Market Overview
With the Fed officials having drummed up expectations of tighter monetary policy in the past few weeks, the dovish tone that accompanied the rate hike at Wednesday’s FOMC meeting has changed the outlook of the market on the dollar. Whether this near term move seen over the past couple of days that has seen key markets such as EUR/USD, Dollar/Yen and gold breaking through key levels, turns into a more considerable move against the dollar will be determined in the next few sessions. Yesterday’s tick higher on the 2 year Treasury yield held on to the key breakout above 1.300%, with The 10 year yield pulling higher from 2.486%. This morning’s market moves seems to be reflecting a cautious tone to forex and commodities, and there is a very minor dollar rally as the Europeans take over control, however nothing yet to suggest the corrective move has run its course.
Wall Street was quiet with a slight pullback on the S&P 500 of -0.2% to 2381. Asian markets also showed caution with the Nikkei -0.4%. European markets are set up in a similar vein today with a slightly softer open. Forex markets show very little direction having been derived from the Asian session. Sterling seems to be a mild underperformer as gains from yesterday, in the wake of Kristin Forbes, a lone dissenting voice on the MPC who voted for a rate hike in the Bank of England rates decision. Gold and silver are all but flat, as is oil.
After the hectic flow of key economic announcements in the past couple of days, today is a fairly quiet close to the week. The European session is rather bereft of announcements, so the US Industrial Production at 1315GMT is the first real focus. After a monthly drop of -0.3% in January, February month on month industrial production is expected to grow by +0.3% which would improve the year on year growth back closer to flat again. The capacity utilization is also expected to improve to 75.5 (from 75.3). The University of Michigan Sentiment flash reading is at 1400GMT and is expecting to improve to 97.1 from last month’s upwardly revised 96.3.
Chart of the Day – Silver
Has silver now formed another medium term key low? The market rallied sharply on the back of the FOMC decision but it is interesting that the rebound hit the buffers quickly after less than a day with a reaction high at $17.56 before dropping back intraday to close near the day low. The old pivot around $17.25 has been an important turning point for the market over the past six months and will once more be seen a key gauge for the recovery. The intraday drop yesterday has initially found this to be supportive and this will be a level to now watch. This comes with the bull cross on the daily Stochastics which has yet to confirm a near term “buy signal”. The support of the recent corrective move formed around $16.80 which was close to the $16.89 level which is the 23.6% Fibonacci retracement of the $21.10/$15.59 bear market move. A close back below $17.25 would re-open the 23.6% Fib level again. This look to be a market that is forming a medium term consolidation now with the RSI again bottoming in the low 30s, whilst the importance of the support around $16.80 is growing. Initial resistance is now at $17.56 and then the 38.2% Fib level at $17.70 which is also a pivot during February.
EUR/USD
The euro has continued to build on the gains formed in the wake of the dovish Fed rate hike. The breakout above $1.0710 has changed the near term outlook to a more euro positive configuration and yesterday’s candle was a good confirmation of this. Old resistance becomes new support and the breakout above $1.0710 subsequently became a basis of new support during yesterday’s session. The rally to close towards the highs of the day also put the bulls in control for today. The daily momentum indicators are increasingly positive with the Stochastics rising in strong configuration, the MACD lines now above neutral and the RSI rising above 60. Intraday corrections will now be seen as a chance to buy with the resistance band $1.0800/$1.0850 now well within range. The hourly chart shows support in the band 1.0710/$1.0750 to use as the basis of support today.
The outlook for Cable has significantly improved in the past couple of sessions with another strong bull candle yesterday. The move is now into the overhead supply between $1.2345/$1.2385 which was the range of lows posted during February. That makes this a key near term crossroads. The momentum indicators are improving with the MACD lines having crossed higher, the Stochastics now rising strongly and the RSI back to 50, so the near term technicals have certainly picked up. However, rallies have consistently been used as a chance to sell. The hourly chart reflects the improvement and there has been a consolidation around this area of overhead supply. Initially $1.2345 is acting as a basis of support and a breakout above $1.2385 opens the next resistance at $1.2485. I would be concerned for the bulls if the rally begins to run out of steam as the consistent run of lower key highs suggests that the market remains bearish on Cable in the medium term. Below $1.2345 support is $1.2300 and $1.2250.
The medium term range remains firmly intact as the dollar has suffered in the past couple of sessions. The market is now trading broadly in the middle of the range now but having broken below support at 113.55 and with the momentum indicators rolling over the momentum has started to deteriorate. The MACD lines are crossing lower and the Stochastics continue to fall. Yesterday’s almost doji candle has added a little uncertainty into today’s session, however the resistance band 113.55/114.00 will be seen as near term key. The hourly chart shows that near term momentum has now unwound and sellers are likely to be tempted now between the overhead supply of the old support at 113.55 and the medium term pivot at 114.00. Support is initially at 112.90 which is protecting 112.50 but the shift in the outlook suggests that there is a bearish bias now within the range again. Above 114.00 would change the outlook.
Gold
The near term bulls are still in control as gold continues to hold above the resistance which is now supportive around $1220. The momentum indicators have picked up decisively with the Stochastics having given a bull cross buy signal but it would be interesting to watch the RSI and MACD lines now. This is a move that needs confirmation across the momentum indicators, which has not yet been seen. A close above the 23.6% Fibonacci retracement around $1230 would also be a positive indicator, especially with the failure of yesterday’s high at $1233. The hourly chart points to further resistance at $1236 whilst the longer term chart shows the old key level around $1242, so there is plenty of resistance to get through to keep the momentum going.
WTI Oil
The bulls had a disappointing day with the candle closing so far off the day high of $49.60. However the bulls have not entirely lost their way in this prospective recovery as the base pattern on the hourly chart remains intact, whilst trading back above $48.90 would help to maintain the breakout. The concern though or the bulls is that this is still just a near term blip to the upside that will struggle to break back above $50 again which was seen as a key floor previously and will now be an area of overhead supply. The tendency is to see rallies towards $50 now as a chance to sell and this high at $49.60 could be a part of that. The bears would regain control on a move below $49.15.
The Dow looked to gain traction on the back of the FOMC last night with the bulls breaking a two week downtrend and pulling higher once more within the four month uptrend. However, the bull leg is spluttering a touch with a mild retracement candle formed yesterday. The momentum indicators have slowed their corrective move following Wednesday’s bull candle but once more the Stochastics are still just unable to make the cross higher that would be a confirmation signal for the renewed upside impetus. The support at 20,870 will be seen as a level to watch near term as this was the market just prior to the Fed announcement. The main support remains 20,777/20,786 and a higher low above there would still be seen as a positive for the prospects of the next bull leg. Resistance is now in place near term at 20,997, but a move back above 21,018 would re-open the all-time high at 21,169.
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