Market Overview
With bond yields dropping back this morning there has been a degree of corrective pressure building on the US dollar to start the week. There has not been any real catalyst behind the move, but there could be an element of a payrolls hangover to consider. Whilst headline jobs growth seemed decent in March (and a good recovery from a terrible February), the decline in wages will have come as a disappointment and certainly will do little to change the course of a patient FOMC. The US 10-Year yield is now 5 basis points back from Friday’s high and back under 2.50% again.
Trade talks between the US and China seem to be progressing well but without the wow factor, there could be an excuse to take a step back on risk.
Gold is higher, the yen gaining, yields lower and equities futures are off. Not a great combination to get the bulls going on a Monday.
UK politicians will continue on Monday to find a way through the roadblock on Brexit which has, as yet, proved to be insurmountable. Furthermore, as the week progresses, attention will turn to how another extension of Article 50 is dealt with both in the UK and in the EU Council.
Wall Street closed positively with the S&P 500 +0.4% at 2893, but US futures (-0.2%) are giving back some of these gains this morning. Forex majors show a broadly weaker dollar (yen, sterling and euro all in recovery) whilst a mild risk negative vibe too (Aussie and Kiwi off).
In commodities, a weaker dollar and risk negative equates to a gold rebound to a one week high, but still needs to overcome the $1300 barrier. Oil is once more finding the appetite to push higher.
It is a quiet start to the week today on the economic calendar. The only real entry of note are the US Factory Orders for February which are expected to decline by -0.6% on the month (+0.1% in January). Given the context of a +1.6% reading in February 2018, this could be a concern.
Chart of the Day – EUR/GBP
There has been a recovery on Euro/Sterling as sterling has slipped and the euro is beginning to see performance turn a corner. This rally has pulled the market back to test a three month downtrend but also the key overhead supply band at £0.8615/£0.8690. With the RSI again recovery towards 50 (an areas where February and March rallies floundered) this suggests that the market is flirting with a crossroads early this week. A close above £0.8650 would be a two week high but also begin to break the downtrend but also the falling 55 day moving average (currently £0.8650) which has been a basis of resistance for three months. The hourly chart shows an improvement in the momentum of the recovery but still not quite positive. A near term pivot support at £0.8555 is supportive initially and a failure would resume the EUR/GBP negative configuration.
The euro bulls will be looking at the run of higher lows in the past few sessions and believe that they are beginning to build the foundations of support again. The band between $1.1175/$1.1210 is holding and it is interesting that selling pressure has been unable to make headway. Negative candlesticks in the past two sessions have failed to ignite the next bear leg lower. Momentum indicators are holding ground, with the RSI above 40 and Stochastics ticking higher. The hourly chart shows that resistance at $1.1250/60 needs to be broken to engage a recovery move. This would mark a small base pattern and imply 70/80 pips of rebound. The old key floor at $1.1300 would be initial resistance. The hourly RSI building decisively above 60 would be a signal to watch for building recovery momentum. For now it is a wait and see game.
Since Cable broken out above $1.3000 in mid-February, there have been ten occasions where the market has dropped back to test this breakout, only for the bulls to use it as a buying opportunity again. There seems to be a staunch defence of this support. Once more on Friday there was another test which survived, however, the rallies are getting lower and lower, whilst the momentum indicators are slipping closer towards a corrective configuration. There is a downtrend of the past four weeks at $1.3175 today, whilst a convergence with a four month uptrend at $1.3010 is closing in. The RSI is edging closer towards 40 and a breach would be a negative sign, with near term rallies increasingly failing at lower levels. Until there is a closing breach of $1.3000, this has to be treated as a near term range play. But, a decisive breach would open a new phase of trading back towards $1.2800 area. Initial resistance at $1.3120.
For several sessions the market has been posting very mild positive candles inside the 111.70/112.10 resistance, without managing to pull a position of strength. The bulls ned to negotiate their way through this batch of resistance to open 113/114.50. However, an early morning decline today is again questioning the potential for a trending move to take hold. The RSI is quickly dropping away, whilst the Stochastics are close to a sell signal and all at a point where the MACD lines have barely got going in positive territory. The hourly chart shows this is now going to be an important reaction in today’s session. If the dollar bulls do not respond today then a corrective outlook will develop. Support at 111.20 is a key near term level to watch. A breach would suggest the market has topped out near term. The next support is 110.50/110.80. Initial resistance is 111.80 now.
Gold
A couple of intraday dips towards the $1280.70 support have been bought into in the past couple of sessions to maintain the recent consolidation which sits around $1290. This appetite to support above the crucial medium term support band $1276/$1280 is encouraging for the bulls, and this morning’s move above $1294 adds to this. Now they need a close above $1294 and a decisive test of $1300 in order for a recovery to be looked upon as a serious prospect. This is turning out to be a crucial phase of trading for gold as a closing breakdown below $1276 would have significant negative medium term consequences. The hourly chart shows that something could be building for the bulls. Generating decisive momentum above 60 on the hourly RSI suggests they are beginning to find traction for a recovery. Friday’s low at $1284 is initial support.
WTI Oil
In recent months, when WTI has become stretched the market has formed a period of consolidation. The latest move higher seems to be made of stern stuff as the bulls have come back in again. After a very brief consolidation, the market is once more pushing on and is now testing the next resistance zone at $63.60/$64.50. This is the next key test, being a confluence with the 61.8% Fibonacci retracement at $63.70. Momentum remains strong but stretched and any consolidations/corrections seem to be consistently used as the next chance to buy. Initial support at $61.90 now.
The Dow moving clear of the 26,277 old key November high should be an opportunity to open the door towards the all-time high at 26,952. However, this still seems to be a move that has the handbrake still applied. Friday’s session was a “doji” candlestick where the market opened higher but could never really get the buyers to push on. Momentum indicators are still positive, with the RSI in the high 60s, MACD lines rising, but Stochastics rolling over need to be watched. There is nothing overly worrying for the bulls at this stage and the hourly chart is positively configured. However, there are a couple of nagging doubts that if they persist, could restrict the run higher towards 26,952 which is the next resistance. Support is at 26,110/26,277.
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