Market Overview
Given the yield curve inversion, the renewed strength of the dollar has been remarkable. Traders seem to be positioned where whatever negative economic implications may be signalled, the US is still an outperformer. Therefore, sell everything else over the dollar.
US final Q4 GDP was revised back to +2.2% which was lower than expected, but with US Jobless Claims falling away again, Treasury yields bounced for the first time in several days and the dollar maintained a position of strength.
There are suggestions that there is room for give and take still in the US/China trade dispute and this has helped to support US equities too. Given the strength of the dollar and a rebound on US equities, this puts pressure on gold, with the yellow metal dramatically falling out of favour yesterday. This now runs the risk of being a decisive outlook changer if the support at $1276 is broken.
Over in the Brexit bubble of Westminster, UK Prime Minister May is set to get her Withdrawal Agreement (minus the Political Declaration this time) voted on for a third time in Parliament today (at 14:30 GMT). Expectation is still for a defeat, but supposedly this is going to be much tighter this time around. Without the support of the DUP and some of its own backbenchers, the government will be relying on around 20 to 30 opposition MPs to come over. A tough ask. The way that sterling sank yesterday, it seemed as though there was a feeling that this could be moving towards a general election if this vote does not pass. In this scenario, it would be sterling negative (unless there was a vote close enough to get an MV4?). As ever, Brexit uncertainty is likely to continue.
Wall Street closed tentatively higher with the S&P 500 +0.3% at 2815, whilst US futures are a shade higher again today, currently +0.2%. The Asian markets looked very strong overnight, with the Nikkei +0.8% and the Shanghai Composite +3.1%. European markets are following US markets with FTSE 100 Futures +0.4% and DAX futures +0.5% higher.
In forex, there is a degree of unwind on the dollar but also with a risk positive feel. Sterling has clawed back some of its losses from yesterday, as has the euro, with the Aussie and Kiwi outperforming.
In commodities, gold remains under pressure whilst oil continues to hover.
Sterling traders will be eyeing developments in Parliament, but will also be keeping one eye on the lookout for the size of the UK Current Account deficit at 09:30 GMT today. Expectation is that the deficit in Q4 2018 will have reduced to -£23.09bn (from -£26.5bn in Q3 2018). The UK final Q4 2018 GDP is also at 09:30 GMT and is expected to remain at +0.2% (+0.2% at the second reading) with the year on year GDP at +1.3%.
The Federal Reserve’s preferred inflation measure, the core Personal Consumption Expenditure (core PCE) is at 12:30 GMT and is expected to grow by +0.2% in January which would keep the year on year reading at +1.9% (+1.9% in December).
The final March reading of Michigan Sentiment is at 14:00 GMT which is expected to be confirmed at 97.8 (97.8 prelim, 93.8 in February). New Home Sales are at 14:00 GMT and are expected to improve to 625,000 in February (from 607,000 in January).
Chart of the Day – Silver
The prospect of a recovery in silver has been dealt a significant blow in the past few sessions. The market has been moving gradually higher over the past couple of weeks but with three consecutive decisive bear candles the recovery has been smashed. Taking the stairs up but the elevator back down? A massive bear candlestick from yesterday now puts the market in for a test of the key neckline breakout of $14.90. This means that silver is on the brink of a significant deterioration in outlook. The concern for the bulls is that there are now a series of bearish signals on momentum indicators, with the RSI failing at 50, MACD lines crossing lower below neutral and another bear cross sell signal on Stochastics. All of these indicators also have downside potential. The March low at $14.96 held the initial test of support yesterday and again this morning, but how the market responds into today’s close will be key. There is a pivot band around $15.10/$15.15 which is a basis of resistance now for an intraday recovery today. Unless the bulls reclaim this pivot, then the $14.90 support will remain under pressure. A close below $14.90 opens $14.45.
On the breach of $1.1300, the fear has been for the market to slip back towards the recent lows of $1.1213 and $1.1175 again. With momentum indicators corrective, this is being seen. Yesterday’s traded low was $1.1212 before an early bump higher this morning. There is still a corrective bias and a sense that intraday strength is a selling opportunity. This is with the run of lower highs and lower lows that have formed throughout January. A move below $1.1175 seems to be preferred under this continuation. The hourly chart reflects this run of weakness, with a downtrend of the past six sessions coming with the hourly RSI failing consistently between 50/60 and hourly MACD failing under neutral. There is minor resistance at $1.1260/$1.1285, whilst $1.1300 is once more a key gauge.
After a period of uncertainty Cable traders began to take more interest yesterday. A decisive bearish candle has broken the recovery uptrend of the past 12 weeks and seen a close below the rising 55 day moving average for the first time since mid-January. Coming with the sliding medium term configuration on momentum indicators (RSI the lowest since mid-Feb, with MACD and Stochastics falling away), this move is a concern for the medium term positive outlook now. The key gauge for sentiment remains $1.3000 on a closing basis, and yesterday’s strong move has not breached this as support. However, bulls will be keen to rebound above $1.3100 again quickly (an old pivot). For now the hourly chart shows that this move is just a warning, and the momentum indicators are looking to unwind some of the move lower. However, initial support at $1.3030 needs to hold now. Above $1.3100 opens $1.3200 again.
Despite the strong dollar move across forex majors, it was interesting to see little real traction against the safe haven yen. There is still a degree of uncertainty over the outlook as the dollar struggles under 111.00 pivot area. The daily momentum indicators are an uncertain bunch, with the RSI hovering a shade under 50, MACD lines flattening at neutral and a recovery in Stochastics just tailing off. Given the recovery in the past few sessions, there is a very slight positive bias that is pulling the market to test 111.00, however, given that this is a recovery into a clutch of flat moving averages, there is little real conviction now. Support at 109.75/110.00 is growing, but can the bulls find upside traction?
Gold
A massive bearish candle has completely shifted the outlook once more. There is now a very real risk that if this move continues, there could be a huge bearish head and shoulders top pattern formation. The failure of support with the pivot band $1300/$1310 significantly turns the outlook negative again and now the key lows from January/March between $1276/$1280 are now crucial. Coming with a sharp deterioration in momentum indicators, the impetus is now to sell into strength. The bear cross sell signal on the Stochastics, MACD lines crossing lower and RSI below 50. This now means the RSI is close to the mid-30s which is where the March low came, something that will be a key gauge. The hourly chart shows an acceleration below $1300 which is now a key overhead resistance on a recovery. The continued weakness early today does not bode well for the bulls.
WTI Oil
The bulls are still hanging on to their positive outlook, but after a choppy session there are now question marks over the longevity of the move higher. With yesterday’s doji candlestick with a long lower shadow, the risk is that the sellers are now testing the water. The reaction in today’s session could be crucial in this. After two sessions where the sellers have been prominent but failed to grasp control, another negative session today would really ramp up the pressure. However, taking a step back, the market has again held on to the $58.00 medium term pivot support, whilst also forming an uptrend dating back to the December low (although they are consistently being redrawn shallower). The pivot at $58.00 is also increasing in importance. This is also taking place around the 50% Fibonacci retracement at $59.60 which is a consolidation point that the market seems to be consistently gravitating around now. Resistance is building at $60.40. Momentum is holding up OK, although is teetering on the brink of a near term negative slant, with MACD lines threatening to cross lower and a small negative divergence on RSI. How the market breaks this mini consolidation between $58.00 and $60.40 on a closing basis will likely be directional.
Although the market closed higher again on the session, this was the fourth very indecisive candlestick in a row for the Dow. Around 170 ticks of daily rage (the Average True Range is closer to 270) whilst an almost doji candle and very muted trading leaves the Dow still in a state of uncertainty. There is a very mild positive bias, with the RSI moving above 50 and Stochastics rising again, but this is characterising the medium term outlook which is increasingly neutral over recent weeks. Wednesday’s high of 25,796 is initial resistance under the March high of 26,110. Initial support is 25,425 above 25,372. The hourly chart flat moving averages also reflects a lack of direction for now.
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