Market Overview
Forex markets have become increasingly volatile in recent days and moves overnight on the dollar show this to be continuing.
Mario Draghi could not reverse the course of the strengthening levels of EUR/USD yesterday, however Donald Trump may just have done something to change the course for the dollar.
The greenback has been a beleaguered currency against the majors in the early weeks of 2018 and this week the moves have been accelerating on the back of comments from US Treasury Secretary Steve Mnuchin that a weaker dollar was positive for US trade. However Trump contradicted Mnuchin’s comments and said that the dollar would get “stronger and stronger”. Furthermore, Mnuchin himself in a panel discussion in Davos has seemed to pull back from his previous comments as well. Volatility has returned to the currency markets with wild swings overnight (Cable fell 160 pips in less than an hour last night) and the moves continue this morning as losses are rebounding. Has Trump changed the course of the dollar? The reaction through the European session and US trading today could be key. Add in the not small factor of Advance US GDP and this could be a session not for the feint-hearted.
Wall Street closed mixed to higher, with the S&P 500 barely higher by +0.1% at 2839, whilst Asian markets have been mixed overnight (Nikkei -0.4%). European indices look to recovery some of their sharp recent losses in early moves.
In forex, a late recovery for the dollar yesterday is being given back this morning, but something suggests that the volatility is not over yet.
In commodities, gold has bounced from a late decline yesterday, whilst oil is slightly weaker.
Today is all about economic growth with the UK and US both reporting a first look at growth from last quarter. The UK GDP Q4 2017 first reading is at 09:30 GMT and is expected to show +0.4% as it did in the final reading of Q3. However with the positive surveys seen recently and stronger industrial numbers there is an upside risk.
The US Advance GDP for Q4 2017 is at 13:30 GMT and is expected to come in at +3.0% which would be slightly down from the final reading of +3.2% in Q3 but still a strong annualised number.
Durable Goods Orders (ex-transport) are also at 13:30 GMT and are expected to improve by +0.5% on the month (having fallen by -0.1% the previous month).
Central bankers are also on the agenda with Mark Carney, the governor of the Bank of England and Governor Kuroda of the Bank of Japan speaking at 14:00 GMT.
Chart of the Day – French CAC 40
European equities have selling off in recent days. The FSTE 100 has been under pressure and the DAX has also seen a sharp correction. The French CAC has been no exception, with a correction of three negative candles in a row that looked to be completing a top pattern. A move below 5474 implied around 50 to 90 ticks of correction towards 5424 or perhaps even around 5385. However, yesterday’s bear candle did not confirm into the close as the bulls bounced 25 ticks off the day low and with a close above the neckline of 5474 suggests the bulls fighting back. This is suggested in early moves today with a further rebound. However the momentum indicators are giving warnings signals as they have moved to deteriorate. The RSI is pointing to a break, the Stochastics posting a confirmed sell signal along with a bear cross on the MACD lines. The hourly chart suggests the bulls need a decisive move above the band of 20 ticks of resistance 5474/5494, whilst a move above yesterday’s high at 5525 would swing the bulls back into the driving seat again. Yesterday’s low at 5456 is now supportive.
EUR/USD
Any attempt by Mario Draghi and the ECB to jawbone the euro were inadequate yesterday. Instead it took comments from Donald Trump that he thought the dollar would get stronger through his Presidency, to see EUR/USD show signs of correction. The market has posted a shooting star candlestick which is a reversal signal that suggests there is now potential for a correction. The reaction on the pair this morning has been positive though, with the market trading higher in early moves and looking to ignore the corrective signal. Subsequently, the momentum indicators on the daily chart currently show no sign of any reversal. The hourly chart shows more of a questionable outlook, and this rebound needs to continue higher this morning to prevent the build up of corrective signals. A move above a minor pivot at $1.2460 would improve and the resistance is then around $1.2500 and the high at $1.2535.
Another volatile session on Cable with big market moves, but is the market about to reverse. Having hit a high of $1.4345 a sharp intraday correction (driven by Trump’s comments) whipsawed sterling back lower. When markets get to extreme levels of trading this is the sort of situation that can happen, with Cable then bouncing from $1.4080 to now trade back higher again today. Momentum on the daily chart is very strong and still showing little real sign of negative configuration yet. The hourly chart is a little more set up for a correction and there is intraday resistance at $1.4240 for the bounce this morning. However the bulls need to hold their regained control to prevent the market becoming increasingly toppy. Initial support at $1.4160.
An oversold rally kicked in yesterday on Trump’s comments, but as with the other major pairs, the initial bout of dollar recovery has petered out this morning. A rebound from 108.50 reached a high of 109.75 overnight only to roll over again and the market is currently forming another negative candle. With the extreme moves of recent days this elevated volatility is going to impact on the market in the coming sessions and this could still be part of the market playing out a dollar recovery. However the momentum on Dollar/Yen is negatively configured still and shows little real sign of a rebound on the daily chart. How the market plays out today could have a significant role in determining the next course of direction for the market. Resistance at 109.75 is key to this as hourly momentum loses steam of a recovery.
Gold
The importance of a breakout above the $1357.50 September high would need to have a two day close above to suggest that the market is accepting the new levels. However, a close at $1358 and subsequent sharp bear move does not suggest confirmation has been seen, yet. The six week uptrend remains intact as the market has bounced again. A move back above $1357.50 to close above would be a really positive response though today. Also, old resistance is new support with $1344 holding today. Momentum indicators are positive but also do have a tired look to them (especially on MACD lines, but also to an extent on Stochastics). Momentum indicators are turning around on the hourly chart as the market has picked up again. The intraday volatility has increased in recent days and this is still present in the market. Further resistance comes at $1366.
WTI Oil
Dollar weakness continues to be a major driver of the oil price higher and the technical on WTI are extremely strong again as WTI pushes further into new three year highs. Whilst the next resistance is $69.50 and the 50% Fibonacci retracement of the big oil bear market from $107.73/$26.05 comes in as a potential barrier at $66.90. However it is interesting to see that the last two occasions that the RSI has reached 78/79 (in November and then two weeks ago) there has been a consolidation before a near term slip again. The RSI hit these levels again intraday around yesterday’s highs before turning lower. The market hit $66.65 yesterday before pulling back. The uptrend of the past six weeks comes in at $64.30 today and is a support for an unwinding move. Watch the hourly chart for a potential rolling over of the bull run, if the hourly RSI is consistently falling below 50 this is a potential signals. Initial support at $64.90 is an old breakout support.
The Dow continues to edge higher with the buyers again looking to re-enter the market. Momentum remains incredibly strong, with intraday weakness being bought into. The support of the three week uptrend comes in today around 26,220. There is though still a hint of momentum being slightly less positive than previously seen, but for now the bulls are still in control. A move below 50 on the hourly RSI could be an early warning sign but whilst yesterday’s low at 26,107 remains intact it is very difficult to trust any corrective signals. Even then the first reaction low of any significance to be breached would be at 25,943. Yesterday’s high at 26,458 is initial resistance now.
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