Market Overview
There is an air of caution in financial markets to start the week as traders look ahead to some key issues in the days ahead.
Fears over trade tariffs and protectionism are never far away, whilst the Federal Reserve may be about to signal that an acceleration in its tightening programme could be ahead. Subsequently the dollar is continuing its trend of gradual strength of the past few days in front of the FOMC on Wednesday.
Equity markets have struggled for traction in recent sessions and once more early today there is a cautious drop back. Treasury yields are on the rise again in front of the FOMC, with the two year yield above 2.30% and at multi-year highs at a time where the yen is again looking to outperform. This suggests that the market is positioning for a more hawkish FOMC this week and risk appetite is subsequently subdued.
Political uncertainty in Japan is also not helping, as finance minister Taro Aso has missed the G20 meeting in Buenos Aires as political pressures mount at home for Prime Minister Shinzo Abe amidst a corruption scandal. This is strengthening the yen as traders speculate over what it could mean for the continuation of Abenomics.
Wall Street closed marginally higher on Friday with the S&P 500 +0.2% at 2752 whilst Asian markets have been mixed with the Nikkei -0.9% on the stronger yen. European markets are cautiously lower in early moves today.
In forex, there was a dollar strengthening into the end of last week that has been carried over into Monday morning. This is driving a slight outperformance of the greenback (aside from the stronger yen) across the majors.
In commodities, the stronger dollar is also pulling gold slightly lower again, whilst oil is slightly lower too after Friday’s data showed the Baker Hughes oil rig count rising again by 4 rigs back to 800.
There is little of note on the economic calendar today other than the Eurozone Trade Balance for January at 10:00 GMT which is expected to see the surplus reduce slightly to €22.6bn (from €23.8bn in December).
The G20 meeting could also provide some headlines of interest.
Chart of the Day – Silver
Is a decisive shift being seen in sentiment on silver? The precious metals started to see negative traction at the end of last week after a period of consolidation and silver took part in the move. It is interesting to see this is coming as the dollar has found some momentum for the run up to the FOMC meeting. As for silver, the support at $16.16 has been a floor throughout 2018 and a closing break would be a significant move. Ahead of that though the sellers are massing. With three consecutive negative candlesticks the negative momentum is building as the market has been trading to the downside again today. Watch for a decisive move below 40 on the RSI to imply sellers really taking control. Friday’s close of $16.30 is already a 2018 closing low and a move below $16.16 would complete a range breakdown and imply a move $0.80 lower in the coming weeks. The hourly chart shows a pivot now at 106.35 and a resistance band $16.33/$16.42 is now a near term “sell zone”.
Is the euro beginning to find some corrective traction? There have now been three consecutive negative candlesticks which have taken EUR/USD to a two week low and continued a downtrend over the past four weeks. However, the market is still simply trading within a 400 pip range of the past two months and although the outlook has deteriorated within the range there is still significant underlying support for the euro between $1.2090/$1.2155. The long term uptrend is at $1.2160 today, with the 50% Fibonacci retracement of the big QE sell-off at $1.2160 and the key February low at $1.2155. The momentum is beginning to tick lower near term but only marginally, suggesting the market is in near term correction mode within the medium to longer term bull market. The hourly chart shows resistance around $1.2300 with a key near term band of resistance $1.2330/$1.2360. There is room for further unwind, but the magnitude of the selling does not suggest a significant shift in sentiment is taking place and it is just positioning in front of the Fed this Wednesday.
Another indecisive candle (that is now three in a row) was completed on Friday and means that Cable traders come into a key week with a large degree of uncertainty. There are several major fundamental and news flow events this week, which seem to be leaving traders to sit on their hands. Momentum indicators are very neutral, especially on the RSI and MACD lines. The resistance around the psychological $1.4000 barrier is still clearly an issue overhead, however the support of a four and a half month uptrend comes in at $1.3835 today. The hourly chart shows the market very much in wait and see mode with initial support at $1.3885 above $1.3835 and then key at $1.3780. This is a market in need of a catalyst. With the Fed, Bank of England and the EU Summit this week, there are plenty to choose from.
There is negative momentum and a run of lower highs and lower lows in place which is dragging Dollar/Yen back towards a test of the support band 105.23/105.50. Again this morning the market has reacted lower after a slight rally into the close on Friday. Momentum on the daily chart is configured negatively and suggests there is a continued outlook to sell into strength. However the market is once more coming back to an area where the bulls do seem to want to protect, around 105.50. It will be interesting to see if the market begins to close below this support as this could then begin to open the downside once more. The hourly chart reflects this negative configuration, with resistance in the band 106.25/106.35.
Gold
Are the bears now gaining traction? A couple of decisive negative candles closed out last week with selling pressure mounting. Further weakness this morning is also adding to this building sense of downside pressure. This comes with momentum indicators now beginning to take a more negative configuration as the RSI drops back below 40 whilst MACD and Stochastics also tick lower. The key long term pivot band of support comes in between $1300/$1310 and traders will be watching out for a close below $1310 (which has not been seen in 2018) to be an early sign of this band breaking down. The support at $1300 is crucial on a medium term basis as it would complete a multi-week top pattern. The hourly chart suggests that negative momentum is now building with the hourly RSI failing around 60 and moving towards 30, whilst the hourly MACD lines are now failing under neutral. There is resistance of a lower high at $1321 below a near term key high at $1330 adding to the increasing downside pressure now.
WTI Oil
The market has been trading within converging trend lines since the beginning of February. This has driven a phase of consolidation which has seen the market range broadly between $60/$63.30 in the past two and a half weeks. However, on Friday a sharp spike higher (on little fundamental news but has been attributed to the prospect of rising tensions in the Middle East), resulted in a strong bull candle that has pulled the market above initial resistance at $62.30 and opened $3.30 again. This comes amidst a broad backdrop of very neutral configuration on the daily momentum indicators, even though there has been a near term tick higher. The hourly chart shows initial support now $61.00/$61.50, but it would need a breakout a closing breakout above $63.30 to open the next resistance at 64.25. The initial reaction this morning has been indecisive, but another positive close would be a fourth consecutive and begin to suggest the bulls are building headway.
The uptrend channel has been re-affirmed with the low at 24,688 and the bulls looking to re-build after three strong bear candles threatened a decisive shift in sentiment earlier last week. The support of the 38.2% Fibonacci retracement of the sell-off at 24,603 adds to the near term floor, whilst a break above the 50% Fib at 24,988 opens 61.8% Fib at 25,372 again, which happens to coincide with the key March reaction highs at 25,449. Is this a rally to trust though? The daily momentum indicators remain subdued and neutral in configuration, whilst the hourly chart shows the market trading around a clutch of flat moving averages. There is near term support of Thursday’s low now at 24,787.
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