Market Overview
After the FOMC was cautious and refraining from giving any hawkish hints, but with hints at a dollar rebound perhaps Non-farm Payrolls will be a much better trigger for market direction? The dollar has been under increasing pressure in recent days but a rally late in the session yesterday has hinted at a potential near term dollar recovery. The tick higher has come as Treasury yields started to pick up again and look set up for a continuation of this rebound higher today, whilst the late dollar rally has impacted across forex and commodities which are showing hints at mild dollar strength. Markets tend to be cautious in front of payrolls and today seems to be no exception to that rule. Wall Street closed all but flat overnight, Asia was mixed as are European markets early today. A strong payrolls report today could put a March rate hike back on the table, even though in the wake of the FOMC statement which gave little away, the market is still only pricing for two hikes this year (June and December).
Non-farm Payrolls always tends to get the headlines but once more the focus of this US Employment Situation report at 1330GMT could be on the wage growth. The expectations are that headline Non-farm Payrolls are expected to improve to 175,000 (from 156,000 last month) and the potential for a positive surprise has heighted in the wake of the strong beat and move to 246,000 in Wednesday’s ADP Employment Report. However, Payrolls have been averaging well below 200,000 in recent months (6 month average is 188,000), something that is more typical of a late cycle employment market where monthly growth is between 150,000 to 175,000. With this in mind, the market is focusing increasingly on the average hourly earnings growth as wages tend to be pushed up as labor becomes more scarce. Average hourly earnings are expected to grow by +0.3% for the month however this would be a slight dip for the year on year growth back from last month’s +2.9%. Unemployment is expected to stick around 4.7% so the market will look at the participation rate improving from last month’s 62.7%. It will be also interesting to see how the U6 unemployment falls back from 9.2% last month, with the gap in underemployed seeming to tighten at pace again.
The market will be focused squarely on Non-farm Payrolls but there are other important data points to be aware of today. The UK Services PMI is at 0930GMT and is expected to dip slightly to 55.8 (from last month’s 56.2). The ISM Non-Manufacturing PMI is also expected to slip back slightly to 57.0 (57.2 exp), whilst US Factory Orders are expected to grow by +1.5% for the month which would mean the highest reading for the year on year data in over two years.
Chart of the Day – DAX Xetra
Equities have certainly come under pressure from the negative market sentiment surrounding Donald Trump’s protectionist policies, and the DAX is suffering as a result. Following the sharp upside break above 11,692 the DAX has begun to reverse in the past week to leave key resistance at 11,893 and is now beginning to take on more of a corrective outlook once more. A series of lower daily highs have been posted in the past 5 sessions and a close towards the low of the day yesterday means another negative one day candlestick pattern. The hourly chart shows a near term downtrend which is now taking on negatively configured momentum indicators. The initial support of yesterday’s low at 11,604 protects the 11,535 key low from Tuesday. However the intraday rallies are being sold into, with resistance coming in at yesterday’s high of 11,676 which will be an initial gauge, whilst the near term corrective outlook would be intact whilst the resistance band 11,723/11,738 remains in place. The medium term bulls are certainly having their control questioned.
It would seem that in the approach to Non-farm Payrolls the bulls are taking a bit of a breather. The last two daily candles have actually been fairly negative, in a move that has unwound the market back towards the four week uptrend once more. Furthermore, with yesterday’s move out to an 8 week intraday high before closing back towards the low of the day, a shooting star candle has formed. So far, the reaction today has been predictably muted (in light of payrolls), but another negative candle will begin to put the pressure on. The daily momentum indicators are still positively configured, but have a degree of rolling over and could easily start to form some corrective signals. The main breakdown would be a breach of $1.0617 which would be a key reaction low breached on the daily chart. The hourly chart shows initial support at $1.0730, with the high in place at $1.0828 now protecting $1.0850/70. Non-farm Payrolls adds extra volatility to the chart today and if there is a strong report then the dollar strength could pull the pair back lower.
The dollar bulls finally looked to fight back a bit yesterday as a sell off into the close formed a bearish engulfing candlestick (bearish key one day reversal) in a move that could now change the sentiment. The rejection of a breakout has left resistance at $1.2707 before falling sharply lower. The momentum indicators have not been decisively impacted by this yet but if the move continues lower today then there could be a series of corrective signals ready to be seen. That means that today’s session could be key, however with it being payrolls today, the market is cautious initially and giving little sign of direction. The big support to watch will be the $1.2430 old breakout. A close back below would complete a top pattern and take the market back below all the moving averages again. The hourly chart shows a deterioration in the price, but the momentum indicators are mixed to slightly negative in bias, but undoubtedly the support at $1.2430 will be key. There is resistance in the band $1.2560/$1.2600 to breach to improve the outlook once more.
Once more the key support of the three week range is being tested, and once more the sellers cannot quite grasp control. Through the end of January the support at 112.50 had been key, but this level has been breached twice in the past three days only for the intraday moves to fail to gain the traction needed to confirm the break. Both times the support has formed just above 112.00 and once more the intraday rebound has continued mildly higher today and the bulls continue to hang on. The momentum indicators are negatively configured without being decisively bearish. It is interesting to see that on the hourly chart, the support at 112.50 has acted as a higher reaction low for today’s session as the downside has unwound slightly. On a technical basis, the fact that the market is continually testing the support give the outlook a bearish bias and rallies will be seen as a chance to sell until the market pulls above the 114.00 pivot resistance. Payrolls will give the market added volatility today but whilst the dollar has unwound some of the selling pressure, there is a negative outlook still within this range. A breach of 112.03 and/or a close below 112.50 would open 111.32 support.
Gold
Gold is a very similar chart to Dollar/Yen but in reverse, where the gold bulls are pulling the chart higher to test the resistance of a three week range. The $1220 resistance was tested severely on an intraday basis yesterday but the bulls could not quite sustain the breakout. A close back at $1215 suggests they will have to wait again. Non-farm Payrolls today is likely to drive the outlook for the near term and any perceived weakness in the report will be negative dollar/strong gold. The initial candle today is mildly corrective, but it will be interesting to also see the momentum indicators which are showing signs that the range is beginning to drag on the positive momentum. On a technical basis though, the hourly chart simply shows another unwinding within the recent run higher. Corrective moves have been seen as a chance to buy in recent days. The overnight low at $1210 is supportive initially and is above support at $1200 and $1197.70. Resistance is now at yesterday’s high at $1225.30 but a close above $1220 would be a bull confirmation that would open $1233 and $1241.
WTI Oil
After a period of consolidation, the oil price is beginning to threaten higher once more, but can it muster the upside momentum to make the move for an upside break? The intraday push above the resistance from last week at $54.10 could not be sustained into the close last night and the resulting candle was one of uncertainty, with a negative close on the session. However the bulls had another go at the resistance and are beginning to pushing the issue again today. The momentum indicators are looking to tick higher again with the Stochastics pushing for 4 week highs which would suggest a breakout on the price could follow. The hourly chart shows a basis of support around the previous breakout at $53.50 and this will be a barometer for today’s session. The hourly chart also shows momentum indicators positively configured with a series of higher lows in recent days and corrections being bought into. A move above the resistance around $54.35 would re-open the $55.25 key January high.
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