Market Overview
With the US on public holiday for Martin Luther King Day, there was little to protect the dollar from another day of selling pressure yesterday. Normally with US public holidays there will be a day of consolidation, but such has been the sentiment against the dollar recently, traders just picked up where they left off last week. However, with Treasury markets back open today, perhaps there is an opportunity to reverse course to an extent.
Early moves today as the European traders take over have shown the dollar clawing back some of its recent losses. Some profit-taking perhaps, or just a slowing of the selling pressure? Beleaguered dollar bulls will probably take whatever they can get right now. There is little US economic data in the coming days that can drive a substantial reversal. Hawkish comments from ECB Governing Council member Ardo Hansson, should also help to underpin the euro to an extent too. Hansson suggested that the ECB could end its Asset Purchase Program in one step in September. Some of the respite for the dollar has come overnight with Japanese PPI coming in at 3.1% which was below 3.2% expectations and well down from 3.5% last month. This has meant the yen underperforming this morning.
UK inflation data could be a key factor in whether this dollar rebound continues this morning.
Wall Street was closed yesterday but the Asian markets have had a boost overnight with the weaker yen and Wall Street futures looking strong for today’s open (Nikkei +1.0%). However, European markets again look cautious in early moves as the strength of the euro and sterling remain a headwind for the DAX and FTSE 100.
In forex markets, we see the dollar mildly positive across the majors today as at least some of the recent losses are being unwound. How long this lasts though is the question.
In commodities we see the gold rally also stalling slightly and oil also consolidating.
UK Inflation is top of the agenda today with the release of UK CPI at 09:30 GMT. Traders will be looking out for headline CPI to drop back to +3.0% (from +3.1%) amidst signs of inflation peaking. Core CPI is also expected to +2.6% (from +2.7%), whilst it will also be interesting to watch out for the PPI Input prices which is expected to drop back to +5.4% from ++7.3% as the speed of the unwind of sterling depreciation is felt.
The New York Fed Manufacturing data at 13:30 GMT is expected to show a flat reading of +18 (from 18 last month) which would still be strong. Also look out for comments from the SNB’s Thomas Jordan who is speaking at 17:00 GMT.
Chart of the Day – GBP/AUD
Can sterling turn the corner again against the Aussie? The corrective move from 1.7995 seemed to have formed key support again last week as the market picked up sharply having bottomed at 1.7095. However a key medium term pivot around 1.7365 has increased in importance in recent months and is now a key barrier overhead to the recovery. Since late October the market has consistently either consolidated or found turning points around 1.7365, especially on a closing basis. Friday’s candle intraday spiked through the pivot but again could not hold the upside break. Now with the market failing around the pivot yesterday (and again this morning), the issue over this being a key indicator for GBP/AUD has again played out in forming a negative candle. However the market does still look to be threatening a turnaround as the selling pressure has slowed into 2018 and the momentum indicators are beginning to show a much more positive configuration. The Stochastics are now accelerating higher having been positively diverging in the past week. Also the RSI is at a four week high, but needs to push above 50 to really suggest the sterling bulls are ready to take control. A close above 1.7365 would be key and the market also needs an intraday move above Friday’s spike high of 1.7430. This would turn the outlook far more positive. However, for now the market remains uncertain, with the MACD lines having flattened off. A close back below 1.7210 would be disappointing with the downside re-opened below 1.7095.
The incredible run higher is still in process. The euro remains strong as another positive candle formed yesterday and as yet, the bulls seem reluctant to give anything back today. However after such a strong run higher the market could easily begin to come under some near term profit taking which could see some of the gains be unwound. There is currently little sign of any dropping back, and momentum indicators remain very strong. However the RSI is now hitting the mid-70s which is extremely high historically and a level around which in July began to see a mild corrective drift back. The key breakout of the old September high around $1.2090 is the key support area now for a pullback, however that is almost 200 pips back. There are further levels with the 50% Fib level at $1.2165 which could play a role whilst the hourly chart shows minor support $1.2185/$1.2200. Initial resistance is in place with yesterday’s high at $1.2295 but the next key resistance is not realistically until $1.2600.
Cable is also still very strongly configured and even following a minor intraday drop back from yesterday’s high, the market remains supported today. Momentum indicators are still very strong with the RSI, MACD and Stochastics lines all tracking higher. Yesterday’s high is initial resistance at $1.3820 which is just below the next barrier from 2016 at $1.3835, however the way towards $1.4000 is reasonably clear now. Cable is set up in a similar manner to the euro, in that momentum is extremely strong but after such a run higher the market is increasingly susceptible to some near term profit-taking for a drift back towards the breakout at $1.3655. There is little sign of this so far, although watch initial support at $1.3725 on the hourly chart as an initial gauge of profit-taking coming in.
There has been very little sign of a dollar recovery across the major pairs, but perhaps there is one on Dollar/Yen. This comes as the market has rebounded off yesterday’s low at 110.30 and has unwound further this morning. The RSI is bouncing around 30 and exactly how the bulls react to this move will be very interesting now and could tell us a lot about the outlook for the dollar in the coming weeks. If the market begins to fail around the resistance of the old breakdown levels at 110.85/111.65 then this would be seen as a mere pullback rally and another chance to sell. It would need a close back above 112.00 to really suggest the bulls had some traction in a recovery. The hourly chart shows consistently that intraday rallies are being sold into and the hourly RSI failing around 60 and MACD lines failing around neutral are reflective of this. For now, continue to use strength as a chance to sell.
Gold
After another positive close last night the gold bulls continue to eye the key September high at $1357.50. However bull runs very rarely move in a straight line and there are signs of a possible consolidation again. Yesterday’s bull candle just leaves the element of doubt open, with a close in the bottom half of the day’s range. This comes with the RSI around 75, a point at which the early January rally started to stall. This could easily mean a minor pullback again to the now five week uptrend which comes in today at $1327. The hourly chart shows a consolidation drift taking hold as the market begins to unwind a touch. There is a pivot support near term at $1325 now which is the previous breakout. Corrections remain a chance to buy on gold.
WTI Oil
The market remains supported, however the reaction today will be key, given the jump in the US rig count (which should be a negative impact for oil) on Friday. Throughout the course of the four week uptrend there have only been three negative sessions. This has meant that the momentum indicators are incredibly strong with the RSI around record levels. This could have a limiting impact on the immediate upside potential of the bull run, however it still seems to be that the bulls are happy to leap on any intraday correction. Friday’s dip to 63.05 has left initial support to watch. As for the upside, there is a basis of old resistance around $70.00 however we are still in the retracement of the precipitous decline of late 2014 which left little resistance in its wake. The 50% Fibonacci retracement of the June 2014/February 2016 massive bear market of $107.75/$26.05 comes in at $66.90.
I am not sure about a “melt up”, but the bullish move on the Dow in the early weeks of 2018 has been utterly incredible. Yet another strong bull candle with a bullish upside gap and a close near the high of the day. This is just an incredibly strong market, with momentum indicators pushing ever higher. The RSI is in the mid-80s and the highest since October but there is no sign of any stopping this market. There is gap support at 25,575 that in theory needs filling, however how high will the market go before the retreat to fill this gap is seen? The market is though now trading outside the 2.0 standard deviation Bollinger Bands and this could begin to limit the move early this week. An 8 week uptrend is supportive at 25,165 today, with the parabolic SARs at 25,061. The market is open again today having been closed for Martin Luther King Day public holiday yesterday.
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