Market Overview
There is a sense of resilience beginning to develop on Wall Street. With the positive newsflow surrounding the massive easing measures from major central banks and the fiscal support packages by governments beginning to be priced in, the rally has begun to look less assured. After a weekend of scary headlines on the worsening of Coronavirus, there was an easy opportunity for a bull retreat. However, Wall Street is holding firm and closed higher. However, there are still warning signs, with Treasury yields still threatening to drop back and the dollar (which has acted as a key safe haven) beginning to pick up. This has not yet translated to renewed Wall Street selling pressure yet. Data out from China overnight should help to sustain support too. We got a first glimmer of hope out of China of green shoots of recovery in the wake of the Coronavirus and potential bottoming out of the economic shock. China is a couple of months ahead of other countries (being the first country to be impacted by COVID-19), and the March official PMI data has come in way ahead of expectation, even back in expansion territory above 50. This has helped to boost sentiment this morning. However, it is important to remember these numbers are coming from record lows last month and it will be months before any recovery can be confirmed. China Manufacturing PMI was 52.0 (45.0 exp) whilst China Non-Manufacturing PMI was 52.3 (42.1 exp) leaving the Composite PMI at 53.0. It will be interesting to see how sustainable the boost to sentiment is today. Certainly the oil price could do with the move holding, having rebounded from record 18 year lows of yesterday. We also had some Q4 UK data, with the final UK Q4 GDP confirmed at 0.0% (unrevised from the 0.0% in the second reading, and down from +0.5% in Q3). The UK Current Account was marginally better than expected in Q4 at -£5.6bn (-£7.0bn exp, -£15.9bn in Q3).
Wall Street closed +3.4% higher at 2626, whilst US futures are steady once more today (+0.4%). There was a mixed session in Asia with Nikkei -0.9% and Shanghai Composite +0.3%. In Europe there is an early positive picture forming, with FTSE futures +0.8% and DAX futures +1.5%. Forex majors are showing a worrying renewal of the USD strength. The main outperformer is AUD though, in the wake of yesterday’s fiscal stimulus package from the Australian Government. In commodities, gold continues to build its recent consolidation, whilst silver is also around the flat line. The massive selling pressure has eased on oil, with WTI bouncing sharply.
Although economic calendar is having less of a deciding impact on market direction of late, it still has a part to play in intraday volatility. For the European session, Eurozone flash HICP at 1000BST is expected to show a sharp drop in inflation with the headline HICP down to +0.8% in March (from +1.2% in February) whilst core HICP is expected to tick lower to +1.1% (from +1.2% in February). Into the US session, the US Case Shiller House Price Index is at 1400BST and is expected to see January prices improved to +3.2% (from +2.9% in December). The US Consumer Confidence for March at 1500BST will be the key US announcement and is expected to show a sharp deterioration back to 110.0 (from 130.7 in February) which would be the lowest since November 2016.
Chart of the Day – AUD/JPY
As the market has traded with volatility around a key crossroads in the recovery, it is good to see where the key risk-on/risk-off major cross, Aussie/Yen is positioned. The bulls will be interested to see that after a period of consolidation in the past few sessions, Aussie/Yen is looking to push forward once more. If this move is confirmed, it would suggest positive risk appetite is developing again. Given that the last few candles have been distinctly lacking conviction on the bull side, the bulls need to break the shackles once more. The market has formed a small uptrend over the past week and a half, and now having spent the past few sessions trading around the 38.2% Fibonacci retracement of the big sell-off 76.54/59.90, this is becoming the springboard for the move higher. The improvement in momentum indicators continues, and if this morning’s positive move can be confirmed into the close then the bulls will be taking strengthening RSI, Stochastics and MACD with them. After a run of small-bodied candles, effectively shuffling sideways, the bulls will be looking for a decisive session today. The hourly chart shows initial support 66.60/66.90, whilst holding above today’s low at 66.00 is an important gauge now. Key support is a pivot around 65.50 which if lost would confirm an uptrend breach and building corrective momentum. 67.60 is key near term resistance above which opens the recovery rally once more.
EUR/USD
The euro recovery has just lost its way in the early part of this week. The question is whether this is the point where corrective momentum on EUR/USD builds once more. For that, the support at $1.0950 is key. This is the first key higher low of the recovery (and shows well on the hourly chart also as a pivot). The momentum of the move is also at an interesting crossroads, with the Stochastics and RSI both tailing off around 50 (their neutral points) and MACD lines also tailing off. We have already seen the sharp recovery uptrend being broken this morning, so the damage is being done to the bull move. The issue now is whether it is the renewal of the dollar strengthening move that would pull EUR/USD sharply back lower again. Support around the 38.2% Fibonacci retracement (of $1.1492/$1.0635) at $1.0965 is a key basis of support near term, just under the old November/December lows of $1.0980. This support area has supported the market initially this morning. The hourly chart shows that the bulls need to respond to the slip, with the hourly RSI again around 40 (where support has tended to form through the recovery) and MACD lines a shade below neutral. If hourly RSI moves below 30 it would be a negative signal and open the prospect of a deeper move below $1.0950 towards the 23.6% Fib around $1.0835.
GBP/USD
The bulls have taken a step back on the recovery at the beginning of this week. A mild negative candle yesterday has been followed by additional downside early today. What are the factors that will determine whether this is renewed dollar strength, or just a pause in the recovery. For now we see it just as a pause, trading still above the 50% Fibonacci retracement (of the huge sell-off $1.3200/$1.1405) around $1.2300. The RSI has just tailed off slightly today, but Stochastics and MACD lines continue their recovery. The early signs will come through the hourly chart, with support of a pivot around $1.2300 important this morning (also around the 50% Fib) but also the hourly RSI back around 40 (which has been an are where the bulls have supported during the recovery). Below $1.2300 on a consistent basis would be a concern now, and suggest the bulls had lost their control. However, losing $1.2130 would be a signal that a deeper retreat was forming, possibly back towards the $1.1930/$1.1955 support area. The bulls will be looking to reclaim ground above $1.2440 to suggest they are getting back control.
USD/JPY
The dollar looked to build some support yesterday as the corrective momentum of the recent decline just had the pause button pushed. The question is whether the dollar is regaining momentum or whether yesterday’s rally off 107.10 is something more than just another chance to sell. Corrective momentum building on the Stochastics (confirmed sell-signal) suggest that the yen is strengthening now. Given the MACD lines rolling over and RSI back under neutral, if these configurations also continue to develop, then the resistance around 108.25/109.00 looks to be a near term sell-zone. It is interesting to see the market picking up early today, but also that move is just fading coming into the European session, leaving resistance at 108.70. The hourly chart indicators unwinding towards areas where the sellers have previously re-entered the fray. Hourly RSI failing around 60 is especially notable, whilst hourly MACD lines threaten a bear cross around neutral. Volatility is still elevated and this could certainly impact on the timing, but intraday rallies look to be a chance to sell now. Initial support 107.50/107.70 and below 107.10 re-opens the corrective momentum to test 106.50 and then on towards 105.00. Above 109.30 improves the outlook.
Gold
Gold continues to build a near term consolidation. There are increasing conflicting influences on the near term outlook (from a fundamental perspective) and this is playing out on the technicals as a consolidation range has formed between $1585 and $1642. Just in the past few sessions, the Fibonacci retracements (of the $1445/$1702 rally) at 23.6% (around $1642) and 38.2% (around $1604) are coming into play as near term gauges of sentiment for the consolidation. Momentum of last week’s bull rally has certainly tailed off in recent sessions, although there is still a positive bias to the outlook. The RSI is settled in the mid-50s, whilst MACD and Stochastics are still rising. We see hourly indicators reflecting this consolidation now (hourly RSI specifically between 40/60 is ranging). This is becoming a market in need of direction now as these mixed signals take hold. Something to also keep an eye on, is that where previously the daily highs were successively higher, there has now been two successive lower highs and resistance around $1634 to overcome. Initial resistance on the hourly chart is at $1627. Below $1604/$1606 support opens the key near term support of $1585.
WTI Oil
Record lows on oil yesterday brings into stark focus the pressures that the market is under right now. The lowest intraday low and lowest close since January 2002 were both seen on WTI. We have seen the selling pressure renewing in recent sessions as a run of three decisive bearish candles has formed. However, the bulls will note that there is slight hope on momentum indicators, with very mild positive divergence threatening on RSI whilst MACD lines are actually close to bull crossing. So coming into today where the market is trading +5% higher is interesting. A near three week downtrend is also being threatened on the daily chart (actually it is being breached on the hourly). It may be clutching at straws, but the hourly momentum indicators have picked up overnight with the rebound and look even promising into the European session. The initial resistance to watch would be $22.00 which is a pivot on the hourly chart, above which would also confirm the downtrend breach, and potentially the beginning to a recovery. After all, it has to start somewhere. A failure today would put the key support/lows between $1.1927/$20.00 back in focus.
Dow Jones Industrial Average
After the bull run began to run out of steam on Friday, the potential was that fragile sentiment would see the bulls quickly retreat and the recovery be sold into. Subsequently, the reaction of the Dow yesterday will bring great confidence that perhaps the rally is something more than just a dead cat bounce. Momentum indicators are climbing and there is plenty of potential for the move to unwind still. The hourly chart shows that holding on to support around 21,470 was an important near term positive development, and this will continue to be so into today’s session. Having unwound on Friday, hourly technical indicators are now primed to give renewed positive signals. With hourly RSI and Stochastics ticking higher into positive configuration, the hourly MACD lines are ready to cross higher. Resistance to watch comes with Thursday’s high of 22,595 which a closing breakout would re-open the recovery once more. It would also be clear of the 38.2% Fibonacci retracement (of 29,567/18,213) and subsequently open the 50% Fib at 23,890. The next gap to fill is at 23,328.
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