Market Overview
Although trade tensions continue to simmer on the backburner, traders have turned attention towards the potential conflict in Syria as a drive for the latest market knee jerk reactions. Risk-on or risk-off now seems to stem from Donald Trump and the potential for a US military response. Although Trump dialled back a touch yesterday, the pawns are being positioned and a response of some degree is still to be expected. It seems to be a matter now of when. Risk appetite has improved (just one look at the response on the gold chart over the past 48 hours will tell you how) whilst equities rebounded as the VIX volatility of S&P 500 options fell to a three week low back below 20.
The dollar has also had a rebound, but much of this move has been driven by a weaker yen but also crucially a weaker euro. The ECB minutes from the March meeting reflected a concern on the Governing Council over trade disputes but also how euro volatility could prevent both growth and inflation picking up. This dovish tilt questions the inflation mandated central bank’s ability to end its asset purchase program in the second half of the year. This move drove downside breaks on forex major crosses such as EUR/GBP and EUR/NZD. As we come into Friday the 13th, there is a continuation of the improved risk feel to market moves.
The huge surprise in China’s Trade Balance which actually posted a surprise deficit of -$5.0bn in March (surplus of +$27.1bn exp, surplus of +$33.8bn last month) is likely to have been mitigated by seasonal factors. China’s imports grew by +14.4% (+10.0% exp, up from +6.3% last month), whilst China’s exports posted a surprise -2.7% (+10.0% exp, down from 44.5% last month).
Wall Street closed in positive territory last night with the S&P 500 +0.8% at 2664 whilst S&P futures are all but flat this morning. Asian markets were mixed to positive (Nikkei +0.5%) overnight with European indices similar in early moves.
In forex the yen remains a key underperformer amidst the improved risk sentiment, but also the commodity currencies of the Aussie and Kiwi are performing well as Chinese imports surprised to the upside overnight.
In commodities the gold price has found some support overnight, trading around $2 higher, whilst oil has started the day with consolidation.
It is a relatively quiet end to the week for European data, with US data coming in the form of the prelim reading of the University of Michigan Sentiment at 15:00 BST which is expected to drop back slightly to a still very strong 100.5 (from a revised lower 101.6 last month).
The US JOLTS jobs openings are at 15:00 BST and are expected to drop slightly to 6.17m from 6.31m last month.
Chart of the Day – EUR/GBP
With the euro under pressure and sterling remaining strong yesterday we saw a huge support broken on EUR/GBP. For around eight months the pair has been trading in a range broadly around £0.8700/£0.9000. Aside from a couple of minor intraday breaches over the months, the closing low has been £0.8710 back in January. However, a huge bear candle formed yesterday (which was the most significant bear candle since January) to close at £0.8660 and complete a break to a new low dating back to June 2017. The question is whether this is a decisive breakdown that completely changes the medium to longer term outlook, or whether this will be a false break. Certainly the near term momentum indicators remain negatively configured also with downside potential on the Stochastics. The RSI is though looking stretched near term around 30. Today’s session could be key to the break, with an initial consolidation suggesting the market considering the options. A confirmed downside break on a closing basis implies around 300 pips of downside over the coming months and unless a decisive rally can be put together the technical outlook looks significantly more negative now medium term. There is also a strong band of overhead supply between £0.8700/£0.8800 for rallies to be sold into. This will remain the case now whilst the resistance at £0.8800 remains in place.
With the upside traction having been waning earlier this week, the euro posted a negative candlestick session yesterday to halt a run of four positive candles. This now leaves minor resistance at $1.2395 and again seems to be a move that reiterates how tentative any control is on the market. With such benign and neutral configuration on the medium term configuration of all the momentum indicators in addition to neutral near term positioning too (with the RSI, Stochastics and MACD lines almost entirely around their centre points) there is a lack of decisiveness in the market. The shorter term 21 and 55 day moving averages have also become increasingly flat too. The hourly chart shows the market back below the pivot at $1.2345 which is a barrier initially but remains above another supportive pivot around $1.2280. This is a market desperate for decisive direction.
With the euro struggling, sterling continues to grind out the gains as Cable has posted another positive session as the market sets up to test the March high at $1.4245. Momentum indicators are configured positively with the RSI rising towards the mid-60s and Stochastics rising into the 80s. Intraday corrections continue to be bought into, with yesterday’s reaction low at $1.4145 now a decent higher low. The hourly chart shows a positive set up with the hourly RSI finding lows between 40/50 and the MACD lines above neutral. With the initial crossing back lower of the hourly MACD lines early today there could be some initial weakness, but any dip towards $1.4200 looks to be a chance to buy now. Above $1.4245 opens the key January high at $1.4345. A failure of the $1.4145 support would open for a near term corrective slip but the big five month uptrend is now supportive around $1.4000 today.
There has been a degree of dollar recovery in the past day or so, however the renewed move against the yen has helped to pull Dollar/Yen back higher again. For over a week now the pair has been stuck in a tight range between 106.60/107.50 but with yesterday’s positive candle and the move continuing today there is a test of the resistance once more. The move higher from yesterday seems to be set to kick some life back into the momentum indicators again. A closing break above 107.50 would imply an initial 90 pip upside target however the more important test would be the resistance of 107.65/107.90. A move above the latter would be a key move and imply an increasingly positive medium term move. The hourly chart shows a bullish bias is forming this morning but so far without strength of momentum calling for a decisive breakout. There is a minor pivot support around 107.00 with the more considerable near term support at 106.60 now. Above 107.90 opens a move towards an old consolidation band 108.30/110.50.
Gold
It certainly seems that gold is highly attuned to developments in the potential conflict in Syria. Tuesday’s sharp bull move came amidst increased sabre rattling from the US and Russia, but with President Trump toning this down yesterday we saw a complete retracement of the move. Apparently the prospect of conflict remains there and gold has ticked higher today once more. This is a news driven story for now. Technically the medium term range remained intact on Wednesday, failing at the key January high at $1366 and is now a shade above mid-range again. There is a bullish bias to the techncials though and whilst the threat of conflict in Syria continues, gold should be underpinned for the time being. Should missiles be launched then a breakout above $1366 would be likely. Above $1366 opens $1375 as the key 2016 high, with $1391 the key 2014 high which protects from a massive base pattern breakout. Yesterday’s low at $1333.50 is initially supportive protecting $1326 and $1321.
WTI Oil
As oil strains to breakout to new multi-year highs, the run of strong positive candles threatens to come to an end. Another positive close was seen yesterday but it was something of a struggle. Despite this though the market is still moving in a positive direction on a closing basis. However, can the momentum in this run higher be continued? The shackles of the January high still seem to be on the bulls who could be starting to look a bit more nervous. The RSI is again into the mid-60s, where it failed back in March. It is also interesting to see that the hourly chart shows the hourly RSI and hourly MACD lines rolling over. Wednesday’s resistance at $67.45 remains intact as the market has moved to consolidate. Yesterday’s low at $66.00 is initial support with $65.15 the first lower high within the recent run higher. However with the bulls consolidating slightly within the breakout, the likelihood is that weakness will still be seen as a chance to buy. A correction below $65.15 would see a retreat back to the six week pivot at $64.10. A decisive upside break would help to renew confidence once more for the move towards the next resistance at $73.25 with the psychological level around $70.
Once more the bulls are testing higher and the pivot band 24,450/24,650 is under pressure. With the trend higher of the past nine sessions the run of higher lows, the pivot resistance in addition to the ten week downtrend are now being tested. A closing breakout above 24,650 would be a three and a half week high and also break the big downtrend. Momentum indicators are already calling for the upside break above the pivot with the MACD lines accelerating higher from a bull cross, whilst the Stochastics are pulling decisively higher and the RSI is rising above 50. The mini uptrend is supportive now around 24,225 today. The bulls have gradually been increasing control over recent days and this is reflected in the hourly MACD lines holding above neutral and the hourly RSI pushing into the 60s (which has previously been limiting). Initial support comes in around 24,300 with Wednesday’s low of 24,150 being the first higher low within the recovery.
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