Market Overview
The US dollar is looking very strong today as markets take account of the progress of the US tax reform bill which passed through the Senate over the weekend. Traders will be returning to work on Monday morning still with a sense of added volatility in major markets.
The dollar will remain a key focus after the wild ride of volatility from Friday afternoon when news broke of Michael Flynn pleading guilty of lying to the FBI on his contact with Russia. The instant flight into safe haven assets (gold, yen and Treasuries all spiked higher) was short lived and markets unwound. However add to that, the Senate passing the Republican tax reform bill and the dollar bulls are now “cock of the walk” once more. The 10 year Treasury yield is back above 2.40% again, with the yen back under pressure and gold lower. Equities have also seen a wild ride, with volatility spiking higher, the Dow Jones Industrial Average on a 700 tick round trip on Friday and surely more to come today as Wall Street futures point to a strong open today.
Brexit negotiations come to a bit of a head today as UK Prime Minister Theresa May meets with EU leaders on the day of an apparent deadline for the EU’s three red lines (EU citizens, the Northern Ireland border and the divorce bill). There is increased optimism on both sides that progress can finally be made today.
Wall Street closed only marginally weaker on Friday with the S&P 500 -0.2% and although Asian markets have been mixed (Nikkei -0.5%) European markets are strongly higher this morning.
In forex markets, the dollar is strong across the major pairs this morning, with perhaps the slightest sense that sterling is less harshly hit on the improved Brexit optimism.
In commodities the stronger market sentiment and dollar outlook is weighing on gold whilst oil is lower after a slight increase in the US rig count on Friday.
Traders will be looking out for UK Construction PMI at 09:30 GMT which is expected to tick mildly higher to 51.0 (from 50.8 last month), but considering construction only accounts for around 7% of the UK economy, the impact should be minimal.
Into the afternoon, US Factory Orders will be in focus, with expectation of a decline of -0.4% om the month.
Chart of the Day – Silver
Silver is on the brink of a key breakdown. The support at $16.30 held up the sell-off in October but on Friday silver breached this support on an intraday basis (to $16.22) before rebounding into the close. However the bears a clearly testing the waters of a breakdown and the strength of the momentum is building to the downside now. A doji candle can reflect changing sentiment, however the early weakness again today suggests this is not the case now with silver, with the downside pressure still growing. The bear candles are racking up and the RSI dropped to its lowest since July on Friday. There is now a band of resistance between $16.30/$16.58 for the bulls to overcome for a recovery to take hold. The hourly chart shows extremely negative near term momentum configuration and rallies should be seen as a chance to sell. A close below $16.30 opens a test of the old support band $16.00/$16.10.
The uptrend channel of the past few weeks remains supportive but continues to be threatened as the dollar bulls look to regain control again. Having looked at one stage ready to test the recent high of $1.1960, the momentum could not be sustained, leaving a mildly negative candle on Friday and a move that is consolidating into the new week. This leaves the market on the brink now with support at $1.1815 still important to the near term outlook. Momentum indicators are still positively configured but, like the trend channel, stand on the brink of rolling over too. The hourly chart shows $1.1850 is initial support to watch today as a failure would signal the growing prospect of a correction. Breaching $1.1815 opens $1.1715.
Last week’s strong run higher threatens to roll over with Friday’s corrective candle. The move came with the RSI peaking above 70 and with today’s candle again corrective, the market looks set to move into reverse again, at least in the near term. The key breakout was above $1.3335 and this now becomes a basis of support for a correction early this week. The hourly chart shows a small top pattern could be forming below $1.3425 which would imply around 125 pips of further correction. This morning’s peak at $1.3515 could now prove to be a lower high as part of this move. Look for the hourly RSI dropping back towards the low 30s as a sign of growing downside momentum. Resistance at $1.3550 is now growing.
The market has seen some wild swings in the past session or so, with the news on Friday afternoon of Michael Flynn driving initial fears for the dollar, hitting a low at 111.40. However this has quickly unwound by around 150 pips and the bulls are back on track. This comes with momentum indicators improving again. The Stochastics are gaining good ground again, whilst the MACD lines are crossing back higher today and the RSI is rising back above 50. The resistance at 112.95 which is the basis of an old neckline and pivot is a key test for the bulls today and again a key suggestion of continued recovery. The hourly chart shows gap support with Monday’s open at 112.40 now with positive configuration on hourly momentum and any unwinding move into 112.50/112.60 being a chance to buy. A move above 112.95 opens the next resistance at 113.90.
Gold
Some intraday volatility has made the chart a bit more messy once more but essentially, leaving some wild swings from Friday’s trading aside, the market is still under pressure to the downside. Friday’s spike to $1289.50 has also left a lower high now under the $1299 rebound high from last week. The improvement has been lost from the momentum indicators now with the Stochastics and RSI dropping back and the MACD lines beginning to cross lower. The support of Thursday’s low at $1270.10 will take on added importance now as a breach would be a lower high followed by a lower low, which is a large part of the definition of a new downtrend forming. There has been a gap lower today from Friday’s close at $1280, shown on the hourly chart but it is interesting to see hourly momentum indicators relatively neutrally configured. Today’s session could be key to the medium term outlook. A close below $1270 opens $1251/$1260 support band.
WTI Oil
The bulls have certainly taken the positives out of the OPEC meeting and have pushed oil higher once more. Holding on to the uptrend of the past six weeks, a strong bull candle was posted on Friday which puts the bulls within touching distance of the recent high at $59.05 once more. The momentum indicators remain positively configured and with the Stochastics/MACD lines turning higher again this is another run with upside potential. The recent high at $59.05 is the initial test but the top of the uptrend channel comes in at $59.95 today which is around the round number resistance of $60.00. Corrections are now a chance to buy, with today’s initial drop back likely to be just that. The support at $56.75 is becoming another key level. The rising 21 day moving average (today c. $57.00) has also supported the market over the past 7 weeks. The hourly chart shows initial support is now $57.90/$58.20.
Dow Jones Industrial Average
Wall Street had a wild ride on Friday as a sharp intraday sell-off subsequently rebounded over 300 ticks into the close. A gap at 23,960 has been filled by the move and the bulls are still in the driving seat. With momentum indicators still strongly configured, and judging by the reaction of the buyers to Friday’s intraday decline, there is still little reason to back against the bulls. Thursday’s resistance at 24,328 is unlikely to last long (at least not according to current futures levels) and new high ground can be expected. Friday’s low at 23,922 will also take on added importance now. Hourly momentum remains strong and corrections remain a chance to buy.
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