Market Overview
A lack of traction, turning into a mild dollar negative bias in recent days has been maintained after a deluge of key data and announcements yesterday. A slip in core CPI and a set of FOMC minutes which confirmed the Fed’s dovish lean has resulted in the path of Treasury yields beginning to roll over again. Although European yields also dropped away on a dovish ECB meeting yesterday, yield differentials are still pulling dollar negative. How Bund yields respond to the prospect of tiering in the ECB’s deposit rate in the coming weeks will be key.
The Fed minutes showed that the “majority of participants” were looking towards leaving rates unchanged for the rest of the year. The US/China trade dispute continues to show progress (albeit slow) with an apparent agreement over how to police the agreement. The closer the two sides come to a final agreement, the more the dollar will find outperformance restricted. Whilst the forex moves are all rather slight at this stage this could turn to limit the dollar in the time to come.
There has been limited move across forex majors today, with data out of China giving plenty to ponder. Driven by increasing food prices, Chinese inflation jumped back higher in March with CPI up to 2.3% (CPI +2.4% exp, +1.5% last). This was a shade under expectations, but with the PPI increasing to +0.4% (+0.4% exp, +0.1% last), it suggests that economic activity in the world’s second largest economy is beginning to pick up. Fiscal and monetary stimulus to combat the trade dispute and cyclical slowdown could be beginning to have an impact.
The overnight news on Brexit is that the EU Council has granted a six month flexible extension to Article 50 until 31st October. This was half the extension previously suggested and sterling is muted in response. Although the uncertainty is prolonged, limiting upside, the flexibility and likely move towards a softer Brexit should help to underpin sterling.
Wall Street closed slightly higher last night with the S&P 500 +0.3% at 2888, with US Futures around the flat line today. This is pulling mixed moves in Asia (Nikkei +0.1%, Shanghai Composite -0.9%). In Europe the markets are following the prospect of a cautious open in the US, with FTSE futures and DAX futures a touch lower.
In forex, there is very little move on the major currencies, with a slight correction on the Aussie and Kiwi. In commodities, gold and silver are mixed, whilst oil is a shade lighter after yesterday’s record levels of inventories in the US.
There is little to impact on European traders in the calendar this morning, so we look towards the US PPI at 13:30 BST which is expected to remain at +1.9% (+1.9% in February). US Weekly Jobless Claims are expected to tick higher to 211,000 (from the record lows of 202,000 last week). It is also worth keeping an eye out for various Fed speakers today with FOMC’s Richard Clarida (permanent voter, centrist) at 1430BST, Williams (voter, leans hawk) at 14:35 BST, James Bullard (voter, dove) and Michelle Bowman (permanent voter) at 2100BST.
Chart of the Day – AUD/USD
The performance of the Aussie has turned a corner throughout the major forex crosses. It is at a near term crossroads against the US dollar and is looking to make a bullish break. Since October there has been a pivot around $0.7150 that has frequently been used as a near term turning point for the market. This has also formed the basis of a mid-range pivot between support at $0.7000 and resistance at $0.7300. As momentum indicators improve, a stronger Aussie has broken above $0.7150. The RSI and Stochastics moving to 2 month highs confirms this, and the MACD lines rising above neutral is also encouraging. Yesterday’s decisive bull candle showed the Aussie again outperforming. A close above $0.7160 has confirmed the move which opens initial resistance at $0.7200 (Feb high). However the January high at $0.7300 comes back into range too. A move above 60 on RSI would really suggest the bulls were gaining solid control. Intraday corrections are now a chance to buy. The hourly chart shows holding a move above $0.7130, a near term pivot, maintains an improving outlook, with a near term buy zone $0.7130/$0.7150. Yesterday’s low at $0.7105 is a higher low above $0.7085.
The ECB meeting seems to have been a bump in the road for the prospect of a euro recovery, but for now little seems to have changed. An intraday spike lower quickly found support at $1.1230 (another higher low) only to unwind back above $1.1260. Closing with a positive move on the day, we see momentum indicators continuing to gain ground. With Stochastics and MACD lines pulling higher from bull crosses, the next step is RSI rising decisively above 50. The hourly chart shows a small base pattern above $1.1255 implies 75 pips of recovery into the $1.1320/$1.1340 resistance. Hourly momentum is also positively configured now. Holding a move above $1.1290 initial resistance would be another step forward in the recovery. There is now a good band of support $1.1230/$1.1250.
With an Article 50 extension to 31st October granted and sterling holding on to the support and at $1.3000, the consolidation continues. A drift higher in the past few sessions is now moving to test the four week downtrend which comes in at $1.3140. As momentum indicators hover around very neutral positioning, this is again set to be a crossroads moment. The market is though becoming rather benign as the Average True Range drops back to 109 pips. The Average True Range over the course of the past 12 months has been around 110 pips, so this is back to “normal” levels. Initial resistance is $1.3120 but to find real traction a move above $1.3200 is needed. The hourly chart shows a very slight positive bias in the past few sessions, but essentially still within a ranging market. Initial support at $1.3030 above $1.3000.
A third consecutive negative session has confirmed Dollar/Yen as a medium term range play. Floundering in the resistance band 111.70/112.10 under the old November/December lows suggests the bulls are still limited. Momentum indicators are drifting back towards neutral positioning. The RSI is hovering around 50 and MACD lines have lost direction above neutral. The hourly chart shows a pivot around 111.20 has turned from support into resistance limiting immediate upside. Hourly momentum is mildly negatively configured with hourly RSI failing under 60 and MACD under neutral. Pressure on initial support at 110.80 is growing, whilst a mini top pattern implies 110.60. The bulls need a move above 111.60 to regain the initiative.
Gold
As the dollar performance has continued to slip, we saw gold performing well once more yesterday. Another positive candle, with another move to a two week high, a move that is holding above $1300. This comes as the MACD lines post a bull cross, the Stochastics continue to rise and the RSI is above 50. The near term outlook continues to improve. However there still needs to be a closing break above $1310 which has been a long term pivot and is resistance. This was tested yesterday but just could not hold the move into the close. Another test will be seen today. The hourly chart shows that the market needs to continue to hold above 50 on the hourly RSI and above neutral on the hourly MACD lines. Initial support is at $1300 (also the long term pivot) as a run of higher lows continues. A closing breakout above $1310 opens $1324 which is the key lower high.
WTI Oil
The run higher has just hit the brakes in the past couple of sessions. A larger than expected EIA crude inventory has played into this. However, this looks to be a pause for breath for now. The outlook remains very strong with the RSI above 70, Stochastics above 80 and MACD lines rising above neutral. A consistent run of breakouts in recent weeks suggests buying into weakness. Initial support is at $63.00 of the $61.90/$63.00 support band. The hourly chart shows positive momentum configuration, with the hourly RSI holding above 40. Whilst the hourly RSI holds above 30 there will continue to be a positive near term outlook on oil for further gains. Above $64.80 the next resistance is at $66.00/$67.80.
A session of limited move which does little to provide any real clues to direction. Yesterday’s 110 tick range was half the Average True Range of 225 ticks, suggesting a very forgettable session. With just the slightest close higher (7 ticks) this was also all but a doji candle (which reflects uncertainty). Momentum indicators show that there is a tempering of the positive configuration but as yet this is not turning into a corrective move. Stochastics are drifting lower and need to be watched, but whilst the RSI remains above 50, this current slip is something of a drift lower. It comes with the market still broadly holding in the range of the old breakout highs between 26,110/26,277. The market is also trading above all the moving averages which are rising. A move below the 76.4% Fibonacci retracement at 25,715 would be a worry, but for now this move is fairly benign. Resistance is at 26,487.
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