Market Overview
Markets remain volatile as another sharp swing lower on Wall Street tech stocks is driving equities lower and rippling through the asset classes.
A tech sector related decline sent the Nasdaq lower by over 3% yesterday, dragging broader markets lower and most interestingly of all pulled the US 10-Year yield below a key near term floor at 2.79%.
The US dollar lost much of its earlier headway as a result and subsequently what looked to be a potential near term rally seems to have been another selling opportunity on the greenback. However, such is the uncertain nature of these markets which are struggling for near term decisive direction, we find the dollar holding p well against major pairs this morning.
All this noise can be distracting for traders, but the medium term corrective trends on equities and longer term bear move on the dollar continue. Market fears over a trade war are still present and whilst this is the case there will be a negative bias in markets.
Wall Street closed strongly lower again as the volatility continues, as the S&P 500 was down -1.7% at 2613, whilst Asian markets were similarly negative overnight (Nikkei -1.7%) and European indices are opening weaker.
In forex there is a mixed outlook across the majors, with the yen weakening and the dollar relatively stable in early moves.
This is reflected in commodities too where gold is slipping a touch and oil is lower on a build in US inventories.
It is once more a fairly quiet European morning of economic data, so traders will have to wait until the US comes on line for their fix of data. The final reading of US Q4 GDP is at 13:30 BST and is expected to show a slight upwards revision to +2.7% (from the Prelim read of +2.5%). Pending Home Sales are at 15:00 GMT and are expected to improve by +2.1% (having deteriorated by -4.7% last month).
After the API inventories showed a higher than expected crude build, the EIA oil inventories at 15:30 BST will be interesting and are expected to show crude oil stocks back into inventory build with +1.0m barrels; whilst the distillates are expected to again be in drawdown by -1.5m barrels; and gasoline stocks are expected to drawdown by -2.5m barrels.
Chart of the Day – EUR/JPY
Since September there has been a pivot band 131.15/132.00 which has marked an area of key turning points. Initially as support but, more recently, in March as a basis of resistance. Monday’s sharp bull candle looked to be turning the tide for the euro bulls once more, but the rally has once more found the pivot band 131.15/132.00 as a basis of resistance. A decisive negatively configured (almost shooting star) candle has formed as the euro rally against the yen has faded. This once more increases the importance of the pivot resistance in place with a series of highs in recent weeks between 131.80 (yesterday’s peak) and 132.42 (the March intraday high). However, there is still an uncertain look to the chart, with momentum indicators looking to pick up again (much due to the strong bull candle on Monday) and it will be interesting to see how the bulls now respond to yesterday’s failure. An early rally is again eyeing the pivot band 131.15/132.00, however with the building resistance and rallies consistently failing, the importance of the pivot is growing. A closing break above 132.00 is still needed to really turn the recent negatively trending move around. The support of last week’s low at 128.95 is key.
A stumble of day for the bulls as they have just had their near term control questioned by a negative candle. A renewed positive candle today would help to settle the nerves, but with the market showing little direction from the Asian session, all is to play for. The intraday breakout to a new March high above $1.2445 seen earlier this week could not quite be sustained and with the momentum indicators just stuttering, we still await confirmation that the bulls have got the decisive control back. The RSI is stuck in the mid-50s whilst the MACD lines are also showing little traction. However, the bulls will point to a series of higher daily lows in each of the past five sessions, meaning that $1.2370 needs to be watched as yesterday’s low. There is though a marginal bull bias still with positive configuration on the hourly chart, but the bulls need to breakout above $1.2475 now to open the key February high of $1.2555.
The market is looking to settle down after yesterday’s very volatile session. A high to low range of around 180 pips is way above the Average True Range of 109 but what was interesting was the support holding. An old near term pivot around $1.4070 all but held (the low of the session was $1.4064) which maintains the positive outlook for the market also building support above the $1.4000 breakout. Renewed buying has taken on with the market bouncing back in the Asian session today. The question is whether the bulls can maintain the recovery momentum, the hourly chart shows the rally is progressing well. With the corrective forces of a bearish key one day reversal avoided yesterday, the resistance of this week’s highs at $1.4243 come back into range once more. Momentum indicators are positively configured and the importance of the support around $1.4070 is growing as the market continues to buy into weakness.
The recovery from 104.55 poses more questions than answers as the market posted a very uncertain candle yesterday. The initial run higher in the recovery rolled over at 105.90 and now there will be bull concerns that this will begin to market the posting of yet another lower high. The market is still trading below all the falling moving averages whilst momentum is negatively configured and no key resistance levels have yet been breached. As such, rallies will continue to be seen as a chance to sell. Yesterday’s candle failing at 105.90 came just under the falling 21 day moving average (c. 106.00) which has been a good basis of resistance for several weeks during the run lower in the early months of 2018. An early rebound today is forming a positive candle but there is no real conviction behind the buying. It needs a move above 106.65 to at least break the sequence of lower highs. In the absence of this, the risk is for the rally to simply fail once more.
A corrective candle saw gold dropping back by $9 yesterday but the bulls will be now looking at whether this is a chance to buy or the beginning of the next move lower within the medium term sideways range. The support band between $1330/$1341 will be key to this. This is a series of old breakout highs from earlier in March that are now supportive. The reaction to these levels will signal the near term intensions. Momentum indicators are already rolling over and losing their upside impetus as the market is struggling again early today. Resistance has been left at $1356.70 which now becomes a barrier to the range highs again. The hourly chart shows the bull momentum has been lost and pressure on $1341 is mounting. Effectively, a breach of $1341 also would complete a small top pattern which implies around $15 of downside, so it is important near term. With the trading range having built between $1300/$1366 in the past few months, it should not come as a surprise that trend signals do not last for long.
WTI Oil
The rally looks to have stalled, at least for now, as another mildly corrective looking candle was posted yesterday. Essentially, the momentum remains positive on the daily chart and the key high at $66.65 remains in reach (the Average True Range is around $1.50) but the bulls are having a breather. The support band around $64.25 remains an important near term pivot for the bulls to maintain control, whilst a move below $63.30 would change the outlook to corrective again within the long uptrend. The early weakness comes with the surprise increase in the API inventories build, so today’s EIA inventories are going to be a key volatility factor for this week.
The market has again reversed course as the rally from Monday has been unwound by a sharp intraday sell-off on the Dow. The fact that this sell-off reversed at 24,446, around the overhead supply at 24,453 is also of notable concern for the bulls. The problem is that due to the precipitous selling pressure last week there is a considerable degree of losses to unwind. Momentum indicators retain their negative configuration retain their negative configuration and the failure of yesterday’ intraday rally will merely add to the concerns that rallies remain a chance to sell. A move back below yesterday’s low at 23,709 would re-open the low at 23,509 whilst a full retracement back to 23,360 cannot be ruled out.
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