Market Overview
The dollar remains strong as yet further hawkish comments from a Fed speaker seems to be laying the groundwork for a March rate hike by the FOMC. The comments from Lael Brainard (who is generally on the dovish side) suggested that a rate hike would be “appropriate soon”. In recent days the probability of March has soared from less than 30 percent at the beginning of the week to now stand at around 66%. The Fed historically moves with the probability above 70% so as not to cause alarm, so we are getting very close. Will the comments of Fed chair Yellen and her vice chair Fischer push the probability even higher tomorrow? The yield on the 2 year Treasury briefly pushed out to a multi-year high above 1.304% yesterday and continues to test this level as bond markets appear to be preparing for a hike. The dollar has been strengthening across the majors and key levels are being broken, with the Trade Weighted Dollar Index at its highest level since 11th January as the outlook for further gains improves.
Despite previously breaking the run of higher closes on the Dow, Wall Street bounced back to have a storming day yesterday with the S&P 500 up 1.4% at 2396, whilst Asian markets were also strong as they played catch up (Nikkei +0.9%). European markets are more cautious today, trading mixed in early moves. In forex, there is a continued trend of dollar strength as the yen once more looks to be underperforming. Gold and silver are marginally lower following on from their strong performance into the close last night, whilst oil is also again lower following the report of record stockpiles in the US inventories.
After German inflation increased more than expected today the flash Eurozone CPI at 1000GMT will be keenly watched by traders. The expectation is that the headline inflation is expected to increase to 2.0% for the year from 1.8% last month, whilst the core inflation is expected to stick at +0.9%. Eurozone Unemployment data will also be eyed at 1000GMT with an expectation for the level to remain at 9.6%. Canadian GDP is at 1330GMT which is expected to be +0.9% for the quarter. US Weekly Jobless Claims is at 1330GMT and is expected to show further labor market strength at 243,000 (244,000 last week). Late in the evening at 2330GMT the Japanese CPI for January is released and is expected to show inflation improving to flat (from -0.2% last month). This could be tinged with some caution though as the Tokyo CPI for February (which tends to be seen as something of a lead indicator) is expected to drop back to flat from +0.1% in January.
Chart of the Day – Silver
Gold has corrected in the past few days and it is interesting to see that silver is yet to follow suit, and if anything is looking to break higher. Gold has been more impacted by its safe haven status, which is not so much of a drag on silver (due to its industrial uses). This is reflected in the chart which has a bull trend channel still in place and periods of consolidation are being bought into at higher levels. The market continues to consistently trade around the highs of the channel whilst it is interesting to see that the top of the Bollinger Bands are also consistently being used. This means that any move towards the 20 day moving average (the moving average around which the Bollinger Bands are calculated) which is currently round $17.95 would be a buying opportunity. This move is unlikely to be seen today with the average true range of silver currently around $0.28, but dips are still likely to be bought into with the strength of the technical momentum indicators remaining in place. The near term breakout above $18.14 is still the basis of support whilst the RSI remains strong along with MACD and Stochastics. The hourly chart shows a strong support band still in place $17.80/$17.90, with the initial support at $18.19. The trend on silver is still “your friend” and the channel continues to suggest a move towards $19.00 remains on in the next few weeks. Despite the dollar strength, little has really changed the bullish recovery outlook for silver.
The consolidation on the euro seems to be at an end as the recent bout of sideways trading has given way to renewed selling pressure. Although the four week downtrend has been tested this week, ultimately, the bears remain in control and are now pulling the price lower. A closing breach of the minor intraday lows at $1.0550 yesterday has continued lower again during the early part of today’s session and the market is continuing to eye the February low at $1.0490. With momentum indicators negatively configured, any intraday rallies are being sold into now and a test of $1.0490 seems to be imminent. A closing breach would imply a move back to test the January low at $1.0450 initially but a move back to $1.0340 is increasingly likely. The hourly chart shows a bearish bias rather than strong negative momentum however resistance is initially now at $1.0570 and strengthening at $1.0630.
The bears have now taken control on Cable as the dollar has strengthened in the past few days. Strong bear candles have been posted now on four successive days and the market has not only breached the recent support at $1.2345, but a closing break confirms the deterioration in the outlook. A test of the initial support at $1.2250 is already underway and if the run continues lower it will open up the key lows of the medium term trading range. Momentum is increasingly negative now with the RSI below 40, the MACD lines falling below neutral and the Stochastics moving into negative configuration too. Rallies will be seen as a chance to sell now. The hourly chart shows a string of lower highs and that old support is becoming new resistance. That means that $1.2345 to $1.2380 is a key near term range of overhead supply. Any move to unwind the hourly RSI into 40/50 is now finding resistance and would be a selling opportunity. Initial resistance is $1.2325.
The bulls are looking to put together a near term recovery and now with a third completed bull candle in a row, the outlook is increasingly bullish within the medium term 400 pip range 111.60/115.60. Yesterday’s move above 113.75 means that a lower high has been breached and this turned the outlook positive again. The momentum indicators are reflective of a medium term range play, and also are now turning more positive for the near term. The hourly chart shows that the key range key range pivot at 114.00 was coming under serious scrutiny yesterday and early today looks to be breaking to the upside. This adds to the positive near term outlook. The resistance of the February high at 114.95 is already open and now looks to be the next main test. Corrections that unwind to renew upside potential are being bought into, with initial support at 113.45 and 112.75, with an old pivot at 113.20. A decisive breakout above 114.00 will turn that also into a basis of support.
Gold
The recent corrective move looks simply to be unwinding gold back to the support of the ten week uptrend (today around $1233), which should ultimately provide the basis of support for the next leg higher. Yesterday’s candle is interesting as it shows that the gold bulls are still supportive and present despite the recent strong showing for the dollar that would suggest otherwise. The intraday decline to $1236.50 rallied over $12 off the low (which is more than its current Average True Range of $11.90) to leave a doji candle with a positive bias. This could even turn out to be a positive move if the bulls can sustain a close higher today. The initial reaction has so far been lower but it is interesting to see the lack of selling pressure currently. This would suggest that the bulls remain a force in the market. Momentum has ticked lower with the recent corrective move but still remains in positive medium term configuration. It should also be noted that the rising 21 day moving average (currently $1237) has again provided the basis of support. The hourly chart shows that resistance at $1250.60 needs to be breached today to re-open the upside, whilst further resistance is $1258.30/$1263.70. A break of $1236.50 opens $1231 and $1225.
WTI Oil
Oil has pulled higher in the wake of the Trump speech, whilst the EIA oil inventories report has just pulled oil back lower again (as despite a lower than expected crude inventory build, record stockpiles are an increasing concern). The uptrend of the past few weeks have been broken following yesterday’s intraday sell off and the subsequent rebound again seems to be failing above $54.00, as the market has turned lower from $54.45, with the potential for this to be another lower high below $54.60 and $54.95. . There is a lot of uncertainty still surrounding the direction of oil within the range as hourly momentum is neutrally configured. The support at $53.20 is increasingly key near term as a breach would begin to form lower highs and lower lows, so this needs to be watched. This could be an important day in the direction of the near term outlook, and whether the market once again fails around the highs of the range. Key near term support is at $52.70.
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