Market Overview
Markets have entered into a brief period of calm, or could it be that traders are just in limbo as the world awaits the next move from Donald Trump over the trade dispute with China. A formal escalation in the tariffs on China could be announced at any moment after the consultation period for tariffs on a further $200bn of imports from China passed on Thursday, so a tweeted decision could come any time now.
Add in the fact that it is Non-farm Payrolls today and it appears as though traders are unwilling to take much of a view on equities or forex majors this morning. However, reports overnight that Donald Trump could be set to turn his attention on trade with Japan as his next move runs the risk of impacting sentiment negatively once more. This is driving renewed pressure on the Aussie and Kiwi dollars this morning, whilst there is a slight safe haven bias again, with support for the yen and gold whilst US yields are lower.
As the session develops, focus will be increasingly on payrolls, with the ADP report yesterday hinting that there is an increasing tightening of the labour market in the US, making it harder to fill the jobs. Will this be reflected in today’s payrolls report?
Wall Street closed mixed last night with further selling pressure on tech stocks dragging the S&P 500 lower by -0.4% at 2878 whilst futures are ticking a touch lower today. Asian markets have been mixed to lower overnight (Nikkei -0.8% as the yen has strengthened again) whilst European markets are also mixed today.
In forex, there is little direction across the G4 majors (if anything a mild dollar negative bias) but the underperformance of the Aussie continues.
In commodities the slight risk aversion is helping gold find further support, with oil initially steady after further downside yesterday continued the recent correction.
Non-farm Payrolls will dominate the thoughts of traders looking at the economic calendar today. The US Employment Situation for August is revealed at 13:30 BST and is expected to show that the US economy added 191,000 jobs for the headline Non-farm Payrolls last month. This comes after a surprisingly low 157,000 last month which is around 50,000 below the average number of jobs created on a monthly basis throughout 2018 (which is 208,000). Watch out therefore for potential upward revisions to last month.
The key focus in the payrolls report is increasingly how wages move, with the Average Hourly Earnings expected to grow by +0.2% on the month to leave the year on year growth at +2.7% (as it was last month). Unemployment is expected to continue to fall towards the Fed’s projection in the mid 3s with a drop to 3.8% from 3.9% last month. Also of interest will be the U6 Underemployment which fell to multi-year lows of 7.5% last month.
If the labour force participation rate also stays at or just above last month’s 62.9% (in conjunction with positive wages and falling unemployment) this would help to play into the assessment of a strong payrolls report.
Chart of the Day – EUR/NZD
It is interesting to see that the selling pressure on the Kiwi is starting to look tired against the euro and the dollar. On Euro/Kiwi the market has burst higher above the key long term resistance at 1.7480 in recent weeks, but is looking stretched with momentum indicators beginning to show signs of exhaustion. With negative candles starting to appear in recent sessions, there are signs of the market questioning the recent move, especially as the momentum is looking stretched. With the RSI above 70, watch for corrective momentum signals starting to appear, as the Stochastics have also crossed lower. Although no confirmation of a Stochastics sell signal yet, this could be seen with another bear candle today. The support of a recent sharp two week uptrend has been tested today but the early move higher means that it remains intact, however this is the time where potential reversals could begin to form. Initial support is now yesterday’s low at 1.7605 and a closing breakdown would be a corrective signal for some near term profit taking. On a medium term basis, a pullback to the breakout at 1.7480 would probably be a healthy unwind, with the support of a near three month uptrend at 1.7390 today. The resistance is at Wednesday’s high of 1.7735. The hourly chart shows a move below 1.7600 which is initial pivot support would be a corrective move and open 1.7500 initially.
As the week has progressed the near term outlook on EUR/USD has become ever more neutral. Yesterday’s candle showed very little appetite for direction in a very quiet session. The market has increasingly settled down between support at $1.1530 and resistance of last week’s high of $1.1735. Momentum indicators are reflecting this consolidation, ever more neutrally configured with the RSI between 49/53 all week and the MACD lines stagnating around neutral. The hourly chart gives us little more either. This is a market in need of a catalyst, perhaps payrolls today will be the spark needed.
Sterling has managed to hold on to the rebound gains that Cable found on Wednesday as the support of the higher floor around $1.2800 continues to grow. Despite this though, yesterday’s session seemed to be little more than a consolidation move, whilst early moves today suggest this may well continue into this afternoon’s payrolls report. The improvement is still reflected on the uptick on momentum indicators, with the Stochastics stabilising whilst RSI and MACD lines edge higher. The resistance to watch is $1.3045 from the late August high, whilst support at $1.2800 is increasingly key for the progression of the bull recovery now. The hourly chart does show initial near term pivot support at $1.2870, with initial resistance from Wednesday’s spike high at $1.2980.
The marginal positive bias that has been pulling the market marginally higher has been scuppered as a decisive strong bear candle cut 75 pips off the price yesterday. This means that Dollar/Yen is trading around two week lows again as the market continue to fail to find any meaningful direction. The marginal improvement seen across the momentum indicators has once more been closed off as the RSI, MACD and Stochastics lines all deteriorate once more. It is becoming ever more clear that attempting to take a near term view off technical signals where moving averages are almost entirely neutral and momentum indicators are lacking any decisive direction, is a recipe for failure. There is a medium term pivot at 110.00 to consider (with the August spike low at 109.75) as the next support, whilst overhead resistance has simply grown with the latest correction to leave 111.75/112.15 as a band of key highs. The hourly chart shows initial resistance around 110.65/110.90 today. Payrolls may drive some near term direction, but unless there is a wild surprise, it is unlikely to materially change the outlook.
Gold
The gold bugs have been fighting hard to prevent the rally from $1160 unwinding throughout this week. For now, the market remains in the balance as the price fluctuates a few dollars either side of $1200. However if the $1189 support can remain intact then the prospect of sustained support will grow. Momentum indicators certainly continue to back this, with the RSI still holding above 40, whilst Stochastics also threaten to turn higher and the MACD lines also continue to rise. The shackles are still on, but a close above $1200 would certainly help to improve the outlook. The hourly chart reflects a mild positive bias in the market with a near term pivot at $1195 supportive above the important near term level at $1189. Resistance grows at $1207/$1208 but needs to break through $1214/$1217 to really gain traction.
WTI Oil
The move lower that has now decisively broken the two week recovery uptrend is beginning to gain traction as a correction grows in intensity. The key near term development has been a close below the support at $68.20, which was seen during yesterday’s session, a move below the first real support in the move higher. The deterioration in the momentum indicators is increasingly concerning for the bulls now with the Stochastics accelerating lower and the RSI back under 50. Ultimately, oil is plying out as a sideways range between $63.60/$75.25 for the past five months, reflected in the fact that all moving averages are all but flat at the moment. This means that near term moves remain just a matter of noise within the range. Another retreat to test $67.00 (an old pivot) is now underway and a close below $67.00 would be the next deterioration of note. Near term intraday rallies are now a chance to sell, with $68.40/$69.00 initial resistance.
The bulls are trying to regain the initiative but the move to renew buying pressure looks to be coming up against resistance with the market turning lower from 26,074. Momentum indicators are threatening to now turn lower and this rejection of yesterday’s move higher could begin to put pressure back on the 76.4% Fib level once more today (at 25,845) and the near term support band 25,806/25,888. This also means that there is now a caveat developing for the bulls, with the MACD lines on the brink of crossing lower and the Stochastics slipping in a fashion similar to the late July move lower. However, as long as the market does not close below the higher low at 25,608 then the outlook will remain positive and corrections will be seen as a chance to buy. The key resistance remains 26,168.
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