Market Overview
Markets have become somewhat marooned in recent sessions as traders are in wait and see mode for decisive progress to come out of the trade negotiations between the US and China.
The dollar has stabilised in the wake of the Fed minutes on Wednesday, but there is a lack of decisive direction to be taken out of recent data points, something which may now continue until next week’s Advance GDP.
In the meantime, the clock ticks down on the trade negotiations. Donald Trump is meeting with Chinese Vice Premier Liu He today with a suggestion that there is traction being made. However, given that this has been the line for a few days now, this is something that markets seem to be priced for. Maybe there needs to be something more substantial for the trade story to decisively move the needle now.
There may also be some attention given to the swathe of Fed speakers today (four in total) who are all voters on the FOMC and could add something to the outlook for monetary policy. Something to give markets direction would be at least interesting.
Wall Street slipped back a touch last night with the S&P 500 -0.3% at 2775, with US futures a tick or two higher today. Asian markets were mixed this morning, with the Nikkei -0.2% and the Shanghai Composite +1.9%. European markets are also a touch mixed, with FTSE futures +0.2% whilst DAX futures are -0.1%.
In forex, there is a lack of any real direction, with the dollar mixed, euro a touch higher, sterling a touch lower and the Aussie recovery some of yesterday’s lost ground.
Commodities are also lacking real direction, with gold stabilising after yesterday’s corrective move and oil also holding ground once more.
On the calendar there is a big focus on Eurozone data this morning, with the German Ifo Business Climate being key as it is a lead indicator for German growth and by extension a key factor for the Eurozone. The release is at 09:00 GMT and is expected to continue to fall but by the slightest amount to 99.0 (from 99.1 in January), although this would still be a three year low and be a sixth consecutive month of decline.
The final reading of January Eurozone inflation is at 10:00 GMT with headline HICP expected to remain at +1.4% (+1.4% in December) with core Eurozone HICP expected to remain at +1.1% (from +1.1% in December).
There is also a clutch of Fed speakers today with John Williams (NYSE:WMB) at 15:15 GMT (voter, centrist), vice chair Richard Clarida at 17:00 GMT (voter, centrist), James Bullard at 18:30 GMT (voter, leans dovish) and Randall Quarles also at 18:30 GMT (voter, leans hawkish).
It is also worth watching out for ECB President Mario Draghi who is speaking at 15:30 GMT.
Chart of the Day – EUR/JPY
The pair has been stuck in a sideways range for the past six weeks, however, the range is now set to test some key medium to longer term technicals. The market has been trending lower since the market turned down from 133.15 in October, and this trend is now coming under pressure (falling today at 125.75) as the market consolidates under Wednesday’s high of125.95 (which is also the early February resistance). This comes as the MACD lines unwind to neutral and the RSI is again in the id-50s (where the November and December rallies failed. Add to this, the resistance of the falling 55 day moving average (currently at 125.50) which also capped the November and December rallies. This all means that the market is at a key medium term crossroads. A Closing breakout above 126.00 would suddenly pull the market into a far more positive configuration, opening the recovery for a move towards the next pivot band 127.10/127.50. The hourly chart shows a band of near term support around 125.25/125.40 that is being built upon whilst a move below 124.80 would abort the move higher.
The market has just been becalmed a touch in recent sessions, and seems to be in a wait and see phase. With Wednesday’s candlestick almost entirely repeated on Thursday, the very small candle body shows how there is a lack of conviction for the next move. We have spoken throughout this week as to the importance of the band between $1.1300/$1.1345 and this has yet to be overcome. The bulls have been testing higher for each of the past few sessions, but just cannot make the break. There is a very mild near term bullish bias, with momentum indicators inching higher, but the shackles are still restraining the move. Once more this morning, the market is edging a mild amount higher, but there needs to be a decisive close above $1.1345 to generate a real kick to momentum that could then challenge the pivot at $1.1420. On the plus side, though, the market is consistently trading above $1.1300 now and this is a sign of improvement. Initial support is at yesterday’s low of $1.1320, with the hourly chart indicators reflecting the consolidation. Above $1.1370 would also help to open the upside.
As with the euro, there is a degree of consolidation on Cable which has set in over recent sessions. This comes around the old pivot $1.3050 with the last three closes all around the pivot and two very neutral candles in a row). This consolidation is continuing this morning. The market is holding up above the psychological $1.3000 level with a mild positive bias on momentum indicators, but the rally that really took off at the beginning of the week has lost impetus and is now looking for the next direction. Given the moving averages are all between $1.2840 and $1.300, so the pivot at $1.3000 is a near term gauge for the market now. Initial resistance is at $1.3110 but if there is a continuation of the lower daily highs, then this could begin to see the market slipping back into the band between $1.2815/$1.3000.
Dollar/Yen is another market that is beginning to drift sideways. Yesterday’s mild negative candle has ended a sequence of gains and the run to test the February high at 111.12 has just stalled for now. There is still a positive configuration on momentum indicators with the RSI in the high-50s and Stochastics holding above 80, however there is a lack of drive through the run higher now. Dollar/Yen is looking for a catalyst. The hourly chart shows a 50 pip range is now forming with 110.45 support below 11095 resistance. Holding above 110.00 the outlook remains positive still for pressure towards the pivot at 111.35.
Gold
Gold has unwound back to the breakout support around $1326. This is the old resistance of the range breakout which is now an area of underlying demand and is supportive. The medium term configuration on momentum indicators remains positive but there is a near term corrective unwind now that has set in. This comes with the RSI turning back below 70 (near term corrections tend to unwind towards 55) and Stochastics are also slipping back. Using the recent range, there is a band of underlying demand between an old mid-range pivot at $1316 and the breakout at $1326, suggesting this $10 band between $1316/$1326 will be seen as a “buy zone” for the next bull leg. The hourly chart shows the RSI unwinding towards 30 is seen as a decent opportunity for the bulls. Initial resistance is now at $1336 under the recent $1346 high. The big 13 week uptrend is supportive at $1310 today whist $1302 is key support.
WTI Oil
The run higher that resulted in six consecutive bull candles has taken a pause for breath. The strong outlook that has pulled WTI to multi-month highs above the $55.75 may now be at risk of some near term profit-taking. For now, any slip should not be taken as a negative, with the RSI in strong configuration in the mid-60s and Stochastics strong above 80. The medium to longer term pivot sitting just overhead at $58.00 should also be taken into consideration. However, any pullback towards the breakout at $55.75 would help to renew upside potential for the bulls, with the 38.2% Fibonacci retracement at $55.55. The hourly chart shows strong configuration across the hourly momentum indicators and an unwinding move towards 35/50 on the hourly RSI is a chance to buy. Above the $58.00 pivot opens the 50% Fib retracement at $9.60 again. Initial resistance at $57.60. A move below $55.30 which is a higher low would be a disappointment now, but the outlook one to buy into weakness.
The bull run has just begun to hit the buffers again as a mildly negative candle has again halted the move higher, interestingly around the resistance of the December high at 25,980. How the market responds to the 76.4% Fibonacci retracement at 25,715 could now be key for the near term outlook. Coming with the RSI bumping up against 70 again, this could be a moment for a near term correction to set in. A close below 25,715 could begin to draw that momentum. There is breakout support at 25,440/25,625 to hold a retreat. The hourly chart is showing an unwinding move is underway, with the RSI pulling back within a positive configuration. Corrective slips tend to find lows around 35/40 on the hourly RSI, where buying opportunities tend to present again. A break below 25,310 would now be a signal that perhaps a deeper correction is at play but for now weakness is a buying opportunity. Above 25,980 opens the November high at 26,278.
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