Market Overview
It is Non-farm Payrolls Friday and there is a cautious outlook across forex markets ahead of the release with the dollar trading mildly weaker. The Fed still claims to be data dependent and the mixed batch of US data recently which drove an initial correction for the dollar followed by a retracement of the move which sets us up fairly cautiously once more for the payrolls. The consensus is expecting a somewhat middle of the road batch of data and a report that will do little to ignite the fires inside the bellies of the FOMC hawks. It could therefore be a rather uncertain reaction to the report today. Markets are mildly dollar negative in early trading today, with Sterling look to unwind some of yesterday’s losses in the wake of the Bank of England’s surprisingly considerable easing measures. Treasury yields are showing little sign of a rally after dropping yesterday afternoon. Despite the strong gains in Europe yesterday, Wall Street was unable to gain traction with the S&P 500 +0.1% and Asian markets were mixed to slightly higher (Nikkei flat). The positivity of one of the major central banks easing monetary policy is again boosting European markets at the open, but there will still be an air of caution in front of payrolls.
In forex, the dollar is mildly weaker against almost all the majors, with the Aussie and Kiwi positive as the Aussie looks to challenge overhead key resistance, coming despite the RBA rate cut earlier in the week and a cautious RBA quarterly economic statement today. Gold and silver remain supported after gains yesterday. The oil price has managed two days of recovery but is back lower by 1% today.
Markets will be focused on the US Employment Situation today at 1330BST. The headline Non-farm Payrolls are expected to be 180,000. However average hourly earnings are as much a part of building a true reflection of the report and they are expected to be +0.2% for the month and stay at +2.7% for the year. Unemployment is expected to drop back to 4.8% and it will be interesting to see the impact this has on the participation rate which last month rebounded to 62.7.
Chart of the Day – AUD/USD
Can the Aussie sustain this move higher? The Kiwi has been giving off more corrective near term signals but the Aussie looks technically better positioned now. The uptrend (which is currently supportive today at $0.7515) that has been in place since the key May lows at $0.7145 continues to pull a squeeze on the Aussie for a test of the resistance band $0.7650/$0.7675 which is again being seen today. The strong near term configuration on the momentum indicators remains in place but it will be interesting to see how the Aussie reacts around 60 which has previously tended to be a prohibitive level in recent weeks. Could this time be different? The Stochastics are rising positively which reflects strong near term momentum (as the Stochastics are the most sensitive of the momentum indicators that I look at). Yesterday’s bull candle certainly puts the bulls in good stead moving into the Non-farm Payrolls report today. The hourly chart is positively configured trading above all rising moving averages, whilst the correction earlier in the week bullishly used the support of the old pivot around $0.7575 as a basis for the next push higher. Initial resistance at $0.7640 has already been breached to open $0.7675 with the pivot at $0.7575 acting as the key near term support. One caveat is that volatility is likely in the wake of today’s payrolls.
After the run higher was halted by a strongly corrective candle on Wednesday, a second negative candle has confirmed the bull recovery has come to an end. This has had an impact already on the momentum indicators that have seen the Stochastics give a bear cross sell signal, the RSI turn lower from around 60 again and the MACD lines starting to plateau around neutral. The market is likely to be fairly settled moving into the Non-farm Payrolls report today but there is now a more mixed medium term outlook. The pair is trading above the pivot bands between $1.1050/$1.1100 so I am mindful that this puts a mildly positive slant on the outlook but the failure of the recent rally will be a concern for the bulls as the failure of previous rallies has tended to be followed by a consistent slide. The hourly chart shows the breach of support at $1.1150 yesterday has now become a basis of resistance and the more corrective configuration on the hourly momentum suggests that there is a move back to test the pivot bands again. Expect volatility and decisive market direction after payrolls.
The near term outlook took a pummelling yesterday in the wake of the larger than expected package of monetary easing from the Bank of England. However the daily chart shows that the key support at $1.3060 remains intact and whilst this remains the case the outlook will be neutral for the medium term. The momentum indicators continue to have the look of a bear market rally and with the RSI and Stochastics rolling over yesterday the pressure is growing once more to the downside. The sharp bear candle which closed all but on the low of the day puts Cable on the brink ahead of Non-farm Payrolls and a strong report would drive dollar strength and pull a test of the key $1.3060 support. A closing breakdown would be negative and re-open the psychological $1.3000 and then the $1.2796 low from early July. There has been a minor rebound early morning today and the pivot level at $1.3160 comes back into play as resistance. The bulls will be eying a close above this pivot to try to begin a rally again. Yesterday’s low at $1.3100 is supportive initially.
The dollar has been in recovery mode against most of the majors in recent days, but there has been little real sign of it on the chart of Dollar/Yen as the yen has remained strong. A small bull candle on Wednesday has been followed by a small doji yesterday and again a lack of direction today. There is a sense that the market could be biding time in front of the payrolls report today (which should drive some direction). However the negative configuration of the momentum indicators suggests that any rallies are still a chance to sell and although the initial support at 100.65 is intact, a test of 100.00 may not be long in coming. The hourly chart shows a consolidation in the past few days and that the overhead resistance is coming for now with the old pivot level at 101.45. There is a more significant band of resistance at 101.95/102.85 which is a decent looking sell zone for any reasonable rallies.
Gold
The easier monetary policy from the Bank of England has given gold some support again and the buyers returned into the afternoon yesterday. The outlook subsequently remains positive and the immediate prospect of a correction has been reduced. The posting of a minor positive candle has been followed early morning by further support today. The initial threat of a bit of profit-taking has waned but clearly gold will be volatile on today’s Non-farm Payrolls data. Technically the momentum looks positive with the RSI above 60 and the MACD lines looking to cross positively. The Stochastics are also in positive configuration, although they do need to sustain the bull run to prevent a rolling over. The hourly chart shows the use of the pivot level support above $1346 which has been a feature throughout this week and the importance of this support is growing. The bulls are looking to retest the $1367.30 rally high from Tuesday but there could be a degree of reticence in front of payrolls. The key resistance remains $1374.90 above which is another multi-year high with the price then back to levels not seen since March 2014 and the $1391.75 high.
WTI Oil
The potential for a recovery on the oil price has improved significantly by the price action of the past couple of days. The fact that Wednesday’s sharp rally after the EIA oil inventories report was held by the market on Thursday could bode well for the bulls. However there are still some significant hurdles to overcome before there is any realistic call for a sustainable recovery. The overhead resistance of the high at $41.88 which is also the 38.2% Fibonacci retracement of the $26.05/$56.67 rally needs to be decisively breached on a closing basis (and not by just a few ticks as was with last night). The RSI needs to also at least hold above 40 which would suggest traction being gained in a recovery, whilst the Stochastics need to sustainably rise through 20. Interestingly also the underside of the old downtrend channel is a form of resistance, today at $42.30. The hourly chart shows that the downside impetus has shifted out, with the hourly MACD lines more positively configured. The hourly chart also shows that a move today back above $41.88 would complete a near term base pattern which could also imply a rebound to $44.50. This is all above the key support now at $39.20, whilst holding on to yesterday’s low at $40.45 would be an important step for the bulls.
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