Market Overview
The dollar remains under pressure as markets look ahead to today’s Non-farm Payrolls. Weak US data and political risk have been key factors behind the weakness on the dollar. Both factors played a role yesterday as the dollar suffered on the back of disappointment in the ISM Non-Manufacturing and the announcement that the investigation into Russia’s involvement with Trump and the election widened. The Non-farm Payrolls report will take on added importance, not only for the trend of weak US data, but also the more specific component of wage growth. With unemployment at such low levels, will wages begin to pick up again? The Fed seems to be fixated by the Phillips Curve and a lack of wage growth is hampering the intent to raise rates.
Wall Street closed mixed yet again, and yet again it was the Dow posting another new all-time high, whilst the S&P 500 seems to be more reticent to rally, closing -0.2%, whilst the weaker dollar impacted negatively on Asian markets with the Nikkei -0.4%. European markets marginally lower in early moves.
In forex, in front of the payrolls report there are little moves of any significance.
In commodities, gold is $1 or 0.1% higher, whilst oil is marginally lower on renewed supply concerns.
Non-farm Payrolls will be the big focus for the market today as the US Employment Situation is released at 13:30 BST. Non-farm Payrolls tend to get the headlines and are expected to drop to 183,000 (from last month’s 222,000) however, average hourly earnings growth is the real focus for the market. Expectation is for +0.3% for the month which would hold the YoY reading at +2.5%, however the market (and more pertinently, the Fed) would want to see traction as it would be a feed through to inflation. This would be the reading that would drive the dollar higher. Unemployment is expected to drop to 4.3% (from 4.4%) but also the U6 underemployment will be watched with its rise last month to 8.6%, a drop lower would suggest there is still slack in the labour market and question the Phillips Curve again. The US Trade Balance is also at 13:30 BST and is expected to improve slightly to -$45.0bn (from -$46.5bn).
Chart of the Day – Silver
The rallies on gold and silver have run strongly in the past few weeks, but the price of silver has rallied back to what looks now to be a key crossroads from a medium term basis. Since the price started to fall back from $18.65 in April there has been a sequence of lower highs, and the market has threatened to roll over once again. Throughout 2017 the rallies on silver have tended to last around 4/5 weeks (as they have also done on gold for that matter), however as silver is coming to the end of its fourth week, the rally is being questioned again.
This is coming at the confluence of a downtrend that links the April and June highs, whilst also at a pivot of the past two months at $16.90. Interestingly, the Stochastics have been dropping away now for over a week, the MACD lines are threatening to do the same around neutral and the RSI is failing again in the low 60s. Yesterday’s candle was positive and has helped to leave support at $16.42. This now means on Payrolls-Friday there are two key levels to watch, especially on a closing basis. A close below $16.42 would open a correction and suggest $16.00 again. Whilst a breakout on a closing basis above $16.90 would be bullish and seemingly break the shackles of the failing rallies.
With the dollar remaining weak there seems to be little sign of any let up in the strength of the rally on EUR/USD. Momentum indicators remain strongly configured whilst the trends all remain intact. Yesterday’s candle may have been very small but there were gains on the day and the slight gains are being seen again today. The pair is still on course to test $1.2000, which would be open again should the resistance at $1.1909 be cleared. There is a caveat though, with Non-farm Payrolls announced today. The CFTC market is long euros at record levels and this means that a strong payrolls report could give rise to a covering correction. The support of a three week uptrend comes in at $1.1765 today but the main three month uptrend is at $1.1465. The hourly chart is as positively configured as the daily chart with corrections being bought into and support at higher levels. Support is at $1.1830 and $1.1785.
A sharp bearish engulfing one day candlestick pattern has changed the sentiment on Cable. However, the initial knee-jerk reaction needs to be confirmed, and as yet there have not been any decisive confirmation signals that a correction is underway. The market remains above the breakout support band at $1.3050/$1.3125, whilst the support of the six week uptrend remains intact at $1.3090 today. Momentum indicators are suddenly ticking lower but have not yet posted any corrective signals, however the Stochastics are close to confirming a bear cross and a move on the RSI below 50 would also be a concern for the bulls. A second consecutive bear candle today would validate yesterday’s move and would really begin to seriously question the bull control, however the support levels are key here. The hourly chart shows a bull market having unwound but needs further weakness to gather momentum for a correction. Resistance is now $1.3187 and $1.3265.
The dollar bulls will have been hugely disappointed that once again the first hint at a recovery was so quickly snubbed out. Yesterday’s strong bear candle has once more entirely wiped out the move to recover on Tuesday and Wednesday. An intraday move to another multi-week low simply maintains the selling pressure, whilst the momentum indicators retain bearish control for rallies to be sold into. The resistance is now bolstered in the 110.90/111.00 range. The market continues to shape for a move to the 50% Fibonacci retracement of 100.07/118.65 at 109.35, whilst the June low at 108.80 remains the next test. The hourly chart shows rallies being sold into. It is Non-farm Payrolls today and Dollar/Yen tends to be a volatile pair on the report. It would need a close back above 111.00 to suggest a recovery may be viable.
Once more the pivot around $1260 seemed to do its job yesterday as a basis of support. The rebound from yesterday’s low at $1258.20 has maintained the support of the four week uptrend which today comes in at $1259. The momentum indicators remain strong and early moves today suggest the market is being supported again. However there is a feeling that the resistance at $1274 needs to be taken out on a closing basis in order to end the recent consolidation. The hourly chart looks to be moving into a range bound formation. This could all just be the build up for payrolls though and there is likely to be some decisive direction into the close today.
WTI Oil
Oil has moved into a phase of uncertain trading. Yesterday’s negative candle continues a run of contradictory candles in recent days and the importance of the near term support at $48.37 is growing. Furthermore, the potential for yesterday’s high at $49.95 to be a lower high below $50.43 is growing. Momentum indicators are tailing off as this consolidation is setting in but as yet there have been no explicit sell signals. The hourly chart also reflects this consolidation phase and the importance of $48.37 as a breach would complete a small top pattern. The announcement of Non-farm Payrolls could easily be a factor in where the market goes near term.
Despite pushing into another new all-time high, is the run higher on the Dow running out of steam? A consolidation yesterday started to form with the market all but flat on the day. This is with the RSI extended around 75 and the Stochastics flattening off. Interestingly, the entire session took place inside the 2.0 SD Bollinger Bands and this suggests that the bull move is losing impetus. The gaps are still open and yet to be filled at 21,841 and 21,941, whilst an 8 session uptrend was also breached yesterday. It is interesting to see the hourly momentum indicators beginning to track lower. If the hourly RSI drops consistently below 60 with the hourly Stochastics falling below 60 this would be a near term profit-taking trigger.
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