Market Overview
The dollar has just begun to lose its way again after the recent rebound rally has started to slip away. This comes amidst the recent uncertainty over the progress in the US/China trade talks, the ongoing US Government shutdown and concerns over the global slowdown have continued.
Treasury yields which had been pulling decisively higher previously are now stuttering (yield differentials had certainly been helping the dollar rally previously). This loss of dollar recovery tracking is noticeable in the fact that EUR/USD has begun to find support (around $1.1340), gold has ticked higher (from support at $1276). However these economic concerns are a drag on global sentiment and also means that the oil rally has stalled, in conjunction with less encouraging outlooks to the rebounds on global equities.
This puts extra emphasis on the flash PMIs for the Eurozone and US today. PMIs are seen as early indicators of growth, so any continued deterioration would be harmful for market sentiment. Eurozone flash PMIs imply that GDP for the region is on a run rate of around +0.1% per month. This is a level which means it is highly likely the ECB will need to shave their growth forecasts and they could struggle to continue a move towards (necessary) normalisation.
Don’t expect any fireworks from Mario Draghi this afternoon. A cautious hand will remain on the tiller. There is one major currency performing decisively strongly, and that is sterling which is benefitting from moves in the House of Commons to usher a move towards a softer form of Brexit. It will be interesting to see how far this short covering can go. Once the US Government shutdown finishes and we can get CFTC data again, perhaps we can find out.
Wall Street closed marginally higher with the S&P 500 +0.2% at 2639, whilst futures are a shade lower this morning at -0.1%. This has driven once more a mixed session in Asia (Nikkei -0.1%, Shanghai Composite +0.4%) with the mildest of gains in European markets this morning.
In forex, there is a lack of direction amongst majors, although there is notable weakness in the Aussie after concerns over rising mortgage rates.
In commodities, there is a consolidation on gold, whilst silver is marginally lower and oil is around half a percent weaker.
There will be some very important announcements with the flash PMIs for the Eurozone and US but also the ECB today. The Eurozone flash PMIs are first up at 0900GMT with Eurozone flash Manufacturing PMI expected to remain steady at 51.4 (51.4 final December) with Eurozone flash Services PMI expected to tick a shade higher for the first time since September to 51.5 (from a final 51.2 in December) with the Eurozone flash Composite PMI expected to come in at 51.4from a final 51.1 in December.
The ECB will be posting its monetary policy decision at 12:45 GMT which is expected to show no change on rates with -0.4% deposit rate and 0% main refinancing rate. Mario Draghi’s press conference is at 13:30 GMT. US Weekly Jobless Claims are at 13:30 GMT and are expected to increase to 220,000 (from 213,000 last week).
US flash Manufacturing PMI is at 14:45 GMT and is expected to show a mild dip back to 53.5 (from a final 53.8 in December) whilst US flash Services PMI is expected to slip back a touch to 54.1 (from a final reading of 54.4 in December).
The EIA oil inventories are a day delayed due to MLK Day on Monday and are at 16:00 GMT expected to show crude oil stocks again in drawdown of -0.3m barrels (-2.7m last week) whilst distillates are expected to drawdown by -1.0m barrels (+3.0m last week) and gasoline stocks building by +2.5m (+7.5m last week).
Chart of the Day – EUR/CHF
The Swiss franc has come under pressure recently as broad market sentiment has improved which has impacted positively on Euro/Swiss. The corrective downtrend dating back to July 2018 has been broken and the market has rallied up to the pivot around 1.1350. This is now a key crossroads for the outlook. The RSI is hovering again between 50/60 (an area where the bulls have struggled within the downtrend), whilst the MACD lines are straining a shade above neutral and the Stochastics are close to a sell signal above 80. A close above the 1.1350 opens a move to the lower reaction high at 1.1430 and effectively completes a 170 pips base pattern to targets a recovery towards 1.1520 (effectively a test of the key October high and resistance around $1.1500). However, after numerous failed tests in November and December, is this the time where the pivot resistance is broken? The last two candles have been marginally negative and the move this morning is also not encouraging for the bulls. It is interesting to see a negative divergence on the hourly RSI and MACD lines, which suggests the bulls are waning. A decisive breach of initial support at $1.1300 would see the bulls lose momentum in the recovery.
EUR/USD
The momentum of the selling pressure has dissipated and EUR/USD is now beginning to show signs of a potential turnaround again. This comes as the market has ticked higher from the shallow uptrend support (today at $1.1340) to leave a potential higher reaction low at $1.1333. It is interesting to see momentum indicators bottoming out in areas where the buyers have tended to regain control in recent months too. The RSI holding above 45, MACD lines plateauing around neutral and the Stochastics also bottoming. Yesterday’s positive candle was the first really encouraging move since the correction back from $1.1570 kicked in, however there is an increasingly prevalent pivot at $1.1420 (shown best on the hourly chart) which needs to be overcome in order for the bulls to really regain a footing in this market. The hourly chart shows RSI far more positively configured than it has been for weeks, whilst hourly MACD lines above neutral is also encouraging. Initial support at $1.1370/$1.1375 holding as a pivot this morning.
The dollar rally has lost its way at the same time that the market is really pushing sterling higher, equates to Cable on a decisive breakout. Whether this is merely short covering or not, there is clearly support now for the pound. Using a pivot at $1.2815 as a basis of support, a very strong bull candle has driven the market through the previous rebound high of $1.3000 to now open the November high at $1.3175. The impressive feature of this move is the ever strengthening momentum, with the RSI in the mid-60s, the highest since September. MACD and Stochastics are also bolstering their strength too. There is now a basis of support at the $1.3000 breakout with a previous pivot at $1.2920 giving a support band $1.2920/$1.3000 now. There is an element of consolidation this morning as the hourly chart settles, but an unwinding move is now a chance to buy. Initial resistance at today’s high of $1.3095.
Last week’s dollar rally has just lost its way for the time being and although the outlook for near term recovery is still favourable, there is a potential now that the market for Dollar/Yen drifts into consolidation mode. A spike higher during yesterday’s session hit the psychological 110.00 and backed away. Unless this level can be taken out today, it risks becoming an increasing resistance. Hourly momentum is marginally positively biased and there is a move against the yen this morning which is ushering the market higher initially. However, the uptrend of the recovery was broken on the hourly chart yesterday and the bulls need to respond quickly otherwise the historic pivot around 110.00 will grow as resistance.
Gold
Holding on to the key near term trading range support at $1276 has maintained the positive outlook on gold, however, the continuation of this support is by no means guaranteed. There is still a seven week uptrend intact but only just, and the momentum indicators are still threatening a corrective move to drag the market lower. Yesterday’s negative candle does little to settle the nerves that the bulls will be feeling now. The hourly chart shows resistance mid-range around $1286 which is a pivot to watch now. Hourly momentum rolling over maintains the slight negative bias on gold within the $22 range of the past three weeks. A close above $1286 would be needed to improve the outlook within the range once more and then open a move towards the high at $1298. For now though this is a range play.
WTI Oil
With yesterday’s mild negative candle, there is the threat of a loss of direction in the oil price. This comes after Tuesday’s negative candle was a shot across the bows for the bulls. Although there is a continuation of the trend higher over the past four weeks, the momentum indicators are beginning to see some of the bullish impetus seep away. With the support of the trend line at $52.20 today, the support of Tuesday’s low at $51.80 will take on more of an important near term signal. However, whilst the medium term recovery remains intact above the higher low at $50.40 (which is also around the 23.6% Fib at $50.50). Resistance at $54.25 is growing, with yesterday’s high initially a barrier at $53.65.
There are signs this week that the exuberance of the early January rally may now be dissipating. Tuesday’s decisive negative candle was the first in over two weeks, however broke a recovery uptrend. A subsequent doji candle (although the market closed higher on the day, the open and close were within a couple of ticks) formed yesterday and this implies a degree of uncertainty. Suddenly the bulls are not quite so confident. For now, momentum indicators are holding up well and retain their strong configuration. However, the resistance at 24,750 is in place now and needs to be broken to re-generate impetus. The bulls will certainly point to the 50% Fib level at 24,333 which is now a basis of support, and only a close below Tuesday’s low at 24,244 would really usher more of a corrective move. Above 24,750 opens 25,000.
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