Market Overview
Forex majors are consolidating today with the focus turning back to US politics and the Fed as market participants look towards a potential key vote in the Senate on US tax reform and also to find out the views of the incoming Fed chair Jerome Powell.
The US dollar has been under increasing pressure in recent days as key levels of support have been broken. The Trade Weighted US dollar has broken below support of the key October low as the greenback has fallen to multi-week lows against the euro, yen and also sterling. This comes as markets look to what could be a critical vote in the Senate on the Republican tax reform bill at the end of this week. As things stand there seem to be a handful of Republican senators who could vote against the bill, needing just two to scupper its progress. However there is a more immediate focus today with the confirmation hearing of Jerome Powell’s appointment as chair of the FOMC, before the senate banking panel.
Powell will give testimony and his views over inflation and regulation will be especially interesting. Powell is likely to tow a similar line to incumbent Fed chair Yellen on inflation, however his views on regulation could be less stringent. For now we see Treasury yields consolidating at the longer end, but with the 2s/10s spread still at 10 year lows around 57 basis points the relative rise at the shorter end remains a concern for markets.
Wall Street closed somewhat mixed last night, with the Dow posting another intraday all-time high only to slip back into the close. The S&P 500 was all but flat on the day at 2601. Asian markets were also cautious today with the Nikkei -0.1%, whilst European markets are cautiously higher this morning. In forex there is very little direction across the major pairs, with the slightest outperformance on the Kiwi the only real mover on the upside, whilst the yen is slightly weaker. In commodities, gold and silver are trading around the flat line, whilst oil is a touch cautiously lower ahead of tomorrow’s key OPEC meeting.
The US data in the afternoon is the main focus, however prior to that Bank of England Governor Mark Carney testifies before the Treasury Select Committee from 10:00 GMT over the recent November Quarterly Inflation Report. Sterling is likely to be reactive.
The US data starts in earnest at 14:00 GMT with the S&P Case Shiller House Price Index which is forecast to 6.1% from 5.9% last month which would again be the highest since July 2014. The Conference Board’s Consumer Confidence is at 15:00 GMT and is expected to 124.0 from the extremely strong 125.9 last month. The Richmond Fed manufacturing index is also at 15:00 GMT having remained positive above zero at +12 last month.
Chart of the Day – FTSE 100
UK equities have seen their rebound rolling over in the past few sessions and now there is some traction forming in the downside once more. Having failed around the 7437 neckline of the October/November top pattern recently, yesterday’s intraday rebound failed right at the neckline resistance to form a bearish engulfing candle but with the added negative factor of closing at the day low yesterday. This was the lowest close in over a week and momentum looks to be building to the downside now. The initial move today is one of cautious consolidation but the momentum indicators are turning lower again but with downside potential, with the RSI dropping back below 40, Stochastics crossing lower and the MACD lines also turning down. Initial support is at 7373 but the main support is at 7350 is near term key. A breach continues to move lower that was called from the top pattern that implies a 130 tick downside move towards 7310. The resistance of the neckline at 7437 grows further with a move above 7461 needed to chance the outlook now.
After the recovery has pushed back above the right hand shoulder resistance at $1.1880 the outlook has changed to being far more positive for the bulls once more. This breach of the October resistance means that EUR/USD reached a nine week high at yesterday’s high of $1.1960. An intraday drop away has left a negative candle but as yet this is nothing for the bulls to be unduly concerned about. It is likely that this will be another unwinding move within the three week uptrend. The breakout at $1.1880 is now supportive near term but the uptrend is further back at $1.1785 today and there is still room for further unwind. The momentum indicators are now positively configured on a medium term basis, with the MACD lines rising above neutral and all RSI, Stochastics and MACD lines confirming the move to a nine week high. Look to buy into support with the hourly chart showing support in the band $1.1850/$1.1890 and momentum having unwound to renew upside potential.
Cable continues to probe for a confirmed breakout above the October high at $1.3335. There have been several occasions in recent days where the market has looked to make the break only for the move to lose traction. Subsequently in the three consecutive completed sessions where $1.3335 has been tested, the bulls have failed. This has resulted in yesterday’s corrective looking negative candle which ended closing around the day low. There does though seem to be another attempt at the resistance underway this morning, and it will be interesting to see how the bulls react to another failure to breakout on a closing basis. Momentum indicators are more positively configured, with the MACD lines now tracking higher above neutral, however there is a nagging doubt with the RSI struggling around 60. A two week uptrend is holding on the daily chart and the important level to watch is $1.3275. Hourly momentum looks supportive again but the bulls really need to confirm a breach of $1.3335, which would then open $1.3450.
Rallies remain a chance to sell on Dollar/Yen as the market continues to track lower within a sharper downtrend that is now nearing two weeks in length. Each time the pair bounces, the sellers resume control at lower levels and the market continues lower. The old pivot around 111.00 is now being tested however there is an increasing concern that now the 38.2% Fibonacci retracement at 111.35 has been breached to the downside there is a potential for the 50% Fib level to come into play at 109.35. Momentum indicators are increasingly correctively configured now with the MACD lines falling below neutral, the Stochastics firmly below 20 and RSI below 40. The latest rally failed at 111.62 which becomes the key resistance near term and rallies remain a chance to sell. The hourly chart shows the overnight rebound failed around a near term pivot resistance at 111.30. A retest of yesterday’s low at 110.85 and further weakness can be expected.
Gold continues to move mildly higher in its run of higher lows and higher highs in the past few weeks. This move is now putting pressure on the long term pivot range $1300/$1310 and it was interesting to see yesterday’s high of $1299.10 before the market backed away again. The resistance at $1300/$1310 would be a key break, so it is not unexpected that the initial move has been rebuffed. However, the technical outlook remains positive for continued pressure, with the RSI rising into the mid-50s and MACD lines beginning to push above neutral. Friday’s low at $1285.70 is initially supportive but more as a gauge of the test of resistance rather than any failure of the continued run of support. The move on the long term pivot also seems to be running with the US tax reform progress and this is still likely to be a driver of any breakout. Considering the studied move on the resistance a breakout is likely to be key, with October’s high of $1306 now clearly in sight. Key support building around $1275.
WTI Oil
Having posted another two year high at $59.05 on Friday, a negative candle formed yesterday could now provide another opportunity for the bulls. Corrections within the medium term uptrend continue to be a chance to buy. There is a minor concern though with a hint of a negative divergence potentially on the momentum indicators. However there would need to be further negative candles formed in the coming days for this to really take hold. For now, the breakout around $57.90 is a basis of underlying demand, with a near term band of support $57.55/$55.90. The hourly chart shows momentum having unwound to turn higher again with renewed upside potential for a retest of the high at $59.05, whilst the next resistance above the round number $60 comes in from mid-2015 at $61.50. The main caveat in the coming days as to ow the market will react is the OPEC meeting on Wednesday.
The bulls remain in control of the outlook following last week’s breakout above 23,602. Since that break the market has been holding in a consolidation band above the old pivot at 23,485 and still seems to be building for the next leg higher. Corrections are once more seen as a chance to buy. It would be a near term set-back for the bulls to lose support at 23,485 but unless there were to be a closing breach of the support at 23,243 the move would be seen as another opportunity for the bulls. The market posted another intraday all time high yesterday at 23,638 and although the bulls retreated into the close there is little sign of any real growing bearishness. Momentum remains positive and the RSI and Stochastics both have upside potential in the near term.
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