Market Overview
Major markets are increasingly breaking through key levels. With the US dollar already breaking out to multi-month highs against a weak yen, the oil market is also breaking out, whilst even FTSE 100 has made an all-time closing high.
One by one, the strength of the US dollar is breaking through key levels against major forex pairs. With the EUR/USD pair already breaking below the significant support of $1.1660, early this morning, Dollar/Yen has broken out to multi-month highs. This has come with a re-iteration from Bank of Japan governor Kuroda of its policy of yield curve control, a move which continues to put market focus on yield differentials amidst a rising trend in Treasury yields. With cable teetering on the brink, is this the next major forex pair to make a key break in favour of the stronger dollar?
Friday also saw two other major markets breaking huge levels, with WTI oil closing above $55.25 resistance and a two year high amidst falling inventories and solid demand; coupled with an all-time closing high on FTSE 100 (although not on an intraday basis yet) amidst the negative correlation of sterling weakness. The question for the early part of this week is whether these breaks can be held, thus ending a phase of medium term consolidation that has been seen across many of the major markets.
Wall Street closed at further all-time highs, with the S&P 500 +0.3% at 2588 however Asian markets were a touch tentative overnight with the Nikkei +0.1% and European markets are cautiously weaker in early moves today.
In forex, the breakout on Dollar/Yen to multi-month highs overnight is the big news, although the initial move has not been held. Other major forex are showing little real direction although the Kiwi is back lower again.
In commodities the positive dollar bias is pulling gold marginally lower, whilst oil breaking out again early today continues the upside move.
It is a quiet start to the week the little on the economic calendar for today. However, it is likely that the impact will be seen early in the European session with the European services PMIs announced (delayed until today due to the public holidays in Europe last week). Expectation is that the final Eurozone Services PMI will be in line with the flash reading of 54.9 (which would be down from 55.8 last month), whilst the final Eurozone Composite PMI is expected to be 55.9 (again slightly down from 56.7 last month).
Chart of the Day – FTSE 100
Can the FTSE 100 finally breakout to a new all-time high? The answer to that question may not come from the equities world at all though as there is a very strong negative correlation between the FTSE 100 and moves on sterling at the moment. A breakdown on GBP/USD below $1.3000 could the catalyst the FTSE 100 needs to breakout, and for now we await that too. This comes as the FTSE on Friday once more shied away from the test (i.e. as Cable found support). However the technicals are setup positively for FTSE to have another go in the coming days. The MACD lines have ticked higher and the Stochastics are now rising in positive configuration. The RSI is also back above 60 with upside potential for the bull move. It is interesting to see that the October closing high of 7556 has been broken by Friday’s 7560, even if the all-time high intraday remains intact at 7599. Fridays’ move to an intraday five month high does though suggest that the bulls are testing the water now. How the market reacts to the early drop back today will be key now. Intraday momentum indicators are positively configured with the hourly MACD lines now far more positively configured as is the hourly RSI which is now bottoming around 40 and pushing 70. This suggests corrections are now a chance to buy and 7530 is initial support with a band between 7480/7530 as a basis of support now. Initial resistance is at 7580 but the all-time high has not been technically within reach like this since June.
EUR/USD
The market continues to move sideways in a move that continues to test the neckline resistance of the large top pattern only to fail with the overhead supply built up above $1.1660. The negative configuration of the medium term technical indicators show rallies being sold into, however for now the market remains supported above a low around $1.1575 and there is little appetite for direction in the near term. A downside break is the next likely move but the hourly chart shows the move is in the balance with the slightest of negative biases to compound the medium term negative outlook on the daily chart. Below $1.1575 there is little real support until $1.1475 and then into the $1.1300/$1.1450 area. The overhead supply at $1.1660/$1.1730 should continue to cap the gains.
Having sold off sharply in the wake of the Bank of England monetary policy decision, Cable looked to consolidate on Friday. This consolidation was coming right around the confluence of the key support levels of the one month low of $1.3025, the 12 month uptrend and the rising 144 day moving average (currently $1.3020). The small bodied positive candle reflects a tentative support forming which continues to hold form today. However the market is testing the bull resolve through a consolidation. The hourly chart shows that aside from the noise surrounding Non-farm Payrolls, the market is consolidating. This is though helping to unwind negative momentum and is likely to be a move that helps to renew downside potential. Friday’s high of $1.3130 will therefore take on added significance as resistance near term. The daily momentum indicators are edging lower again and the pressure is mounting on the downside. Below $1.3000 confirms a downside break and opens the next Fib level around $1.2825.
The dollar bulls are pushing hard for an upside breakout above 114.50. A spike through this resistance could not be held overnight and quickly retreated back, but the positioning for the daily chart would suggest that the bulls testing the water of a breakout may not be the last foray higher. The market has been leaving higher lows for several weeks now and positive momentum is building. The market has now traded at its highest level since March overnight and a close above 114.50 would certainly be a signal for further testing higher. The resistance between 114.50/115.60 from earlier in the year is being challenged and the bulls look ready this time. The hourly chart also well positioned with the hourly RSI consistently above 40 whilst the MACD lines above neutral. The hourly chart shows support building above 114.00, with the overnight high of 114.72 a near 8 month high.
The outlook may have been clouded by a series of mixed daily candles recently, however the bulls could never truly find any sustainable traction as overhead supply of $1282/$1284 capped the upside. Now with Friday’s candle backing away once more, breaching $1267 initial support, the market is looking increasingly towards testing the October low support at $1263.30. Momentum indicators continue to broadly drift on the daily chart and there is still a ranging configuration on the hourly. This would change should the hourly RSI begin to position more consistently below 30 and the hourly Stochastics move below 20. There is a minor band of resistance also $1272/$1274 to consider on near term positions now too.
WTI Oil
A strong positive candle on Friday closed above $55.25 key 2017 resistance to really place the bulls in a great position for a sustained breakout. This has been helped by today’s opening gap even further higher. WTI remains well supported and positively configured on momentum indicators, which suggests that corrections remain a chance to buy. The market has built good support above the breakout at $53.75 and is now beginning to accelerate higher. This is reflected in the momentum indicators which are pulling away now and suggest the breakout is one to go with. The opening gap at $55.75 has already been filled and the bulls can look higher into the next resistance band from the summer of 2015 at $56.50/$62.60. Momentum is strong but the RSI is stretched at 75 which could begin to limit immediate strength, however corrections are a chance to buy now.
Now an eight week uptrend, the market continues to push on for further all-time highs. Positive earnings are still helping to drive equities higher and the support of the uptrend comes in today at 23,360, whilst is it also interesting to see that the Parabolic SARs (effectively a trailing stop indicator) are now up at 23,350. Taking a breakout above 23,485 as a mini-range breakout implies an upside target now of 23,720 and could be seen in the coming days. Momentum indicators remain positively configured even if the minor slip back is still evident. I remain positive but still cautious about how much further this bull trend can carry the market in the weeks ahead.
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