Market Overview
The prospects of a near term dollar recovery have been mixed throughout recent days. Initial signs that the selling pressure on the greenback had gone too far have failed to generate the traction in a recovery of any real note.
Subsequently, the embattled dollar bulls have not had the boost they would have hoped for and traders will look towards any hawkish hints in today’s statement on the Federal Reserve monetary policy.
Traders are not anticipating any surprises, with expectations for a March hike showing a 75% probability according to Fed Funds futures. So with this being Janet Yellen’s final FOMC meeting, could there be any hawkish hints? Jerome Powell is very much a continuity chair and taking into consideration the miss on Q4 and downward revision to Q3 GDP in the recent Advance reading, there is little pressure to accelerate tightening. It is highly likely to be a rather dull FOMC meeting. Although the dollar and Treasury yields are likely to acknowledge the meeting, expect no great shakes.
Overnight there was a marginal miss on the China Manufacturing PMIs which dropped to 51.3 (51.5 exp, 51.6 last), which may act as a minor drag on commodity currencies today.
Wall Street again closed sharply lower, for a second day, with the S&P 500 -1.1% at 2822, whilst Asian markets were also weaker overnight (Nikkei -0.8%). European markets look cautious in mixed moves today.
In forex, the impetus in a dollar rally is struggling, as the dollar struggles across the majors, with the Aussie also underperforming after a slip in Australian inflation overnight.
In commodities, the dollar weakness is helping to support gold by $4 higher, whilst oil is under pressure as the API oil inventories again showed a build.
Traders will be kept on their toes today with a raft of tier one economic data. Starting with Eurozone flash January inflation at 10:00 GMT which is expected to show the headline inflation dropping slightly to +1.3% (from +1.4%), whilst the core inflation is expected to tick slightly higher to +1.0% from the downwardly revised +0.9% last month.
Eurozone unemployment is expected to stick at 8.7% too.
In the US data the ADP Employment change is at 13:15 GMT and is expected to be +185,000, whilst the Employment Cost Index is at 13:30 GMT and is expected to drop slightly to +0.6% whilst Pending Home Sales are at 15:00 GMT and are expected to be +0.4% on the month. EIA oil inventories are at 15:30 GMT and are expected to show crude oil stocks in drawdown still by -1.5m barrels (which would be an 11th straight week of drawdowns), with distillates also in drawdown by -1.5m and gasoline stocks building by +1.5m.
The FOMC monetary policy meeting announcement is at 19:00 GMT and is expected to contain few surprises, with no change to the Fed Funds rate range of +1.25% to +1.50%.
Chart of the Day – GBP/AUD
Sterling has been extremely volatile for over a week now, but the wild swings seem to have just turned back higher again in favour of the sterling bulls. With support forming around the old 50 pip pivot band 1.7365/1.7415, the bulls appear to have grasped control again. In the past few months this has been a key area for the market to turn on, with the earlier resistance of January now being supportive. Has this now curbed the selling pressure on sterling? Daily momentum indicators are swinging higher again in bullish configuration. Also, the improvement in the outlook on the hourly chart has brought the market back above a near term pivot around 1.7460/80 which has become supportive early today. Hourly momentum indicators are on the brink of turning positive again and resistance around 1.7600/1.7665 is open again. There is key support now in place at 1.7350, which is a higher low above 1.7270 and 1.7110.
At the most in the past few sessions, there has been a 200 pip correction back from the high last week at $1.2535. However, on a technical basis this is still merely a consolidation phase for EUR/USD. This is reflected in the fact that although a two week uptrend has been broken, the support of the breakout at $1.2320 remains intact. Momentum indicators remain positively configured but has lost their impetus in a drive higher. A series of neutral to slightly negatively biased candles have also taken form as part of a mini drift lower in recent days. However, the market has found support again today and is looking to push slightly higher. The hourly chart shows a consistent move above $1.2455 would improve traction to open the resistance at $1.2495 and the key high at $1.2535. Today’s low at $1.2395 is initially supportive above $1.2320/$1.2335.
Just as it looked as though Cable was beginning to find traction in a break back below $1.4000, an intraday turnaround has flipped the bulls back into the driving seat, and rallying the price over 200 pips in the process. These strong moves of recent days have seen the Average True Range spike to 12 month highs above 150 pips as the intraday volatility continues. With the support coming in back in at $1.3975, a strong bull candle yesterday and continued gains today, it is difficult not to say that the bulls are now eyeing the highs again at $1.4345. The daily momentum indicators have picked up again and whilst this could still be playing out as a large near to medium term topping process, for now the buyers are still happy to support. The intraday chart shows that there is a pivot band around $1.4080 now which is supportive, whilst the initial resistance at $1.4285 is within range today. Once more the choppy outlook has switched and weakness is being bought into. With the raft of tier one data this week, this situation may not last for long though.
The dollar remains under strain as pressure grows on the recent low at 108.27. There continues to be very little sign of any recovery for Dollar/Yen as momentum indicators remain firmly in negative configuration. However, it could be argued that the market is beginning to lose downside momentum as a move to test the 108.27 support failed yesterday, whilst the RSI and Stochastics seem to have plateaued for now. Reaction today could be key as to whether the market is gathering support for a recovery, or whether it is merely a pause for breath in the sell-off. Hourly momentum is relatively benign, however the resistance is in place initially at 109.20 and there is little real improvement in the outlook yet. The market seems to be in wait and see mode, but with the negative bias in the daily signals, the risk remains to the downside.
Gold
As the bulls have lost control, the broken six week uptrend becomes a basis of resistance now, as does the old support around $1344. There is also a deterioration in the momentum indicators with the RSI, MACD and Stochastics all in the process of turning lower. However the selling pressure that may have taken hold is not decisive yet and the market is still holding up fairly well as the bulls again look to support today. There is a feeling that the market remains at a crossroads near term and could still turn either way. There is a series of lower daily highs in the past few sessions, with the market again failing at lower levels yesterday, at $1349, before an encouraging session deteriorated into a mildly negative candle. The early rebound again today is up to the old resistance around $1344 and another failure around here would begin to increase the pressure for a correction back towards $1324, the next basis of support. The hourly RSI shows the market failing around 60 on the RSI and MACD lines consistently unable to gain traction above neutral. A decisive move above $1349 is needed to improve the outlook, but below $1334 really opens the downside now.
WTI Oil
A second successive strong bear candle has decisively broken the support of a six week uptrend and looks to have ushered in a corrective phase. Momentum indicators are deteriorating with the RSI falling at a five week low whilst MACD and Stochastics lines are also posting near term sell signals. The key near term support is at $62.85 and a breach would open a far deeper correction now. The confirmed breach of the support at $64.90 now means that this is a basis of resistance near term. The hourly chart shows a small top pattern having formed below $64.90 and implies a retreat to the low at $62.85. There is a small band of resistance now $64.65/$65.20. Initial support come in at $63.65 today.
The selling pressure was cranked up several notches yesterday with a significant bearish session on Wall Street which opens the market for a near term correction. A big gap lower has formed to decisively break the four week uptrend, in a move that has shifted the sentiment on the chart. There is now a gap that was left from the opening decline, now left at 26,435 which could even now be a “breakaway gap” which can come at the beginning of a new market move. The bulls will need to fill this gap quickly. The initial support is at 25,943 with the support of a longer yet shallower uptrend coming in at 25,710 today.
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