Market Overview
Tax reform has now passed through Congress and is now in the hands of President Trump to sign. Quite when he does sign the bill into legislation is anyone’s guess. It is interesting to see the market reaction to tax reform going through as the dollar continues to struggle for traction.
Equity markets on Wall Street actually marginally fell into the close last night, leaving questions over whether the big moves have played out. Treasury yields have moved though, with the US 10 year yield not only above 2.40% which has been such a slog in recent weeks, but also above the October high of 2.48% to their highest level since March. However this has not been met with dollar strength, yet. The rebound on Treasury yields has come as major global yields (such as Bunds and Gilts) have also rallied. So the dollar has not been able to see the benefit of the yield differential. However, one major pair that has rallied has been Dollar/Yen, helped by the continued dovish outlook of the Bank of Japan overnight.
It is also interesting to see that gold has also rallied, somewhat counterintuitively to rising global yields. Perhaps this is a function of the concerns over the outcome of the Catalonian election, held today. The result of the regional elections will determine the make-up of the Catalonian government and could re-ignite the debate over independence if a majority pro-independence coalition wins a majority. The current polls in front of the vote suggests the result is too close to call.
Wall Street closed marginally lower with the S&P 500 -0.1% at 2679 and Asian markets mixed overnight (Nikkei -0.1%). European markets are similarly mixed in early moves today.
In forex, the dollar is very slightly higher today but the sense of on-going consolidation continues.
In commodities, gold remains supported around flat on the day, whilst oil is also flat as it consolidates yesterday’s strong close.
Traders will be keeping an eye on the UK Public Sector Net Borrowing figure at 09:30 GMT which is expected to show £8.3bn borrowed in November, which would be slightly above the £7.5bn borrowed in October but below the £10.8bn borrowed in November 2016.
The focus will then switch to the final reading of US Q3 GDP at 13:30 GMT which is not expected to show any revision from the Prelim which was revised up to 3.3%. Also look out for the Philly Fed Manufacturing at 13:30 GMT, which is expected to dip slightly to +21.5 from +22.7 last month. Weekly Jobless Claims also at 13:30 GMT are expected to be marginally higher at 232,000 (up from 225,000 last week).
Eurozone Consumer Confidence at 15:00 GMT is expected to improve to +0.2 (from +0.1 last month having moved above zero for the first time since January 2001).
Chart of the Day – EUR/JPY
The market has been ranging sideways for around three months, but this range finally looks to be breaking. The support at 131.15 and resistance at 134.50 have defined the range but every time the bulls look to be ready for a break, the range kicks in and the market has failed to make the move. Yesterday’s break above 134.50 closed at 134.60 and suggests that the bulls are now ready. The market has tested 134.50 on three previous occasions only to be rebuffed, but this time looks different. The market needs a decisive breakout though, with two daily closes above 134.50 to confirm that the bulls are running with a breakout. Early support today is encouraging. The MACD lines have ticked higher along with the Stochastics showing upside potential. However the daily RSI has only just moved into the 60s again, and in the past eight weeks this has twice been a point at which the bulls have lost momentum. This is why two daily closes above 134.50 is needed. The hourly chart naturally shows positive configuration having added 190 pips in two completed sessions, but the bulls now need to back this up with confirmation today. There is little real resistance now until 137.00.
The bull move on the euro continued to gain traction yesterday as the market posted a bullish candle that was a third positive close in a row, taking the market to its highest in two weeks. This move above $1.1860 which was a basis of resistance now opens the key November highs at $1.1940/$1.1960. The momentum indicators also reflect this improved momentum in the past few days with the Stochastics and MACD lines rising above 50, whilst the MACD lines are ready to cross higher. There is also a positive configuration across the hourly chart momentum indicators too. The big question is whether the market can generate sustained upside momentum or whether the lack of decisive medium term outlook will once more kick in before $1.1960. Initial support is now in place at $1.1830/$1.1860 to build from as for now corrections are being bought into. Initial resistance at yesterday’s high of $1.1900.
An intraday dip into the close has once more soured what looked to be a developing positive outlook on Cable. The market closed towards the low of the day but the small bodied candle that followed Tuesday’s doji, suggests that there is a lack of decisive intent for the bulls. The momentum indicators are still very benign and the trend of lower highs looks set to continue as a two week downtrend builds. The hourly chart suggests that a range play has now formed in the past few sessions, with the hourly RSI oscillating between 30/70 and the MACD lines calmly hovering around neutral. Initial support at $1.3330 is helping to protect the support at $1.3300, whilst $1.3420 is building as resistance. It would now need a move above $1.3460 resistance, or below $1.3300 to break this near term consolidation.
The dollar is finding traction against the yen as the market looks to build momentum in the recent run higher. A second strong positive candle, again closing around the highs of the day has taken the market through the resistance around 113.00 and looks ready to test the December high at 113.75 now. Momentum indicators are reacting to the move and confirm the improvement in sentiment again, with the Stochastics ticking higher, MACD lines posting a “bull kiss” and the RSI also rising above 50. The hourly chart shows bullish configuration across the momentum studies, with corrections being bought into. There is a near term pivot around 113.10 to use as a basis of support now. A close back below 113.00 would lose the upside momentum again.
The recovery on gold continued yesterday with another positive close. An uptrend has formed over the past week since the low at $1236 and has unwound the market back into the $1260/$1270 band of resistance from the overhead supply built throughout October/November. Momentum indicators are near term positively configured with the rising Stochastics and positive cross on the MACD lines. This does though remain a near term recovery within what looks to be a medium term corrective market now. As such, this rally remains a likely selling opportunity. However the market is still drifting higher and the rally has not yet rolled over. The hourly chart remains positively configured and suggests that corrections are being bought into still, with a band of support $1259/$1262.
WTI Oil
After a bit of an uncertain reaction initially, the market ultimately has taken the positives from the mixed EIA inventories report yesterday, posting a positive candle that is now putting pressure on the triangle’s downtrend. A breakout would be confirmed on a move above $58.55. The improvement in the momentum indicators that has come with the creep higher over the past week suggests that the market is again on the brink of a key move. The resistance of last week’s high at $58.55 is capping the upside, whilst support is building at $56.80 above the reaction low at $56.10. The positive bias on the momentum indicators on the hourly chart that suggests corrections are seen as a chance to buy. Yesterday’s spike low on the EIA inventories at $57.45 is supportive now.
A close lower on the day, with a second negative candle (with a close below the open) shows that at least a consolidation is beginning to take hold. For now the consolidation is hanging on to the support of the three week uptrend and is likely to be a source of the next buying opportunity. The momentum indicators remain strongly configured on both the daily and hourly chart and suggests that weakness is a chance to buy. However, the market is looking to drift back for a fill of the gap still open at 24,689. If this gap is filled then the market will be seeing this move as another chance to buy. Monday’s all-time high is at 24,876 and is resistance but the bulls will still have designs on pushing towards 25,000 now. A close below 24,689 would close the gap and begin to threaten a near term correction.
DISCLAIMER: This report does not constitute personal investment advice, nor does it take into account the individual financial circumstances or objectives of the clients who receive it. All information and research produced by Hantec Markets is intended to be general in nature; it does not constitute a recommendation or offer for the purchase or sale of any financial instrument, nor should it be construed as such.
All of the views or suggestions within this report are those solely and exclusively of the author, and accurately reflect his personal views about any and all of the subject instruments and are presented to the best of the author’s knowledge. Any person relying on this report to undertake trading does so entirely at his/her own risk and Hantec Markets does not accept any liability.