Market Overview
The dollar broke out last week, but is a near term correction about to be seen?
The move on trade weighted US Dollar Index above 97.70 was a key move to levels not seen since mid-2017, but in the wake of last Friday’s blowout Advance GDP, this could be a time for taking profits (at least for now). GDP smashed expectations, but the huge beat to consensus expectations was riddled with one-offs which will impact negatively on future growth numbers. A huge swathe of inventory stockpiling bloated the number, whilst an improvement in the trade deficit comes from a big drop in imports (alluding to weaker consumption). Furthermore, muted inflation in the PCE Prices suggests that the Fed is right to have put a pin in the hiking cycle.
There are hints now of a dollar correction, with rebounds coming in EUR/USD and Cable. Gold is also ticking higher. One major pair that could be somewhat unpredictable in the coming days is Dollar/Yen. The yen strengthened into the weekend as traders looked to close short positions ahead of a ten day national holiday in Japan. With reduced liquidity the pair could be spikey, especially in a week of heavy data and central bank decisions.
Wall Street closed back higher again on Friday with the S&P 500 +0.5% at 2940. With US futures ticking higher by +0.1% Asian markets are mildly positive (Shanghai Composite +0.5%). European markets are edging mildly higher in early moves with the FTSE futures +0.2% and DAX futures +0.1%.
In forex, there is a continuation of the slip on the dollar which ended last week. The dollar is underperforming across the majors.
In commodities, there is little real direction on gold although the dollar negative move should help build gold support. In oil there is a continuation of the profit-taking that ended the price sharply lower last week.
On the first day of a busy week of data, the economic calendar looks fairly light today. The big focus will be on the Fed’s preferred inflation measure, the core Personal Consumption Expenditure. Interestingly, two months of data will be released simultaneously as the backlog on the Government shutdown is finally put to bed. Core PCE for both February and March are released at 13:30 BST. Consensus expects February month on month to be +0.2% and March month on month to be +0.1% which would pull the year on year down to +1.7%. This would be a 13 month low.
Chart of the Day – GBP/AUD
The market has been turning corrective since topping out at 1.8860 in March. Breaching a pivot around 1.8400/1.8460 in early April showed the sterling bulls were on the back foot and this is now a basis of resistance. With the market breaking a four month uptrend, a new downtrend has formed. The recent rebound hit the resistance of a six week downtrend to fall away again. This downtrend is a confluence with the pivot band 1.8400/1.8460 and looks to be a chance to sell. Friday’s negative candle looks to be renewing the move lower. Resistance around 1.8400/1.8460 is strengthening and a move back towards 1.8200 initial support should now be seen. The RSI is more correctively configured now on a medium term basis, failing around 55 in recent weeks. Add in the Stochastics and MACD lines falling over again, and the market is turning corrective again. Initial support at 1.8303.
EUR/USD
A hint of a recovery was seen on Friday. The market finding support at $1.1110 (coinciding with a June 2017 low) has seen an intraday rebound to test the overhead supply now starting at $1.1175. Within the downtrend channel of recent months, there are occasional recovery phases. Near term rallies within the medium term trend lower. The old supports of $1.1175 up to $1.1210 now provide a basis of overhead supply for the next near term rally. There are signs of positive life in the momentum indicators, with the Stochastics threatening to bottom out. However, it still all plays out within the context of a medium term negative outlook. A close above $1.1175 would be a start for the bulls. The recoveries tend to unwind to the 55 day moving average (currently $1.1280).
Thursday’s doji candle denoted a lack of immediate certainty over the trend lower. Friday’s positive candle (added 20 pips on the day) suggests a near term technical rally is coming through. This is being played into today. Stochastics and RSI have ticked back higher, whilst the hourly chart is also configured for a near term recovery. There is now a prospective unwind on Cable, with the resistance of a six week downtrend at $1.3020 today. The overhead supply of the old key support is also sizeable around $1.3000. The hourly chart shows an initial pivot of recent days at $1.2910 as an initial gauge, whilst last week’s low is supportive at $1.2865.
USD/JPY
The dollar bulls have lost their way in recent days. What had looked to be a consolidation before the next leg higher turns out to be a market that has failed at resistance. Will this now turn corrective? Breaking a four week uptrend is a concern as momentum indicators fall over. The hourly chart shows old support at 111.80 now becoming a barrier under the 112.20 pivot. However, there is no significant selling pressure yet. Another support at 111.20 has held and a key higher low at 110.85 remains the key gauge. It is also likely the ten day Japanese public holiday could take much of the volatility out of the market too in the coming days.
Gold
A strong bull candle really took hold of momentum on Friday, but is it just another chance to sell? Gold has bounced decisively from $1266 and is leaving what is now a pivot band $1276/$1280 behind. On a near term perspective, the run higher will begin to meet initial resistance at $1290 before the nine week downtrend at $1298. However, it is the longer term pivot band $1300/$1310 which will be key. Momentum indicators have ticked higher, with near term positive signals on MACD and Stochastics. The RSI failed around 55 earlier in April and this is an important gauge of lower highs. The April rally lasted around three or four sessions before tailing off again, so the bears will be keeping an eye on the reaction around key resistance levels today.
WTI Oil
Profit taking has hit oil in the past few sessions. Friday’s huge bear candle has quickly unwound the market back to the support of the four month uptrend and is seriously putting pressure on strong near to medium term technical. The higher low at $63.00 was breached intraday on Friday. Although the support held on a closing basis, the threat is mounting again today. This is the first really technically significant correction of this recovery in recent months. It also brings the market back to a key crossroads. The RSI has unwound back to 50, a level where the near term corrections have consistently found support throughout 2019. This could therefore be a key turning point where a deeper correction takes hold. Could a sell signal on the Stochastics be leading the market lower? A close below $61.80 would open a deeper correction back towards the 50% Fibonacci retracement at $59.60. Resistance is at $64.80.
The bulls have been very resilient throughout this recovery over the past few months. A feature of the trend higher has been that when a consolidation/correction sets in, it lasts for perhaps a week or so before the buying pressure resumes. The near term sell signals are simply profit triggers and actually give a better entry for the next run higher. A slip towards the end of last week breached a four week uptrend but there is little real appetite to sell. It is just a pause. Support is building now at 26,310 above the 26,062 higher low. A positive candle on Friday is looking to get the bulls back on track to break back above 26,695 and for a test of the all time high of 26,952.
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