Market Overview
Market sentiment has taken a battering over the past 24 hours as traders have responded to the implications behind renewed dovishness from the European Central Bank and now this morning a disastrous set of China trade figures. The ECB is not going to hike rate now this year, slashed its economic projections for growth and inflation in 2019 and beyond, whilst also engaging a renewed liquidity program to prop up a precarious looking banking sector. With risks seen to the downside on its projections, the underlying reason for why these moves have been necessary has been as a counter to the global cyclical slowdown in recent months. The trade data out of China overnight has painted this picture in even starker detail. The China trade balance unexpected fell to $4.1bn (+$26.4bn, +$39.2bn last) with China Imports falling -5.2% year on year (-1.4% exp, -1.5% in January) and China Exports down a whopping -20.7% versus February 2018 (-4.8% exp, +9.1% last). There is a degree of seasonal issues with Lunar New Year arguably a mitigating factor, however, with these are nonetheless terrible numbers for the global economy. Risk appetite has been hit, with the safe haven plays all benefitting. Bond yields have fallen sharply, the Japanese yen is a big outperformer, gold has also found a bid, whilst equities are under increasing pressure. This now puts huge focus on the US payrolls data this afternoon. If payrolls also show signs of disappointment, then the market’s appetite for risk could be shot to pieces.
Wall Street closed last night solidly lower, with the S&P 500 -0.8% at 2749, whilst US futures are another -0.3% lower today. This has added to pressure on Asian markets with the Nikkei -2.0% and the highly volatile Shanghai Composite -4.3%. European indices are also under pressure in early moves, with the FTSE futures and DAX futures both around half a percent lower. In forex trading there is a big outperformance on the Japanese yen, whilst the Swiss franc is also gaining ground. There is a degree of support on the euro and sterling after yesterday’s sharp losses. It will also be interesting to see if the Aussie and Kiwi can continue to hold up as the European session takes over. In commodities, the safe haven bias is helping gold higher by $7 or +0.5% whilst oil is lower by -0.8%.
The US Employment Situation for February at 1330GMT is the big focus for traders on the economic calendar today. The headline Non-farm Payrolls number is expected to come back towards a far more normal number at 180,000 (down from 304,000 from January) although watch out for a revision to last month’s data. The Average Hourly Earnings growth is also important and is expected to show +0.3% on the month which would pull the year on year data to +3.3% amidst the tightening of the labor market. However what has been interesting in the past couple of months has been the spike higher in participation, which is feeding the unemployment rates higher. With the laborforce participation rate up to 63.2 which is a five and a half year high, broad US Unemployment ticked up to 4.0% last month (more people in the laborforce increases unemployment) whilst the U6 Underemployment increased sharply to 8.1% which was an 11 month high. Expectation is that unemployment will tick back lower to 3.9% with the Fed’s 2019 target still 3.5% for 2019. In other data releases today, the US Housing Starts for are at 1330GMT which are expected to improve to 1.20m (from 1.08m in December), with Building Permits slipping to 1.29m (from 133m in December)
Chart of the Day – Silver
A breakdown below the key January higher low at $15.14 was achieved earlier this week. What has been seen since has been a consolidation of the break (where the old support becomes new resistance) and this means that the next move could be key for silver. It was an important upside break back in late December when the price pulled decisively above $14.90 to complete a large base pattern. This neckline of the breakout is now a key basis of support for silver and would mark a decisive shift in sentiment if broken. This means that a move outside the $14.90/$15.14 band will be key. The concern is that the momentum indicators are increasingly corrective, with the MACD lines now falling below neutral for the first time since early December, whilst the RSI is solidly negatively configured. The hourly chart reflects an corrective outlook with 60 on the hourly RSI limiting recoveries in the past two weeks, and a move to neutral on the hourly MACD lines similar. A close below $14.90 opens the next support at $14.45, whilst a close above $15.14 helps to improve the outlook for $15.45 again. A pivotal moment.
In the wake of the dovish ECB meeting, a huge bearish candle has taken the euro decisively below the key floor at $1.1215 and to its lowest level since June 2017. The fact that very little regard was given to the support between $1.1215/$1.1300 would be a considerable concern for euro bulls now. The momentum indicators are clearly bearishly configured, with the RSI around 30 now, whilst MACD lines cross lower under neutral and Stochastics are in decline. This all comes with further downside potential too. The rebound off $1.1175 is likely to prove short lived and there is resistance now as the old overhead supply between $1.1215/$1.1300 which will be an important barrier now. The next support is $1.1110, but a move back towards the psychological $1.1000 level is looming unless the bulls can regroup very quickly. The hourly chart shows any unwind into 50/60 on hourly RSI, or around neutral on hourly MACD lines has been restrictive for the bulls.
Cable fell over 80 pips into the close yesterday in a move which continued the correction of the past week. Just prior to the decline, it had looked as though sterling was beginning to build some degree of support, but the stronger dollar prevailed in the end. This has now brought Cable below the initial pivot around $1.3100 to test another pivot at $1.3050, a level just above another pivot and psychological level at $1.3000. The technicals are corrective near term as the RSI and Stochastics unwind back towards their neutral levels and MACD lines cross lower. This is an important moment for sterling now, as all of the indicators are back around their neutral points, and the pivot supports are being tested. A move below $1.3000 would suggest the late February move higher was under considerable retracement pressure. The hourly chart is a bit untidy following volatile intraday moves yesterday but resistance is at $1.3150/$1.3185 now, with $1.3065 as initial support from yesterday’s low.
The shift towards safe haven plays has seen the yen strengthening overnight. A basis of consolidation on Dollar/Yen has pulled over 50 pips lower in a move which is breaching breakout supports of the move higher. The medium term pivot at 111.35 has given way and now the market is testing the key 111.00 breakout. For now, this is still just an unwinding move within the uptrend channel however, the bulls will need to be careful. Momentum indicators have slipped in their bullish configuration, although the RSI is still above 50, the MACD lines are threatening to ross lower and Stochastics are edging slightly lower now. The support band 110.25/110.40 is key for the continuation of the bullish near to medium term outlook. The hourly chart shows a more corrective near term outlook, with overhead supply at 111.60 initial resistance whilst 111.90/112.10 is now key.
Gold
With a shift back into safe haven assets, gold has been boosted this morning. This is helping to build the support above the $1276 key low and looking to move the market higher from a consolidation between $1280/$1290. The upside break above $1290 this morning opens $1300 again and a test of the key resistance between $1298/$1302 is now on. The move is also helping to stabilise momentum indicators which have taken on a more negative set up recently. The RSI has ticked back above 40, and the bulls will hang on the fact that the September and November rallies came with the RSI bottoming around 38. However, if there is a negative candle in the wake of today’s payrolls (likely if there is a strong report), then this would be very disappointing for the outlook once more. A close above $1290 would certainly help an improvement, but ultimately a move above the resistance band $1298/$13021 is needed to drive decisive recovery again. Below $1276 is a key downside break.
WTI Oil
The bulls are hanging on to the ten week recovery by their fingernails as the consolidation on oil shows little sign of ending. A run of small bodied candles in recent days as the market has fluctuated in the tight two week consolidation between $55.00/$57.90. The uptrend comes in at $56.40 today and remains under pressure (Brent Crude has already broken its equivalent uptrend) but unless the support at $55.00 is broken, it would simply be part of an extended consolidation rather than any serious negative signal. The near term momentum indicators are slipping a shade lower, but importantly still within strong medium term configurations, suggesting that near term corrections remain a chance to buy. Above $57.20opens $58.00 again, which is the medium term pivot line which is protecting the 50% Fibonacci retracement at $59.60.
The signs of a correction have been growing in recent sessions as the rally has rolled over. However now with a fourth negative daily candlestick in a row, the corrective momentum is now beginning to accelerate. The consolidation of the 76.4% Fibonacci retracement at 25,715 has been decisively breached now and the market is now busy retracing the rally. Whilst initial support at 25,310 has held for now, a retreat to the 25,000 level is increasingly likely now. 25,000 has previously been a pivot area but this is also around where the 61.8% Fibonacci retracement is at 24,950. Momentum indicators have taken a sharp move lower, especially with the Stochastics accelerating lower and the RSI which is now below 50. The MACD lines have also posted a bear cross. Intraday rallies are a chance to sell, with the hourly chart showing initial resistance at 25,630 under the 76.4% Fib level which is now a basis of resistance at 25,715.
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