Market Overview
According to Chinese vice Premier Liu He there is a “new consensus” on trade between the US and China, whilst President Trump added that “we’ll know more in four weeks”. This helps to underscore the rebound in risk appetite that has been building since early this week. However, it is not quite the game changer that markets have been looking for, as much seems to be priced in already.
Despite this though there is a tracking higher on Treasury yields now which is helping to support equities in their breakout to six month highs. This is showing through moves on forex majors this morning with the safe haven yen underperforming.
The dollar tracking higher against the yen is a good indication of this continued gradual improvement in risk. However, with today’s Non-farm Payrolls in mind, there is an air of consolidation still through forex majors. With the dollar still seen as the best of a bad bunch amongst major forex, there is added important on tier one US data now. In this period of sliding inflation, US earnings growth continuing to strengthen continues to help US consumption which is around 70% of the US economy.
Will payrolls today continue to paint this picture? Aside from the risk positive bias on forex today, the choppy consolidation on sterling is the one real mover. Sterling has swung back higher again after yesterday’s weakness, but in the context of ongoing uncertainty over Brexit, taking a step back shows there is little real direction of note.
Wall Street closed solidly higher yesterday with the S&P 500 +0.2% at 2879, whilst US futures are another +0.1% today. This has helped Asian markets higher (Nikkei +0.3% and Shanghai Composite +0.9%).
Forex majors show that there is a risk positive bias to markets this morning, with the yen being the main underperformer, whilst the dollar is also slipping. The Aussie is an outperformer, whilst sterling is also gaining ground.
In commodities, the risk positive outlook is pulling gold lower, whilst the correction on oil over the past couple of days continues to act as a drag.
Non-farm Payrolls are the big focus in the economic calendar today as the US Employment Situation for March is released at 13:30 GMT. The headline Non-farm Payrolls will always garner the initial reaction and are expected to recover back to +180,000 from February’s negative surprise of +20,000. It will be interesting to see any revisions to last month’s number, whilst the March data is expected to be around the level where payrolls are expected to settle through the latter stages of 2019 (around 150,000/160,000).
The Average Hourly Earnings growth is another key element of the report and is expected to remain strong with growth of +0.3% in March to keep the year on year growth at +3.4% (+0.4% in February and +3.4% YoY). The drop back in US Unemployment (U3) to 3.8% in February is expected to be maintained at 3.8% in March, whilst U6 Underemployment will also be worth keeping an eye on having dropped back to 7.3% last month. The strength of the labor market is also tempting people back into the market with the labourforce participation rate at a 5 year high of 63.2% last month.
Chart of the Day – EUR/NZD
For months the euro has been underperforming against a relatively very strong Kiwi, but this performance looks set to be turning around. The sharp Kiwi decline in the wake of the dovish rhetoric from the RBNZ seems to have induced a change of outlook. The long term downtrend on EUR/NZD has been broken and the improvement in momentum is beginning to develop. There is a near term gauge for this change in sentiment with the resistance at 1.6630. Through the past three months there has not been a breach of a lower high. However a close above 1.6630 would break this sequence and complete a small four week base pattern. The recovery target would be 340 pips of implied upside towards 1.6970. Momentum indicators are improving and closing in on a confirmatory breakout, with a “bull kiss” on Stochastics which are at three month highs, whilst RSI into the mid to high 50s would also be a three month high. Yesterday’s positive candle brings the prospect of a breakout today into focus. There is a higher low at 1.6430 above the key low at 1.6290. Furthermore, the hourly chart shows initial support at 1.6525 and more positive configuration on hourly momentum (RSI above holding 40, MACD lines holding above neutral). Intraday weakness is a chance to buy, whilst the prospect of a recovery remains intact whilst the support at 1.6430 does.
After looking set up for a potential recovery, yesterday’s negative candle would have been a disappointment for the bulls. However, all is not yet lost. There is still an upswing in process for the Stochastics, whilst the RSI is above 40. Today’s initial basis of support is also helping to steady the ship again. The hourly chart continues to show that near term resistance $1.1250/60 is important as it marks the prospect of a small recovery base pattern. However, the support of yesterday’s low at $1.1205 realistically needs to hold now, otherwise the key $1.1175/$1.1180 will come under renewed pressure. The hourly momentum indicators are reasonably well positioned for the bulls still. The outcome of today’s payrolls report is likely to be a defining moment for the near term outlook.
We highlighted the fact that during this phase of consolidation above $1.3000 on Cable, there has been a tendency for rallies to last a few days only to then roll over. Yesterday’s 75 pip decline on the day risks just that happening. Leaving resistance around $1.3200 a three week downtrend has formed as another lower high seems to now be in place. There seems to be a squeeze now underway between what is now identified as a near four month uptrend closes in on this three week downtrend. Initial support is at $1.3060. Momentum indicators reflect this consolidation with the MACD lines effectively back to neutral, RSI hovering around 50 and Stochastics tailing off again. The hourly chart is suggesting to continue to play the range today as the market has swung back higher from yesterday’s weakness. Approaching payrolls there is a 200 pip band between $1.3000 and $1.3200 for support and resistance of any real note.
There is an ongoing positive bias on Dollar/Yen albeit very mild. This comes as the market edges higher into a test of the resistance levels left during March. Between 111.70/112.10 there is resistance that the bulls need to breach in order for this recovery to gain real traction. There is a steady improvement that is being seen across momentum indicators, with the Stochastics now pulling above 80, RSI into the 60s and MACD lines just gradually pulling higher from a bull cross. This is reflected on the hourly chart with the consistent run of higher lows and positive momentum configuration. Initial support at 111.20/111.30 is now a gauge for the bulls losing their control. Above an old pivot of 112.20 would really open the way higher towards 113.70/114.50.
Gold
The bulls survived a scare yesterday as a test of the key support at $1280.70 held firm. However, this is a big red warning light flashing now for the crucial medium term support band $1276/$1280 which protects a significant breakdown in gold. The negative bias is threatening to take over again as the period of consolidation that has held for much of this week seems to be breaking down. This comes with momentum indicators which are edging correctively still as the MACD lines fall further below neutral and the Stochastics remain stuck in bearish configuration. The daily chart shows yesterday’s session actually formed a bull hammer, but unless this is confirmed by a positive session today (a close above $1294) it is difficult to see this as a recovery signal. However, whilst this support band at $1276/$1280 remains intact then the bulls continue to have a fighting chance. The initial resistance at $1294.40 now needs to be breached for an initial improvement but essentially the bottom of the long term pivot band at $1300 remains key resistance. The hourly chart shows selling into intraday strength, with 60 limiting the hourly RSI. This means that the overhead barriers to recover are growing too. A close below $1276/$1280 would complete a multi month top pattern and seriously damage the medium to longer term recovery outlook.
WTI Oil
With momentum indicator becoming stretched, the run higher has just been stalling in the past couple of sessions. A couple of mildly corrective candles have prevented what had been a move towards the $63.60 resistance and the 61.8% Fibonacci retracement at $63.70. The RSI has just pulled back below 70 (a basic profit-taking signal) and this could induce a period of consolidation or even correction now. Previously when the market has been stretched this has seen WTI pulling back by $2/$3 (the February and March consolidations showed this) before the bulls used corrections as a chance to buy. The hourly chart needs to be watched with the support band $61.60/$62.00 which is holding for now. If this is breached then a retreat back into the $59.60 (50% Fib level) to $60.40 (previous breakout) support band could set in. Initial resistance is at $63.00.
Having struggled to replicate other major equity markets this week, the Dow finally broke out above resistance to trade at 6 month highs yesterday. A solid positive candle into the close took the market above resistance at 26,278 and now opens a full retracement to the all time high at 26,952. There is a positive configuration on momentum indicators, if not entirely confirming the breakout. The Stochastics are tailing off a touch and MACD lines are hardly accelerating higher. This leaves us a little bit wary of the breakout which should be met with a healthy degree of cautious optimism. The hourly chart shows good near term support at 26,110.
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