Market Overview
The dollar has clawed back some of the considerable losses of the Fed induced sell-off from Wednesday, however, is this the start of a remarkable dollar recovery again? Major yield differentials look key to the moves for the dollar right now. A sharp move lower on Treasury yields on Wednesday drove the initial reaction on the dollar. However, as Treasury yields stood still yesterday, this was followed by subsequent sharp moves lower on the yields of Bunds, Gilts and JGBs, allowing the dollar some respite.
The flash PMIs this morning could be a crucial indicator as if the Eurozone shows signs of continuing to bottom out on its economic surprises, then the differentials could continue to point towards a rally on EUR/USD.
With the UK avoiding (for now) the panic of a calamitous Brexit next week, with the extension to the Article 50 deadline granted, we should also see Gilts also picking up in relief. A negative surprise in Japanese inflation overnight has not helped JGB yields and hence why Dollar/Yen is holding up today. However, looking at gold, the corrective move has so far been considered as a chance to buy, even though Wall Street equities have turned sharply higher again. As markets begin to settle this morning, the dollar is beginning to weaken again and likelihood is that yesterday’s rebound is another chance to sell still.
Wall Street closed with strong gains as the S&P 500 jumped 1.1% to 2855, although US futures are a shade lighter today by -0.1% Asian markets have been mixed overnight with the Nikkei just +0.1% and the Shanghai Composite almost dead flat. This cautious theme has rolled into European markets today with the DAX futures +0.1% higher but FTSE Futures are lower by -0.4% as the negative correlation with a sterling rebound is hitting this morning.
In forex, on what looks to be a cautious open the dollar is beginning to slip lower again, sterling is an outperformer after the EU-27 agreed to extend the Article 50 deadline a little further, whilst the Kiwi is also stronger. In commodities, gold and silver are both bid again, whilst oil is consolidating around the flat line.
Flash PMIs are in focus for traders today, with PMIs across the Eurozone throughout the morning culminating in the Eurozone flash Manufacturing PMI at 0900GMT which is expected to improve slightly to 49.5 (from last month’s 49.3) with Eurozone flash Services PMI to slip slightly to 52.7 (from 52.8 in February) with the Flash Eurozone Composite PMI at 52.0. The US flash PMIs are at 1345GMT and are expected to show a mixed bag with the US flash Manufacturing PMI ticking higher to 53.6 (up from 53.0 in February) but US flash Services PMI to stay at 56.0 (56.0 in February). US Existing Home Sales are at 1400GMT and are expected to improve by 2.2% to 5.10m (from 4.94m in January).
Chart of the Day – EUR/CHF
A remarkable acceleration lower on Euro/Swiss has come as the Swiss franc held ground yesterday amidst a one day correction on the euro. This has resulted in a decisive breach of key support on Euro/Swiss at 1.1305 which has completed the downside break of a triangle consolidation that has taken place over the past seven weeks. The move which has been confirmed on momentum indicators with the RSI breaking to a 10 week low and the MACD lines breaking below neutral. The downside implied target is for a test of the mid-January lows 1.1245/1.1255 but a retreat to the 2019 low at 1.1180 could easily now be seen given the momentum deterioration. How the market responds to a rebound will now be key though. The old support at 1.1305 now becomes a basis of resistance and the early rebound today suggests the euro bulls are fighting back. Will this last though? The hourly chart shows a close back above $1.1340 resistance would improve the outlook.
EUR/USD
After the strong run higher in the wake of the FOMC decision, the euro bulls were dragged back down to earth yesterday with a strongly corrective candle. How the dust settles on the moves of the last couple of sessions will be key. Taken on a net basis, the dollar is still corrective in the wake of the dovish surprise from the Fed. The initial knee-jerk reaction ay have been a little too far, but it seems as though the dollar is still under pressure. Hence why we see yesterday’s move unwinding into a band of support around $1.1350 to rebound again. Technically, there is still an improvement in the momentum indicators with the RSI above 50 whilst MACD and Stochastics continue to climb. The run of higher daily lows in each of the past ten sessions also continues, meaning that yesterday’s reaction low at $1.1340 increases the importance of this support. The hourly char has unwound back into an area where signals have renewed potential within their positive configurations. There will still be regard given to the pivot at $1.1420 as a barrier overhead, with resistance at $1.1450 protecting $1.1500 again.
Volatility remains elevated on Cable as Brexit newsflow is still the main driving force. Yesterday’s sharp move lower hit the key psychological and pivotal level at $1.3000 and bounced in the wake of news of an extension to the Brexit deadline. Technically there has been another big intraday move lower which has bounced off the confluence of support around the rising 55 day moving average and 11 week uptrend. Momentum indicators are still in a near term unwind phase within their medium term positive configurations. The importance of bouncing off $1.3000 is that this is a broad indication that a the market continues to expect a benign outcome from Brexit. On the hourly chart, a move above $1.3150 opens a pivot at $1.3200 before $1.3250 swings back into play. Initial support is at yesterday’s closing level of $1.3100.
USD/JPY
A sharp move lower on Wednesday really looked to be shifting the outlook negative once more. However the key higher low support at 110.25/110.35 held and the bulls hung on yesterday to form a very mild positive candle. This means that there is still the prospect that this is still just a correction within the shallow uptrend channel. The support at 110.25/110.35 will remain key to this outlook. Momentum indicators are still looking corrective though and there is uncertainty over the support formed yesterday as the market consolidates today. The hourly chart has a corrective configuration still with hourly RSI failing under 60 and MACD lines failing under neutral. Reaction to resistance around 110.75/111.15 will be an interesting gauge today.
Gold
Although the dollar managed to claw back some lost ground yesterday which pulled gold lower, the breakout above $1310 on Wednesday was a key move which should now leave corrections into the $1300/$1310 long term pivot band as a chance to buy. Given yesterday’s unwind into the band found support at $1303, before ticking higher again, the bulls will still be comfortable within this outlook. The uptrend support of the past couple of weeks comes in around $1303 and adds to the basis of support within the $1300/$1310 band now. Momentum indicators are on an improving path now, with the Stochastics accelerating higher from a bull kiss and MACD bull cross too. Intraday corrections are a chance to buy now. A move below $1298 would be disappointing now.
WTI Oil
A day of consolidation has done little to change the continued improvement in the outlook for WTI. The breakout above the medium term pivot at $58.00 and subsequently through the 50% Fibonacci retracement at $59.60 suggests that this should be seen as a consolidation area for a retreat now. The move above $58.00 was key and now means an area of underlying demand is left between $58.00/$59.60 which would be a near term buy zone. Momentum indicators remain positively configured and with the strength of the trend, there is little reason not to expect further upside potential despite the RSI being above 70 now. Trading clear of the 50% Fib opens 61.8% Fib at $63.70 whilst the next key price resistance is at $63.60. Any unwinding move into $58.00/$59.60 will be eyed.
Given the previous session’s reaction to the FOMC decision, yesterday’s bullish engulfing candle was a very positive subsequent response. An initial slip was bought into to leave support at 25,658 and the bulls closed above the previous session high. For now at least this move has stabilised momentum indicators which had threatened to turn corrective. If the market can now build on this move and close back above the mid-March high of 26,110 then the bulls would be back on track again. However, for now there is a fairly mixed look to momentum on the daily and hourly charts and this has been a fairly choppy week for the Dow. It now comes with increasing importance of support at 25,658 and resistance at 26,110.
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