Market Overview
The normal reaction to US jobs growth of well over 300,000 would be to outright buy the dollar. But this does not happen now as the market is seemingly indifferent about the jobs numbers, only more interested in any traction in wage growth, and for that, Friday’s payrolls was a disappointment.
There seems to be an ongoing hangover into the market moves early this week too. The impact is that the market viewed the jobs report as doing little to compel the FOMC to be more aggressive in its monetary tightening, leaving the likelihood of three rate increases this year rather than the more aggressive four.
The dollar has slipped back a touch as a result. It is interesting also to see yields increased on Friday in the wake of payrolls but again there was little, if any, impact on the dollar. It could have been more of a reversal of recent safe haven flows as the risk from protectionism and North Korean geopolitics have receded.
The big winners seem to be coming from the equity indices, with the S&P 500 soaring to ripple the gains across other major markets this morning. Equities would not like inflation accelerating and would not like a more aggressive Fed. They have got both and along with less political risk, this opens for a decent run early this week.
Wall Street gained strongly into the close with the S&P 500 +1.7% at 2786, just shy of the key February peak of 2789. Asian markets have responded strongly overnight with the Nikkei +1.7%, and whilst European markets seem to be more cautious (isn’t that always the way?) they are still showing initial gains today.
In forex, the dollar is underperforming across the majors, with the Aussie and Kiwi being the standout performers.
In commodities, the weaker dollar is not impacting gold which is slightly weaker by $2 today and continues to consolidate. Oil has also slipped back a touch, after the significant gains on Friday following the fall in the Baker Hughes rig count.
There is no economic data of any note on the calendar today.
Chart of the Day – GBP/AUD
It is interesting to see that the Aussie has started to perform much better across the major pairs, even in the wake of a cautious RBA and disappointment on growth and retail sales data. This better performance is seen against the euro, dollar and yen. However, against sterling the move only now seems to gathering pace. On GBP/AUD, the bullish pull of a six week uptrend has been fading after having been broken in the past two weeks. However with Friday’s strong bear candle, the market now appears to be close to forming a key five week breakdown. A close below 1.7570 would complete a 340 pip top. The move is certainly finding negative traction on the momentum indicators. The RSI spent February supported above 50 but a move back into the mid-40s on Friday along with corrective traction on the MACD and Stochastics lines suggests the sellers are gaining traction. The 21 day moving average had supported the market throughout the six week uptrend but now has rolled over around 1.7740 and has become a basis of resistance. The hourly chart shows rallies now being sold into, with 50/60 on the hourly RSI a barrier, whilst 1.7665/1.7750 is a near term “sell-zone” for any rallies.
It was a remarkably indecisive reaction to payrolls on Friday, leaving a very neutral candlestick (which was less than the Average True Range of 80 pips). This has left the outlook still rather mixed. The bulls have been wounded by Thursday’s strong negative candle in the wake of the ECB meeting, but as yet no real downside traction has resulted. Momentum indicators have rolled over but for now have simply lost upside impetus rather than turning corrective. The hourly chart shows pivot resistance now in place at $1.2360 and the longer the pair trades under this, the more corrective the outlook will become. There is a mild negative bias on momentum indicators which favours a drift back towards testing Friday’s low at $1.2370 again. For now though the market has opened the new week looking for direction.
The dollar struggled in the wake of Non-farm Payrolls and the market is looking increasingly neutralised on the near term outlook. It had seemed as though there was a renewed negative traction forming with Thursday’s strong bear candle, however the impetus from this move has been stunted and into the new trading week Cable is searching for direction. The outlook of the past six weeks has been for rallies to be sold into at lower levels in a move that seems set to pull the market back to the long term uptrend (currently around $1.3550) and back towards old levels of breakout support between $1.3550/$1.3650. The initial support at $1.3780 has held firm following the positive reaction on Friday which now helps to protect $1.3710, the early March low. This gives the bulls something to fight for now. The hourly chart shows a very neutral configuration with all the moving averages having converged in the consolidation this morning. The resistance around $1.3930 is near term key as a breakout would abort the bearish candle from Thursday and re-open the psychological $1.4000 again. For now a catalyst could be needed though.
Although the dollar struggled in the wake of payrolls, the yen was broadly weaker as recent safe haven flows looked to unwind. The impact on the daily chart of Dollar/Yen has been very interesting though. The bull candle formation on Friday has now broken the eight week downtrend. In isolation this does not necessarily mean that the dollar is about to embark on a huge rally, however it does certainly begin to question how much control the yen bulls have got. There are lower key highs that need to be broken in order for this to be a proper turnaround story, with 107.65/107.90 both key levels from late February. There is though an improvement in momentum, with the MACD and Stochastics lines ticking higher. Today’s early marginal slip back is not helping the bulls but on the hourly chart the support of an old pivot at 106.35 is still a factor. A close below this pivot would start to see the market moving into reverse again, especially if accompanied by the hourly RSI below 30 and MACD lines decisively below neutral. An early indication of improving momentum in the rebound would be the resistance at 107.20.
Gold
The outlook is becoming increasingly neutral in recent sessions, with small bodied candles and three closes all within $3. This comes as the momentum indicators also take on a more neutral configuration, with the RSI and MACD lines hovering around their neutral points and the Stochastics also lacking conviction. With the resistance at $1341 and support around $1303 (the $1300 long term pivot remains strong as support), along with a lack of traction in recent moves, there is a very indecisive look to the market now. Hourly chart indicators confirm this configuration with momentum and moving averages lacking conviction. We await the next catalyst therefore. Initial support is at $1313, with $1325 and $1328 initial resistance.
WTI Oil
Just as it looked as though the bears were finding traction an impressive the bulls hit back with an impressive response. As the US oil rig count fell by 4 rigs to 796 on Friday, the market posted a bull candle gaining 3% on the day. However there is still a five week downtrend which has been dragging the price lower with a series of lower highs. The trend comes in around $62.80 today. Momentum indicators are reflective of this negative trend with the Stochastics in decline and the MACD lines with a mild negative bias. The bulls will need to fight hard to call this a sustainable recovery, a move above $63.30 is needed to confirm a trend break. The hourly chart showing a pivot resistance around $62.50 needing to be overcome. Support at $59.95 is now key near term, with support initially $61.40/$61.50.
The near term consolidation has broken decisively to the upside as the market formed a strong bull candle on Friday. A move above the 50% Fibonacci retracement of 26,616/23,360 at 24,988 has now opens the 61.8% Fib at 25,372. The bulls will also note that there is now a small uptrend formation over the past six sessions that is now helping the market to find higher lows and higher highs. Momentum indicators have ticked higher but there is still a mixed configuration which may leave the bulls a touch cautious about chasing this move higher. The 50% Fib at 12,988 now becomes supportive today whilst the mini uptrend is supportive at 24,875 today. Resistance at 25,800 remains key.
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