Market Overview
The US dollar took a hit in the wake of the dovish Fed monetary policy shift last week but after a run of positive data on Friday which helped to settle nerves surrounding the US economy the dollar bulls found legs again and this has continued into Monday.
Reaction to a very strong Nonfarm Payrolls report seemed a little unsure as the recent Government shutdown means that much of this positive surprise could easily be revised away. However, the upside surprise and strong improvement in the ISM Manufacturing comes at a time where other economies have been really struggling. The sense that the US economy is still holding up is helping to support the dollar early this week. The reaction has been for a decisive jump in Treasury yields and a dollar rebound. Yields are holding up this morning and it is interesting to see the Dollar/Yuan (offshore) rate rising strongly again today. This is often a good indication of dollar strength across currencies.
The fact that it is Golden Week in China could also play into this move. The dollar rebound is negative for gold today, whilst another of the safer haven plays, Dollar/Yen is also being impacted as the yen comes under pressure.
Wall Street edged higher into the close on Friday with the S&P 500 +0.1% at 2706, whilst US futures are a shade above neutral today. Asian markets are responding to the risk positive US data, with the Nikkei +0.5% and Shanghai Composite +1.3%, whilst Europeans come into today’s session somewhat more circumspect given the FTSE Futures are a few ticks lower and DAX futures a few ticks higher.
In forex, there is a continuation of the mild dollar positive bias, with the yen being the main underperformer.
In commodities, this dollar rebound is playing out through a bout of profit-taking that has set in on gold, whilst oil is all but flat.
It is a relatively quiet day on the economic calendar. The UK Construction PMI is at 09:30 GMT (accounts for around 7% of the UK economy) and is expected to slip a touch to 52.6 (from 52.8 last month). The US Factory Orders for November (delayed by 28 days) are at 15:00 GMT and are expected to show monthly growth of +0.2% (-2.1% in October).
Chart of the Day – AUD/JPY
There has been a real battle over recent weeks, with a perception of risk appetite fluctuating. It is therefore interesting to now see that Aussie/Yen is tracking higher. The old resistance band 78.55/79.00 has now been cleared with three consecutive closes above 79.00. This is opening the way for continued recovery towards 80.50 which is the next pivot. This comes with the market now using 78.55/79.00 as a basis of support for buying opportunities. The momentum indicators are increasingly improving now, with the RSI confirming the breakout and rising at multi week highs, whilst the Stochastics have swung higher, and both have upside potential. On the hourly chart there is increasingly positive configuration where corrections are finding lows on hourly RSI around 40 and the MACD lines have crossed higher around neutral. There is little real resistance until the 80.50 pivot. Support at 77.50 is now a key higher low.
After Thursday’s run higher failed to ignite the bulls above $1.1500 (again) there is a sense of consolidation one more within the range. This comes with the past few sessions which seem to again be gravitating towards the pivot at $1.1420 once more. Trading above the pivot does though mean that there is still a mild positive bias within the range, although progress does seem to be restricted. Momentum indicators are rolling over in positive configuration to depict this very well, with the RSI plateauing a shade above 50, similar the MACD lines a shade above neutral, whilst the Stochastics are also rolling over. A move back below $1.1420 sees the bulls lose their edge again, whilst below $1.1390 and the range turns negative for $1.1300. The hourly chart shows little sense of direction again.
Cable has unwound back towards a pivot at $1.3050 which has often played a role in recent months and has, in the past week, again become prominent. In the past five sessions, $1.3050 has been tested and held as a basis of support. However, the deterioration in the technical signals is beginning to mount. With the four week uptrend now breached, momentum is falling over. The MACD lines are on the brink of a bear cross, whilst the Stochastics are beginning to track down below 80 for a near four week low. A close below $1.3050 is not disastrous for the bulls but it would suggest that the rally phase is over. There is a basis of support at $1.3000 and then at a pivot of $1.2920 and $1.2815, so there is plenty of underlying demand to protect sterling. However, a decisive political shift on Brexit could be a game changer than needs to be watched for. Resistance initially at $1.3160 is weighing below the recent rally high of $1.3215.
A jump back into riskier assets in the wake of the (supposedly) strong Nonfarm Payrolls report but also the stronger ISM data on Friday has helped bulls of Dollar/Yen. A phase of corrective drift has been halted by a strong bull candle on Friday which has taken the market back above 109.10 (what has become s sort of mid-range pivot) and once more to have a look at the key near to medium term resistance at 109.75/110.00. What is interesting with this move, is that the RSI is now back above 50 and is around 7 week highs. With the Stochastics crossing back higher above 50, this could be a signal for an upside break. This morning’s gains are clearly helping to add fuel to this prospect. A close above 110.00 opens 111.35 as the next key pivot. Momentum on the hourly chart also reflects that there has been a bull shift in sentiment with strong positive configuration on hourly RSI, MACD and Stochastics signals. The support of a higher low in the 225 pip range is in at 108.50 above 107.75/108.00. There is also the mid-range pivot at 109.10 which is a basis of support and this morning’s low of 109.42.
Gold
After such a strong run higher (around $45 higher in a week at its peak), we saw the bull run begin to deflate a touch on Friday. This move has continued into this morning as some near term profit-taking has set in on gold. However, a slip back would certainly not be a negative development, as long as the bulls don’t let the momentum get away from them. The long term pivot range $1300/$1310 is now a basis of support that the bulls will be eyeing for their next opportunity. Momentum indicators have been strong, but are now threatening to roll over. This is though still coming within strong medium term configuration where corrections will be seen as a chance to buy. The support of the 10 week uptrend comes in at $1287 today and there is certainly room for a healthy correction with the bulls still in control. The hourly chart shows the run higher has been forming a negative divergence in recent days and hints at the loss of momentum. There is good support on the hourly chart at $1308.50.
WTI Oil
There is still a positive bias to WTI with the support of the six week uptrend still tracking the market higher. With Friday’s positive candle this continues the run of multi-week closing highs as the pressure mounts on resistance at $54.75. A close above the resistance is opening $58.00 as the next pivot, however the 38.2% Fibonacci retracement of the bear market is still a possible barrier at $55.55. Momentum indicators remain broadly positive with the RSI around 60, and MACD lines tracking higher above neutral. It is still worth watching the Stochastics which have been dropping back in recent weeks, but whilst these are not decisively falling, it is difficult to see this as especially negative. There would though be a degree of caution needed whilst Thursday’s intraday high at $55.35 remains a barrier. However the bulls come into the new week in a positive mood.
There is a continued run higher that has come as the Dow has once more looked to push forward in the past few sessions. The gap higher early last week from 24,675 remains open but there is a sense that the bulls are already looking ahead. Another close above the 61.8% Fib level of 24,950 is helping to build the momentum, with the indicators such as the RSI (above 60), MACD lines (rising above neutral) and Stochastics (positive above 80), all strong. It all suggests continued buying into weakness on the Dow. There is near term breakout support at 24,860 and the Fib at 24,050 leaving a band of initial “buy zone”. The next resistance is 25,715 which is the 76.4% Fibonacci retracement and then the 25,980 December high.
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