Market Overview
As traders look ahead to the ECB monetary policy and Non-farm Payrolls, the key risk events of the week, there is still uncertainty over how to react to the implementation of Trump’s trade tariffs. According to White House officials, there are likely to be some exemptions for key US trading partners, Canada and Mexico, an announcement that has once more helped to settle investor nerves.
Trump is expected to sign the tariffs today. However, whilst equity markets have certainly ben fixated on Trump’s tariffs, in forex, there has been a consolidation in front of a crucial monetary policy announcement by the European Central Bank. The minutes of the December meeting suggested the ECB would look towards shifting its forward guidance to possibly prepare the market for an exit of its Asset Purchase Programme early this year. That was taken to be in this March meeting. However Governing Council President Mario Draghi is a cautious dove and the threat of a trade war with the US could give him another excuse to get the ECB to hang back from any hawkish shift, even if it is very minor. Quite how unanimous the decision would be will be interesting, and one for the press conference. This all may mean a slight disappointment for the euro bulls could be on the cards.
Wall Street closed well off its lows to only end the day marginally lower with the S&P 500 -0.1% at 2727, with Asian markets slightly positive across the board (Nikkei +0.5%). European markets are flat to slightly higher as trader temper the improved sentiment over tariffs with caution in front of the ECB.
In forex, there is almost no direction of note across the majors, however the Canadian dollar has picked up a touch following the White House announcement.
In commodities, gold is marginally higher by $2 whilst oil is consolidating after yesterday’s correction.
The ECB monetary policy decision at 12:45 GMT will garner huge attention from traders. The ECB will not change rates from 0.0% on the main refinancing rate or -0.4% on the deposit rate (still expected to be mid-2019 likely around when the ECB will make a move on rates), whilst the Asset Purchase Programme is expected to be maintained at €30bn per month until the current APP ends in September. However could the wording of the ECB statement be tweaked with a view to potentially announcing in June that the APP will be wound down perhaps at the in September or December?
The statement currently notes that if the outlook becomes less favourable then the Governing Council stands ready to increase the APP in size and/or duration. This could be re-worded to sound less dovish, but given recent market uncertainties, this may be unlikely. Euro and Bund traders will also be especially interested in the comments of Mario Draghi in the press conference at 1330GMT. On the data front, US Weekly Jobless Claims are at 13:30 GMT and are expected to be slightly higher at 220,000 (from an extremely low 210,000 last week).
Chart of the Day – GBP/JPY
The failure of the long term pivot band between 146.90/148.00 in the past week has been a significant change in the medium to longer term outlook. This 110 pip band has been pivotal for the major moves in the past 15 months, but losing the support now switches the longer term outlook negative. This pivot band now becomes a basis of resistance with Tuesday’s rebound high hitting 148.00 before turning lower again. This also came at the confluence of the resistance of the underside of the old primary uptrend and the resistance of a four week downtrend. The four week downtrend has been breached by the consolidation today, but the negative outlook remains on the daily chart. Trading below all the moving averages and with momentum indicators in negative configuration rallies are now a chance to sell. The hourly chart shows a mixed outlook near term with a rebound in yesterday’s session muddying the waters, but whilst the resistance at 148.00 remains intact the sellers will be in control. Initial resistance is at 146.65.
The euro has maintained its recovery move, with momentum indicators all pointing towards further gains, however the ECB monetary policy decision adds a crucial dimension to directional moves today. The market is initially consolidating, with a very mildly positive candle yesterday followed by an early slip of a few pips today. However this is understandable in front of what could be a volatile afternoon for the pair. Ahead of the meeting, momentum indicators are strong and with the MACD lines crossing higher as the Stochastic and RSI advance, in addition to the move above $1.2360 (which is now near term supportive), this all suggests that buying into weakness remains the strategy. Yesterday’s high of $1.2445 is initially resistance and given the Average True Range of 80 pips currently (we are highly likely to see a high/low range of more than this today), either of these levels are likely to be tested.
Ahead of the key risk events of the week, Cable is consolidating. Cable will be impacted by any second round impact on the EUR/USD from the ECB meeting, whilst payrolls is also on the agenda tomorrow. The recent recovery has been slow and steady but has also added around 160 pips in the past week. However, the bulls will still be aware of the resistance of the falling downtrend of the past six weeks which is a barrier at $1.4000 now. This comes as rallies during that period still see selling pressure at lower levels, whilst momentum indicators are still struggling for positive traction. The hourly chart shows initial resistance at $1.3930 from yesterday’s high, whilst hourly momentum has rolled over again this morning. A move below $1.3845 would resume near term corrective momentum again, with subsequent support at $1.3815.
The pair is now in consolidation mode under the old support at 106.35. The last couple of candlesticks have small bodies and this reflects the near term uncertainty as once more the market has tested 105.50 but failed to make the decisive closing breach of support. The resistance of the eight week downtrend is closing in though now, falling at 106.75 today, and with daily momentum indicators still negatively configured, the downside bias remains strong and rallies are seen as a chance to sell. The hourly chart shows this consolidation (which is often seen as the market approaches Non-farm Payrolls), with moving averages converging and momentum indicators oscillating around neutral configuration. Above 106.35 opens 107.10 but a retest of 105.50 is the preferred bias, with a close below being a key breakdown. Intraday support from last week is at 105.23.
Gold
The bulls just cannot find the traction in the recovery, as another retracement candle has put the brakes on the rebound again. There is a trend of higher daily lows in the past week which gives a mild positive bias to the near term outlook, with yesterday’s low of $1322 therefore supportive now as the market has ticked higher again. However momentum indicators reflect an indecisive rally as the RSI hovers around 50 and the MACD lines flatten around neutral. The failure at $1341 is also a concern for the bulls. The hourly chart shows a broken recovery uptrend in the past week as the market dropped back late in yesterday’s session. This has left near term resistance at $1332 as an old pivot. Hourly momentum is also fairly mixed. With initial support at $1322, a breach of the reaction low at $1317 would re-open the lows, whilst the bulls will be eying a break above $1332 to open the $1341 resistance which remains key near term.
WTI Oil
The market sold off yesterday despite a very slightly lower than expected EIA crude oil inventories announcement, to form a strong negative candlestick that now threatens the bottom of the symmetrical triangle that has formed over recent weeks. This leaves key near term resistance at $63.30. It was interesting to see the negative candle test the trend support with a low of $60.60 but the trend has held firm as the market has consolidated in early moves today. The daily momentum indicators paint a neutral picture on a near term basis, with the RSI oscillating within increasingly tight levels and the MACD lines gravitating towards a consolidation around neutral. However, the Stochastics show there is a threat of a slight bear bias forming. The support of the uptrend within the triangle comes in around $61.00 today, whilst the key near term support of $60.20 will be a gauge for direcion. The hourly chart shows $63.30 is actually a pivot over the past month, with $64.25 being key resistance now.
The market gapped down at the open yesterday and remained under pressure but once more it was interesting to see the Fibonacci retracements of the big sell-off from 26,616 to 23,360 continue to play a key role in turning points. The 50% Fib level at 24,988 capped the rebound earlier in the week, whilst the 38.2% Fib level at 24,605 was a basis of support in yesterday’s session. This plays into the increasingly choppy trading conditions of recent weeks, with the momentum indicators reflective of this. With the market seemingly now trend lasting for two or maybe three sessions before retracements set in, the MACD lines have flattened off and the RSI is now hovering under 50. This reflects the uncertainty on Wall Street now. Initial support comes in at yesterday’s low of 24,571 which the bulls will now look to defend from a retreat back towards last week’s low at 24,218. However, there is still a slight negative bias on the hourly momentum indicators and the longer the resistance at 24,995 stays in place the more at risk of downside bias there will be. A close above 24,995 would improve the outlook again, with the 61.8% Fib at 25,373.
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