support on silver at $15.60 is also holding. With the market sentiment edging negative, there is a slip back on oil by just over half a percent today.
The main focus on the economic calendar today will be the Bank of England’s monetary policy announcement at 12:00 GMT. Overwhelming consensus expects no change on rates (with such uncertainty over Brexit), leaving rates at +0.75% and QE unchanged (at £435bn). The meeting minutes are expected to show the decision being unanimous on the MPC with all nine voters opting for unchanged policy. However, the big interest will be in how the Bank of England adjusts its forecasts for growth and inflation as part of the Quarterly Inflation Report, both of which are likely to be revised lower.
The US data focus is with the Weekly Jobless Claims at 13:30 GMT which are expected to drop back to 221,000 (from the 15 month high of 253,000 last week). Also keep an eye out for FOMC’s Richard Clarida (vice chair, permanent voter, centrist) who speaks at 14:30 GMT.
Chart of the Day – Silver
Having rallied sharply to a high of $16.20, silver has been corrective over the past week, but this correction is an unwinding move within the medium term recovery and should provide the next chance to buy. The uptrend since early December comes in at $15.50 and is a basis of support, whilst there is a historic long term pivot around $15.60 which is another basis of support. The momentum indicators are in medium term positive configuration, with the RSI consistently holding above 50 throughout the two month rally, suggesting that the rolling over in the past week is another instance of a near term correction within the medium term recovery trend. The bulls will certainly be looking for support to form around $15.50/$15.60 in the coming days and for subsequent renewed positive signals for the trigger to move back in. The hourly chart is now showing corrective momentum configuration with the hourly RSI failing under 60 and MACD lines failing under neutral. There is initial resistance at $15.93 (for Tuesday’s high) and an improvement in momentum would certainly be seen as a positive. The medium term bulls will remain on track whilst the support at $15.15 remains intact.
EUR/USD
The dollar continues to regain ground and drag EUR/USD back lower. With another negative candle forming yesterday, the decisive move below the pivot at $1.1420 (which is now a basis of resistance) means that the move is eyeing the basis of the range support that comes in around $1.1300. Momentum indicators are in corrective mode once more, with the RSI below 50, whilst MACD lines are crossing lower and Stochastics accelerate down. The hourly chart shows the move is a consistent drift lower in recent days with negative intraday momentum showing that rebounds are a chance to sell. There is resistance at $1.1400 initially, under the range pivot at $1.1420. Throughout the range, tests of support around $1.1300 have found buying pressure renewed.
The near term outlook has become negative for sterling once more. The move lower over the past week has posted a run of negative candles on Cable and momentum indicators have turned near term corrective. The RSI has dropped back to 50, whilst MACD and Stochastics lines are falling. Having broken below $1.3000, the bulls have lost the control and there is now a clutch of mid-range old pivot bands that the market will be looking at. The initial pivot at $1.2920 has been under pressure over the past couple of sessions and is holding today, for now. Beyond that there is the old breakout around $1.2800/$1.2815 which is a more considerable level. How the bulls respond in the coming sessions will be very interesting. The politics of Brexit remain a key factor, whilst today the Bank of England also needs to be considered. Resistance is now in place between $1.3000/$1.3050 that the bulls need to overcome to regain control.
There is an undeniable near term significance of 110.00. Early yen gains in yesterday’s session could not be sustained and the market has simply rebounded back to 110.00 again. For the past four sessions this has been the default position as the bulls eye a near to medium term breakout. There is a bullish bias to momentum indicators still, with the RSI above 50, MACD lines positive and Stochastics in strong configuration. The question is whether the bulls can make the breakout. On the hourly chart, there is still a neutral positioning on momentum, with hourly RSI oscillating 40/60 and hourly MACD lines around neutral. The closing resistance is 110.00 with intraday at 110.15. Above here opens the way towards 111.35. Initial support at 109.40/109.60.
Gold
There is a near term correction on gold. The initial support around $1310 has been breached and $1300 is now being tested. This may or may not be breached too, but this move continues to be a near term unwinding of the medium to longer term bull trend. As such it will prove to be a buying opportunity. The recent move through the $1300/$1310 band was important for the longer term and opens the 2018 highs of $1366. The question is one of how far this near term correction will go. The support of the now 12 week uptrend comes in at $1292 today so there is still room to unwind within this corrective phase. A slip lower on momentum indicators also suggests that there is a slight negative bias near term still. The hourly chart reflects this very mild corrective bias, with the hourly RSI failing under 60 in the past few sessions. Initial resistance around $1310 but the bulls will be looking out for a move above $1316 which has become a lower high within this correction.
WTI Oil
Having broken the support of the six week uptrend the outlook for WTI is beginning to deteriorate. The bulls have been allowing the price to drift higher with a lack of conviction on momentum and now there is a decisive deterioration that is beginning to drag on the price. The Stochastics are beginning to accelerate lower having already topped out, whilst the MACD lines are on the brink of a bear cross. A move on the RSI below 50 would confirm the deterioration. A couple of negative candlesticks this week and an uncertain move yesterday pulled the price to a one week low yesterday and broken the six week uptrend, leaving resistance at $55.75. On the hourly chart, a near term top below $53.30 is threatening which would which implies around $2.50 of further correction. A move back towards the 23.6% Fibonacci retracement at $50.50 and the key support at $50.40 could then be the result. If resistance continues to build, with a lower high between $53.75/$54.40 then the corrective momentum could now develop.
A very mild corrective session yesterday has done little to change the outlook on the Dow. The market continues to run positively and with the closing price above the open, there was in fact a positive one day candlestick formation. Momentum indicators are still decisively positive with the RSI rising in the high 60s, MACD lines advancing and Stochastics strongly configured. This all points to near term slips on the Dow being bought into. The hourly chart shows unwinding moves are seen as opportunities to buy. There is support between 25,000/25,195. The market remains on course for the 76.4% Fibonacci retracement at 25,715 with the next key high at 25,980.
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