Market Overview
The dollar remains under significant negative pressure this morning as a huge sell-off has driven major markets through key levels in the past couple of sessions. The move has taken the Dollar Index below 91 to levels not seen since January 2015.
The most high profile move has been for EUR/USD to breakout to three year highs, however we have also seen cable up at its highest level since the day that the UK voted to leave the EU. Furthermore, this morning, with the yen strengthening we have Dollar/Yen dropping to multi month lows. There has been a catalogue of factors driving this move, but given that US core CPI unexpectedly ticked higher on Friday, the strength of the sentiment against the dollar is considerable. This comes as the 2 year Treasury yield has gone above 2.00% for the first time since September 2008 and the US 10 year yield also eyes 2.60%. This also comes with Wall Street running higher like a juggernaut which has helped equities pull higher across the world and a positive sentiment on Monday morning. It is a public holiday in the US for Martin Luther King Day so this may induce more of a subdued session today, but there is little yet to change the trends seen building in the past few days.
Wall Street closed strongly in all-time highs again with the S&P 500 +0.7% at 2786. Asian markets were mixed though with the Nikkei +0.3%.
European markets look cautiously supported in early moves. In forex, the dollar looks under pressure across the majors, with the Aussie initially outperforming.
In commodities, gold is also breaking higher and is $3 up on the day, whilst the 10 rig jump in the Baker Hughes US rig count is just holding oil back a touch as it consolidates this morning.
It could be a relatively subdued day in prospect for traders, with the US on public holiday for Martin Luther King Day and no key economic data of note. Bank of England MPC member Silvana Tenreyro gives a speech about productivity and could interest sterling traders at 1815GMT.
Chart of the Day – EUR/AUD
The euro made a decisive upside break on Friday. The huge bull candle has really signalled a shift back towards a more positive sentiment once more. The move has broken a downtrend phase of more than five weeks with the largest bull candle since the beginning of November. Momentum indicators have been slipping lower and in negative configuration for several weeks, but the Stochastics have crossed higher and the MACD lines look set to also join them. The early reaction this morning has been for a bit of a retracement of the breakout, however the hourly chart shows this to be an initial overbought correction that should help to renew upside potential. The key for the bulls will be hold on to the pivot breakout at 1.5300/1.5310 which is now supportive. Another higher low around or above higher would help to build the foundations for a move higher. The initial resistance is at 1.5445 from Fridays high but the old neckline of a top pattern at 1.5455 also needs to be breached. The hourly chart shows the importance of support at 1.5310 holding on a corrective move.
EUR/USD
It was an incredible breakout on Friday with a second consecutive strong bull candle that saw the market close around the high of a hugely positive session for the euro. The market has added 240 pips in the last two sessions now and the upside move continues this morning. With it being Martin Luther King Day in the US, this could mean slightly more of a muted day today, but the intent remains. Having broken above the $1.2092 key September high, the euro is now trading at three year highs and the next resistance overhead is being challenged at $1.2245/$1.2550, although this is clearly rather historic now. Momentum indicators are very strong, with a bull kiss higher on the MACD lines, a bull cross on Stochastics and RSI around 70. The position on the RSI could be slightly limiting but the strength of this bull move and breakout suggests this is a strong trending move and is unlikely to drive a sharp retracement. Look to use any unwinding move into support around $1.2092 as a chance to buy, with the hourly chart showing initial support at $1.2185 and then $1.2110/$1.2150.
As the dollar came under renewed pressure last week, we have seen a sharp upside breakout on Cable. Two key resistances were breached on Friday with $1.3612 quickly followed by the key September high at $1.3655. Once more we find Cable trading up at levels not seen since the violent volatility swings of Brexit day, 24th June 2016. Also moving through the 61.8% Fibonacci retracement of the Brexit sell off at $1.3670, the next resistance is the old February 2016 low at $1.3635 and then $1.4000. Momentum indicators are strongly configured with the RSI back over 70, the MACD lines bull kissing higher and the Stochastics also strongly configured. The bulls have remained in control today with a further move to the upside but this could be limited with the US on public holiday today. Any unwinding move will be seen by the bulls as a chance to buy with support at $1.3670 and the old key breakout at $1.3655. The hourly chart shows the bulls hanging to $1.3720 initially as support.
The support of the key floor at 110.85 from the November low has been breached today as the dollar remains under pressure to the downside. Momentum indicators are negatively configured and the market looks ready to confirm the breakdown now. A closing breach of the support would be a key signal that the market has shifted in sentiment in a decisive way. The market has broadly been ranging now for the past few months, but during that time the RSI has always stayed within the 30/70 confines. However below 30 this morning will be another key signal if the market closes there tonight. The MACD lines are now finding downside traction, whilst the Stochastics are also negatively configured. Intraday rallies are increasingly being seen as a chance to sell, with the hourly chart showing 50/60 limiting on the hourly RSI and the hourly MACD lines failing to make it above neutral. There is resistance now at 111.15, with 111.70/112.00 being key. A decisive breach of 110.85 opens 110.00 as a psychological level and then 109.55.
Gold
The bull trend remains strong and true, pulling decisively higher once more as the market begins to eye the key September high at $1357.50. The way the bull candles are racking up (and with other major markets such as EUR/USD and GBP/USD already breaching their equivalent levels) it is difficult to see why the market will not now test $1357.50. The strength of momentum is also a key factor, with the RSI solidly in the mid-70s, the MACD lines rising strongly again and the Stochastics also positively configured. Intraday weakness is a chance to buy, with a minor breakout support band $1325/$1327 supportive and the four week uptrend at $1324 today. The hourly chart shows that over the past few days, 50 on the hourly RSI has been a good entry point for longs too, so watch for unwinding opportunities. There is minor resistance at $1344 from early this morning.
WTI Oil
Can the bull run on WTI continue? As yet there are very few signals that suggest the market is wavering, but given the RSI is around 79 which is around where the November rally started to splutter, caution needs to be taken with exactly how much further upside potential there is. Despite this though, there is nothing yet to confirm any correction. The way the market has been moving, the likelihood is that a consolidation could well begin to set in, but whether this turns corrective, the position is as yet unsure. The support at $63.10 could hold the answer as this now marks the support of a potential near term top. However, the 89 hour moving average continues to underpin the bull run (currently around $63.60) and such is the strength of the bull control, there is little that seems to be able to deter them from buying oil. The resistance at $64.75 will be watched but beyond that, there is little to stand in the way of the bulls.
I am not sure about a “melt up”, but the bullish move on the Dow in the early weeks of 2018 has been utterly incredible. Yet another strong bull candle with a bullish upside gap and a close near the high of the day. This is just an incredibly strong market, with momentum indicators pushing ever higher. The RSI is in the mid-80s and the highest since October but there is no sign of any stopping this market. There is gap support at 25,575 that in theory needs filling, however how high will the market go before the retreat to fill this gap is seen? The market is though now trading outside the 2.0 standard deviation Bollinger Bands and this could begin to limit the move early this week. An 8 week uptrend is supportive at 25,165 today, with the parabolic SARs at 25,061. The market is closed for Martin Luther King day public holiday today.
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