Market Overview
After more than a week of anticipation, Donald Trump has finally pulled the trigger on the next phase of trade tariffs on Chinese imports. A 10% tariff on $200bn worth of imports from China will come into force on Monday, whilst this 10% will rise to 25% on 1st January. Trump also talked about moving to “phase 3” (putting tariffs on the remaining $267bn of Chinese imports) if China were to retaliate.
Sentiment on equity markets has been hit, but reaction elsewhere, in forex and bond markets is intriguing, especially for the dollar. The normal course of events has been for dollar strength to be the primary move when rhetoric is ratcheted up in the US/China trade dispute. However, this morning we see the dollar is trading lower across all the forex majors other than the Japanese yen. Interestingly, the Chinese yuan is steady, whilst the Aussie and Kiwi (commodity currencies) are performing well today.
Treasury yields fell back initially but have reclaimed earlier lost ground. Should this reaction remain the case and the dollar fails to find traction in this tariff escalation, it plays further into the argument that the dollar bull run has already played out.
Wall Street closed lower last night with the S&P 500 -0.6% at 2889 but early moves on futures for today are fairly steady. Asian markets have been remarkably positive despite the trade dispute escalation with the Nikkei +1.4% and the Shanghai 'B' up 1.0%. European markets are strongly lower in early moves. It will be interesting to see if there is a recovery as the session progresses.
In forex there is a lack of dollar strength as the euro is outperforming, whilst there is strength in the Aussie dollar.
In commodities there is a marginal weakness on gold whilst oil is slightly lower too.
Today is light on the economic calendar other than the US NAHB Housing Market Index at 15:00 BST which is expected to slip back to 66 from 67 to continue the monthly decline seen throughout 2018. Aside from that, early in the European session there will be a focus on a speech from ECB President Mario Draghi who is speaking in Paris.
Chart of the Day – USD/CHF
The Swissy has been steadily strengthening against the dollar for the past couple of months. Since breaking down below 0.9785 (which completed a top pattern that implied a move back to 0.9500 over the coming months), the market has been continuing to use rallies as a chance to sell for the move towards the target. Yesterday’s bear candle was also the latest move back to multi-month lows and completed a breakdown from a smaller range of 125 pips and which implies 0.9515 in the coming weeks. Momentum indicators confirm the negative outlook, with Stochastics swinging lower into bear configuration again and the MACD lines set for a potential bear kiss. The caveat would be that a rally from here would risk a potential positive divergence on the RSI. The hourly chart shows initial resistance is 0.9630 with resistance from yesterday’s high at 0.9680. Rallies remain a chance to sell. Next support is at 0.9575 and then 0.9530.
A strong start to the week for the euro bulls and a decent reaction to Friday’s slip back. The move is again back around $1.1700 and setting up for a test of the key overhead resistance of the highs between $1.1735/$1.1745. However, for now, this remains a range play and the momentum indicators reflect this. The market needs to start to build consistent upside traction around here otherwise the momentum indicators could begin to roll over (Stochastics are already threatening). That makes the support of the past two sessions at $1.1615 increasingly important now. The hourly chart shows a base of support with improving momentum indicators, but there needs to be a greater degree of momentum to bring about this breakout above $1.1735/$1.1745.
Having broken the resistance of the four month downtrend, the outlook continues to improve. Posting a solid positive candle yesterday has taken the market once more to multi-week highs and is now set to test the resistance $1.3170/$1.3215 from late July highs. The momentum indicators are certainly set up for the test to buy into weakness, with the MACD lines rising above neutral, the RSI into the mid-60s and the Stochastics strong. Above $1.3215 opens $1.3360 which is the next key lower high further up the old downtrend. The hourly chart shows the market tracking a nine day uptrend (coming in at $1.3120 this morning) and 40/50 on hourly RSI being where the buying pressure tends to resume. Support in the band $1.3050/$1.3085 now.
The market has tested the top of a near two month range at 112.15 but as yet been unable to make the breakout. After a long period of consolidation (within a range of around 240 pips) there are hints of more positive momentum, but for now nothing concrete that suggests the market is ready to move decisively higher. The RSI is still below 60 and although the MACD and Stochastics are more positive, this is simply a reflection of a move towards the top of the range. How the market now responds to yesterday’s drop back again from 112.15 could be key. A positive bias is present and the hourly chart shows the market remains in an eight day uptrend channel, with an early drop back this morning finding support at the channel lows and at breakout support at 111.65. This support is now key near term as a breach would suggest the rally rolling over again. The bulls are looking for a closing breakout above 112.15 to open 113.15 as the next key resistance.
Gold
Another recovery candle has helped to stabilise support once more and has dragged the market back to trade around $1200 once more. This is an increasingly important consolidation now and the more times the market tests and holds support, or tests and fails at resistance, the more significant the implications of an eventual breach. The medium term outlook comes with a very slight negative configuration but this is more a function of the fat that the market is still in potential recovery mode from months of selling pressure. The last two sessions have seen traded lows at $1192.75 which is above the initial support at $1187 and the $1183 higher reaction low. Hourly momentum and moving averages configuration is almost entirely neutral. Initial resistance is yesterday’s high at $1204.80.
WTI Oil
There is a degree of consolidation that has taken hold now after the period of elevated volatility on the oil price from speculation over Hurricane Florence pulled the price around last week. The market is still siting above the $67.00 pivot and the initial support of Friday’s low at $67.95 is also still intact, however the price action of the past couple of sessions suggests this is a market still trying to settle down. Two very small candlestick bodies and again a market lacking direction early today. There is now a ranging look beginning to form on the momentum indicators which helps to suggest the market is set to hold on to the pivot, however the resistance band $70.45/$71.40 from almost two months of highs still remains a key barrier.
A couple of negative closes have now come as the market has questioned the move towards the all-time high. With the near term slip on momentum there could now be a drop back once more within the near three month uptrend channel. On a medium term basis this corrective slip is likely to be another chance to buy, but for now there could be an unwind back towards the 76.4% Fib consolidation point at 25,845 again. The resistance around the band 26,167/26,211 has grown now but this should simply be a near term blip for the bulls with momentum configuration still strong. The hourly chart shows initial support at 25,930.
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