Market Overview
A rebound on the dollar has just slowed this morning as markets look for the next steer on sentiment. Today is Chinese New Year and as such, Asian markets are muted. The advance on Treasury yields, with the 10 year jumping 9 basis points in the past two sessions has just been put on hold this morning, perhaps as traders wait for the stream of services PMI data to be announced today. This is resulting in holding patterns across markets coming around key levels.
The euro is back to its near term pivot of $1.1420 against the dollar, whilst Dollar/Yen is back around is medium term pivot at 110.00 and gold is back to holding its $1310 long term pivot. Even oil is steady in its support.
The main mover of the morning is the Aussie which has regained some lost ground in the wake of the RBA. The Reserve Bank of Australia maintained rates at +1.50% (no change expected at +1.50%) and cut its forecasts for growth and inflation. This was the 30th consecutive meeting of holding rates, and interest rate futures continue to price for the next move being lower, possibly by the end of this year. However, given the backdrop of negative economic trends across global markets, the RBA moves were perhaps not as bad as feared.
Wall Street closed higher once more as the S&P 500 was +0.7% higher at 2725 with US futures a shade lower by -0.1%. The Nikkei is one of the few Asian markets open, trading a touch lower at -0.2%. In Europe there is a positive vibe to equities today, with FTSE Futures and DAX futures around half a percent higher.
In forex, there is very little move currently, aside from the Aussie being +0.4%. The lack of follow through on the dollar rebound has allowed commodities to find support, with gold and silver a shade higher, whilst oil is also supported.
In the continued absence and uncertainty over US data, the services PMIs numbers today take on an added importance. The Eurozone Services PMI is at 09:00 GMT and is expected to see the confirmation of the flash services number at 50.8 (50.8 flash January, 51.2 final December), whilst the Eurozone Composite PMI is expected to come in at 50.7 (final December 51.1). The UK Services PMI is expected to slip a shade to 51.0 (from 51.2 in December). The US ISM Non-Manufacturing is expected to drop back to a still very strong 57.2 (from 58.0 in December).
Chart of the Day – EUR/JPY
With the BoJ seeming willing to allow the 10 year JGB yield to drop decisively into negative territory, there has been a shift in sentiment on the yen. This comes as the euro has broadly held its ground, and therefore has resulted in an upside break across yen crosses. One such move has come with Euro/Yen pushing above the key resistance band 124.60/125.40. This move was seen on Friday and now confirmed by the entire candlestick (whole session) trading above the old resistance. The continuation of this move higher (likely to be driven by continued yen weakness) comes as momentum indicators pull decisively higher. The RSI is now increasing to its highest level in over four months in the mid-50s, whilst the MACD lines continue to improve and Stochastics remain strong. It was interesting to see the 125.40 resistance turning supportive yesterday and the outlook is improving for a continued recovery towards the late December rally high resistance at 127.10 (itself a basis of a historic pivot band 127.10/127.50). The hourly chart shows weakness is now a chance to buy.
Once more, the euro has gravitated back to the pivot that has formed in recent weeks at $1.1420. With the run of disappointing candles in the past three completed sessions, it is difficult to make the argument that this is a positive bias within the three month trading range. On Monday we saw yet again a close towards the low of the daily range and there seems to be a continuation of this move today. Momentum indicators have become progressively more neutralised in the past few sessions, with the RSI flattening around 50, MACD lines plateauing a shade above neutral and Stochastics also losing their positive momentum. The hourly chart reflects this equally benign outlook. A move under $1.1420 would be disappointing for the bulls, whilst below $1.1390 opens the range lows around $1.1300 once more. Initial resistance is yesterday’s high around $1.1465.
There has been a negative drift on Cable over the past week which has broken a four week uptrend and driven an increasingly corrective outlook. A move below initial support at $1.3050 is now adding to the growing momentum of this move and the retracement back towards a series of pivots that have formed over recent months. Initially the support is at a mini breakout of $1.3000, whilst $1.2920 and $1.2815 are also levels to watch should the move gather pace. This is corrective momentum is also shown with the MACD lines which are today forming a bear cross, whilst the Stochastics are beginning to find traction lower. Despite this though, on a medium term perspective, this is still just an unwinding move into a batch of mid-range support. The market is still trading above all the moving averages, so this is nothing to get especially bearish about quite yet. There is a degree of consolidation forming today, but there is a lower high around $1.3100 which now stands in the way of a renewed recovery.
The market seems to be shaping up for a positive near term breakout. Yesterday’s moves above 110.00 could not be sustained into the close, but momentum indicators seem to be leading the market higher. With the RSI above 50 and at seven week highs, whilst MACD lines continue to rise and Stochastics cross back higher, the bulls are ready. The resistance around 110.00 is an old pivot area of old key lows between 109.75/110.00 which formed a ceiling in January. So if this ceiling can be broken on a closing basis, it would open the way towards the next significant pivot at 111.35. Having just failed on an intraday basis yesterday, that puts added important on the next session or two for a breakout. There is a more positive momentum configuration on the hourly chart and 109.55/109.75 is a basis of support initially. The mid-range pivot remains supportive at 109.10.
Gold
With the breakout above the long term pivot band $1300/$1310 which resulted in a shift in longer term outlook, it will be interesting to see how the bulls react to a test of this pivot on a retreat. The drop back in the past couple of sessions has seen a first test of the pivot as support, a test that has been held, so far. The unwinding move was bought into just above $1308 yesterday. Momentum indicators may now be slipping back but this is just a near term move, with the RSI and MACD especially positively configured on a medium term basis to suggest that corrections represent a chance to buy. There is the support of an eleven week uptrend rising at $1289 today, so effectively there is room for further correction, and this cannot be ruled out near term (especially given the swing lower on daily momentum signals). How the buyers respond today could be interesting, given a bull cross on the hourly chart MACD and hourly RSI picking up above 30. The hourly chart shows a pivot around $1315 and a decisive move above this would help to boost the bulls again. Resistance at $1326 is preventing further gains back towards the 2018 highs of $1366.
WTI Oil
The mood of gradual drifting gains on oil has survived an initial test after yesterday’s sharp intraday move lower was bought into at $53.30, almost bang on the support of the six week uptrend. In the past week, these tests of the uptrend have held up and the move has continued higher, but this is coming amidst the backdrop still of minor negative hints on momentum which could be warning signals. A bear drift on the Stochastics needs to be watched. This is certainly something to be aware of, but the steepness of the uptrend may be a difficult one to continue (especially given the drift gains of the past three weeks). The trend may subsequently be breached, but the bulls should not be too disheartened unless there is a breach of last week’s higher reaction low at $51.35. The hourly chart shows initial support band $53.00/$53.35 has held and is growing in importance now.
The gains keep coming for the Dow. Another positive session and a decently strong bullish candle too, which has taken the market to a another new eight week high. The move higher is reflected on the RSI which is increasingly strong in the mid-60s and at its strongest since October. The MACD and Stochastics lines are also strongly configured. This all points towards using weakness as a chance to buy. Trading clear of the 61.8% Fibonacci retracement (at 24,950) now opens the 76.4% Fib level as the next target area, coming in at 25,715. Looking on the hourly chart there is very little to suggest that it will not continue higher too, with bullish configuration on hourly moving averages (all rising), strong momentum (hourly MACD bullish above neutral, hourly RSI consistently above 50). Initial support is around 25,000 with a breakout at 24,860.
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