Market Overview
After such a precipitous sell-off last week, the question traders will be asking themselves this week as they return to their desks after the weekend, is whether there is scope for further losses, or could the embattled dollar engage a technical rally?
The disappointing GDP data on Friday did show that the consumer remains strong in the US and Treasury yields are again pushing out to further multi-year highs on Monday morning. Yield differentials may not be a source of dollar strength that they once were previously, but Donald Trump has clarified that he wanted to see a stronger dollar. With the dollar selling pressure seemingly stretched by Steve Mnuchin’s seemingly erroneous comments on dollar weakness, there is a feeling that the dollar decline is overdone’ at east in the near term.
There is a degree of caution that has taken hold as the European traders resume this morning, but is this a chance to play a dollar rebound?
Wall Street continues to take positive signals from US earnings season and another very strong session was posted on Friday. The S&P 500 was +1.1% at 2873 although Asian markets have been very cautious this morning, with the Nikkei all but flat. In Europe the opening moves are mildly positive.
In forex, the dollar is making ground across the major currencies, with little real standout mover, other than the euro which is holding up relatively well.
In commodities, the early dollar rebound is dragging gold a touch lower, whilst oil is fairly steady.
Today’s big focus for traders is US inflation. The Fed’s preferred inflation measure, the core Personal Consumption Expenditure is announced at 13:30 GMT and is expected to grow by +0.2% on the month. This would mean the year on year inflation reading picking up to +1.6% which would be an eight month high.
Chart of the Day – NZD/USD
The US dollar has been sold off massively in the early weeks of 2018 and the New Zealand dollar is not alone in its relative strength. This is reflected in an uptrend on NZD/USD that is now into its eighth week. However the volatility in the past few sessions has left the chart with some signs that the control for the Kiwi bulls is not entirely stable. Wednesday’s shooting star candlestick is a concern, having left resistance at $0.7435 whilst the subsequent sessions both contained lower lows and lower highs. The market found support at the uptrend on Friday but and closed higher on the day. However, momentum indicators are beginning to sag. This comes with a deterioration in the Stochastics, whilst the MACD lines are also threatening to roll over, whilst the RSI is also losing steam and are beginning to drop below 70. The hourly chart shows a corrective configuration on the hourly MACD lines, with the RSI also failing below 60. Support at $0.7290 is key near term and a failure would continue a series of lower lows. The resistance at $0.7375 initially, under $0.7390. The market is alo beginning to trade under all the hourly moving averages. The bulls of the uptrend are beginning to look pressured.
Since the market spiked higher during the ECB monetary policy meeting last Thursday there has been a degree of consolidation setting in. Hitting a high at $1.2535, the market has been settling in a volatile consolidation, with three daily closes now within 20 pips. This is helping momentum indicators to settle down, although the RSI is still above 70. Given the volatility which formed an almost shooting star candlestick last Thursday, the importance of the support shows at $1.2462, especially on the hourly chart and a close below here now could begin to usher in a near term corrective phase. The breakout at $1.2320 is a further measure of support. The hourly chart shows minor resistance initially at $1.2450, whilst $1.2493 then protects $1.2535. The chart is looking for a catalyst early this week.
The accelerating bull run of the middle of last week seems to have receded now as the steam has come out of the move with a couple of negative candlesticks. The move is now beginning to put pressure on the daily momentum indicators which are threatening to roll over. The RSI has been over 70 now for two weeks but is close now to falling back below, whilst the Stochastics are close to posting a near term sell signal too. Friday’s “inside day” trading session reflects a loss of drive, whilst support at $1.4107 will be watched as Cable has not traded below the previous day’s low since 11th January. The hourly chart is already creaking with the hourly MACD lines now more negatively configured, whilst the support of the rising 89 hour moving average which had been in place for the past two weeks has now been lost. Closing below $1.4080 would pull a more corrective outlook now and re-open $1.4000 again. Resistance is $1.4210 initially before $1.4285.
The pair remains under pressure as another bearish candle seemed to abort any of the recovery potential from Thursday’s rebound. There is a continued negative configuration across momentum indicators with the RSI and Stochastics stuck under 30 and 20 respectively, and the MACD lines continuing to decline. The downside target from the early January bear flag has though now been achieved and it is interesting to see a degree of support forming today which has pulled the pair away from its 108.27 low. However for this to be anything more than a mere blip higher, the hourly MACD lines ned to improve consistently above neutral and hourly RSI consistently above 60. Resistance today comes initially at 109.05 with the rebound high at 109.75 marking an important level needed to be overcome for any thoughts of a sustainable recovery.
Gold
The technical outlook for gold remains well supported above the now seven week uptrend and the breakout support of the old resistance at $1244. However, the failure to confirm the break above $1257.50 is a concern, as are the waning momentum indicators. This still feels to be a key moment for gold as the confluence of key technical levels come together. This reticence is reflected in the timid moves on the market this morning. The hourly chart has formed into a neutral configuration that is threatening to wane into a corrective one this morning. The support at $1342.70 would be key to this. A failed rally at $1357 adds to the overhead resistance building up too, however the market seems to be waiting for a catalyst now.
WTI Oil
The market has again rallied to close at three year highs, however for now trades below Thursday’s high at $66.65. There has been a slight hint of slowing in momentum, however the bulls returning on Friday showing how there is still an appetite to support the market. Importantly, the low of Friday coming in at $64.90 was bang on the latest breakout, with old resistance becoming new support. There is also now a six week uptrend which is supporting the market which today comes in at $64.60. However, the MACD lines need to be watched as they are not as decisively bullish as they were a week or so ago and if they begin to roll over it could be an early warning sign of a correction. For now though continue to back the bull trend.
Another session and further all-time highs on the Dow, but add in closing at the session highs again and the market remains unambiguously strong. There is, as yet, still very little to suggest the uptrend is going to end any time soon. This comes as the latest trend that has pulled the market higher over the past few weeks, comes in to support the market today at 26,310. Momentum indicators remain strongly configure on the daily chart, with the RSI in the high 80s, MACD lines rising and Stochastics strong. The hourly chart shows 21 hour moving average continues to flank the market bull run as a basis of support. Initial support is at 26,293.
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