Market Overview
Just prior to the Easter break the dollar bulls made another move higher. Weaker than anticipated PMIs in Europe painted a picture of a continued struggle for economic traction. It also increased expectation of a need for the ECB to respond. Add in strong US retail sales number and the economic outperformance of the US continues.
Yield differentials are swinging dollar positive once more and the greenback has responded on key markets. EUR/USD back below $1.1300, and Gold falling to a four month low, in addition to Cable back below $1.3000.
Traders return to their desks after long weekend for Easter and their response to this move by the dollar could be crucial. Looking at the initial response this morning, it seems that the dollar is set to continue to move forward. However, on a day light of data, US earnings could be a driving factor, with Twitter (NYSE:TWTR) being a highlight.
Also watch out for moves on oil after the US announced the end of its sanctions waivers on Iran. Yesterday’s announcement kicked oil higher again through resistance and looks set to continue higher.
Wall Street closed a muted session very mixed last night, with the S&P 500 +0.1% at 2908. US futures are also muted this morning, waiting for a catalyst. Asian markets have been supported overnight but lack real direction, with the Nikkei +0.2% and Shanghai Composite +0.3%. In Europe, the sentiment remains mildly positive with FTSE Futures +0.4% and DAX futures +0.2%.
In forex, there is a dollar positive bias forming again, with the Aussie and Kiwi pressures, whilst the euro is a slight underperformer. The yen continues to hold up well across the majors.
In commodities, the dollar strength and broad risk positive sentiment does not bode especially well for gold, whilst oil continues to make gains after yesterday’s 3% jump on the Iranian sanctions.
A quiet start to the week on the calendar following the Easter break, at least quiet in the European morning. However into the afternoon there is a number of economic data to keep an eye out for. Eurozone Consumer Confidence at 15:00 BST is expected to improve a shade to -7.0 in April (from -7.2 in March).
US New Home Sales for March are expected to drop back to 650,000 (from 667,000 in February). Finally the Richmond Fed Composite index at 15:00 BST is expected to remain at +10 in April (from +10 in March).
Chart of the Day – EUR/NZD
We highlighted the improving outlook on Euro/Kiwi a couple of weeks ago on the breakout above 1.6630. The improvement has now moved on a couple of stages. Having broken out above 1.6630 the market has used this neckline as a basis of support. The mini base pattern implied 340 pips higher towards 1.6970. The next move in the improvement has now come with a break above resistance at 1.6850. This is a break above the February high and is the latest breach of a former lower high. With momentum indicators increasingly positively configured, corrections are a chance to buy. There is initial support around 1.6770. The next resistance is at 1.6930 which stands in the way of the December highs around 1.7100.
EUR/USD
This is an important session for the euro bulls. Today is the first real opportunity to react to the sharp downside move seen just before the Easter period. The legacy of the big bear candle is still prominent on the near term outlook and although the market posted a couple of positive sessions, significantly reduced volumes on Friday and Monday leave these moves questionable. However, today the market should be fully up to speed again, so reaction could be key. The hourly chart shows resistance of overhead supply $1.1250/$1.1280 and a close again today back under $1.1250 would be negative. Below $1.1225 would also continue the move back towards the key lows $1.1175/$1.1210.
Finally we have seen a downside break of the key support area at $1.3000 on a closing basis. This level has been defended repeatedly over a nine week period, but are the bulls now finally beginning to yield? Perhaps so, but todays reaction will be key. After the Easter break, traders will return and the significance of today’s move could be crucial. Continued closing below $1.3000 would put Cable on the path towards the old pivot around $1.2800/$1.2815. Momentum is certainly leaning that way with corrective and negative configuration across MACD and Stochastics. Breaching the four month uptrend is key on the medium term basis. Furthermore, the five week downtrend is being sold into, currently around $1.3070. The hourly chart shows resistance of overhead supply now $1.3000/$1.3030. There is also consistent corrective configuration on hourly momentum too.
Dollar/Yen has lost almost all direction. For well over a week now the market has gone almost nowhere. A string of small bodied candlesticks reflect this, as does a run of seven closes all within 15 pips. However, this comes amidst the backdrop of bullish bias still. Momentum configuration is positive even though the bulls have just lost their impetus for the time being. Corrections within what is now a four week uptrend have been bought into. Today’s early dip to 111.65 has again hit the uptrend and bounced. There is still little indication that a sustainable move lower will set in, so upside is preferred. However, resistance at 112.10/112.20 is clearly an issue that the bulls need to overcome and until they can, this is a market which will remain a real struggle.
Gold
Reaction to a move to a new four month low will be key now. In breaking below $1276/$1280 former key support, this is an area that has become overhead supply. Whilst the selling pressure may have dissipated over the Easter period, there is still a negative configuration on momentum that suggests rallies will struggle for traction. This is therefore a crucial period for the bulls. The medium term outlook has turned negative on the breach of $1276, along with a run of lower highs in the past couple of months. This would become even more so should the rising 144 day moving average (c. $1268) and rising 8 month uptrend (at $1260) were breached. The cycles of failed recoveries since the sell-off began suggests a technical rally is likely but again could struggle. The two month downtrend is at $1302, with the long term pivot band $1300/$1310 adding further resistance. The hourly chart shows initial resistance at $1290.
WTI Oil
WTI has finally joined Brent Crude in yet another breakout to multi-month highs. The move to close above $64.80 implies a mini range breakout target of $1.80 towards $66.60. Yesterday’s decisive bull candle comes with another injection of life into the bull trend. The move also means support at $63.00 is increasingly strong as a higher low. Momentum remains strong but also given the breakout, comes also with further upside potential. Intraday weakness is now a chance to buy, with the old resistance at $64.80 now a basis of support. There is minor resistance at $67.95 but the next move to develop could be towards the 76.4% Fibonacci retracement at $68.75.
After Thursday’s breakout the market collectively sat on its hands yesterday. A slight slip back at the open never really got anywhere and a doji candle was formed. However, given the recent trend higher of the past four weeks, this was just part of a consolidation and the bulls are still in control for the run towards the all-time high. Momentum indicators remain positively configured and suggest that corrections are a chance to buy. Initial support is at 26,316 but whilst the support of the April higher low is intact then the will be positivity that the run higher will continue. The four week uptrend at 26,430 is an initial gauge to watch. Initial resistance is at 26,602 from Thursday’s high.
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