Market Overview
During the US presidential election campaign in 2016, the criticism (just one of the many) of Donald Trump is whether a Twitter obsessed president could provoke conflict by a single tweet. Well, Trump is testing this view now as he got into a spat with Russia yesterday over potential bombing in Syria. Tensions surrounding Syria have been elevated in recent days in the wake of what looks to be a chemical attack, which is prompting a potentially ballistic response from western governments.
Trump’s goading of Russia in a tweet, has prompted a shift back into safe haven assets with gold spiking over $20 higher and Treasury yields falling. Amid the prospect of conflict in the Middle East again we have also seen oil pulling to multi-year highs. Equities, which have tended to be the big focus during risk-off phases in recent weeks, also suffered. For now this knee jerk reaction on markets has been relatively contained, but further escalation of the conflict in the coming days would see these moves exacerbated. With markets consolidating, we wait to see what Trump tweets today…
The minutes of the March FOMC meeting revealed that all of the participants believed that the economy would strengthen and inflation would pick up in the coming months, although there was caution over the prospect of a trade war.
The dollar has strengthened a touch in response with the market somewhere between 3 and 4 rate hikes expectation this year. Nothing too much here to change the outlook for US rate hikes then.
Wall Street dropped a touch into the close with the S&P 500 -0.5% at 2642 but with Wall Street futures stabilising this morning Asian markets have been contained in their weakness overnight (Nikkei -0.1%). European markets are also mildly lower in early moves.
In forex there is very much of a mixed look to markets, with the dollar traction from the Fed minutes just being lost. There is little real continuation of the safe haven flow this morning with the yen weakening a touch. This is reflected in the commodities move with gold unwinding a couple of bucks, although oil is maintaining its gains.
There is a bit of a Eurozone focus today with the economic data releases, beginning with the eurozone Industrial Production at 10:00 BST which is expected to increase by 0.1% on the month and to +3.8% for the year (up from +2.7% last month).
The ECB meeting accounts of the March meeting of the Governing Council are then released at 12:30 BST and the focus will be on how the Governing Council expectations of inflation are moving and any potential signs of a move towards tightening the language surrounding the end of the Asset Purchase Program (although it is still likely to be too early for this to show).
The US Weekly Jobless Claims are at 13:30 BST and are expected to improve back to 231,000 (from 242,000 last week). Also watch out for the comments of ECB’s Jens Weidmann (habitual hawk on the Governing Council) at 17:00 BST whilst Bank of England Governor Mark Carney speaks at 20:00 BST.
Chart of the Day – EUR/JPY
As the euro has rallied and the yen has underperformed amidst increased market risk appetite in recent days, the outlook for EUR/JPY has improved. There has been a pivot band between 131.15/132.00 that played a key supportive role from September to December last year, but following a downside break in February became a basis of resistance. This pivot which was recently resistance was broken by a strong bull candle on Tuesday taking the market to the highest close since mid-February but also arguably completed an upside break from a base pattern. The question is whether the bulls can build on this near term breakout. The improvement in momentum indicators would suggest that the bulls are building positive momentum now, with the RSI, MACD and Stochastics rising strongly. The improvement in the outlook following the upside break and momentum improvement would suggest that corrections into the 131.15/132.00 pivot band will now be seen as a chance to buy. The hourly chart shows strong momentum configuration and a run of intraday higher lows trending higher, whilst there is strong underlying demand now between 131.05/131.60. The next resistance is at 133.00 and then 134.00.
The euro has pulled higher in recent days to improve the outlook within the medium term range. However some of the steam of the mini recovery in recent days has been lost with a slightly disappointing candlestick formation yesterday (closing below the session mid-point), a move which has continued early today with slight losses as the market continues to respond to the Fed minutes last night. As such the bulls seem once more to have lost their grip on the market as a more mixed configuration takes hold. The daily momentum indicators which had been ticking higher have subsequently rolled over and the more neutral configuration is once more taking shape. The hourly chart shows an uptrend of the past few days has now been broken by the slightly dollar positive reaction to the Fed minutes and the market is retreating back to the $1.2345 near term breakout. A close below today implies around 50 pips of downside with $1.2300 initially supportive. Resistance is now in place at $1.2395.
A doji candle denotes uncertainty with the prevailing trend. Subsequently it shows that the bulls have lost the impetus of their rally of the past few sessions. This is coming just under the $1.4245 resistance of the key March high and will have the bulls wondering if this is a near term limit of the push higher. All the positive trends and rising moving averages are still intact, but there could now be a better entry point for longs in the coming days. The market is seemingly coming into the European session today in a cautious mood, with the price all but flat on the day. With little real data to drive the outlook today it will be interesting to see whether the bulls can regather themselves for a push on $1.4245. A breakout would open $1.4345 which is the key 2018 high. The hourly chart reflects this consolidation and initial support is at $1.4160, but anything contained weakness that remains above the near term breakout at $1.4100 will be considered a chance to buy.
Over recent days of looking at Dollar/Yen the moves on the market have been looking increasingly as though the bulls had lost some of their spark and the market is now in consolidation mode. This is shown with yesterday’s negative candle which once more reaffirms the resistance at 107.50 and is now this morning breaking the support of the recovery uptrend. This comes as the momentum indicators are losing their impetus too, with the RSI continuing to hover a shade above 50 and the MACD lines lose traction around neutral. The Stochastics are positive but are also beginning to tick lower. The market has spent the past week in a tight range between 106.60/107.50 and the hourly chart reflects this neutral momentum configuration now having taken hold. There is a breakout support around 106.60 which is holding but the overhead resistance in the band 107.00/107.90 is prohibiting the bulls from any traction for now. This is a wait and see chart for the time being, but it is interesting that the dollar bulls have gained very little traction from the Fed minutes, held back by safe haven flows from geopolitical issues in the Middle East.
Gold
A big jump higher on safe haven flows due to increasing concern over conflict in Syria pulled gold sharply higher yesterday. Gold spiked around $26 higher at one stage yesterday only to then slip back $15 to where the price sits this morning. A strong bull candle clearly shows that there is a market fear that has the potential to drive further gold gains. However it was incredibly interesting to see the spike rally failing at $1366 yesterday all but bang on the January high which is a key resistance. Momentum is positive but the hourly chart also shows the loss of impetus in the rally. This could now be a newsflow driven market but technically speaking, the fact that the price has again failed in the $1356/$1366 resistance band which it has done on several occasions is really interesting. Initial support at $1345/$1348 now.
WTI Oil
WTI has broken out to a new multi-year high. Geopolitics in the Middle East continue to help drive the price higher, and the EIA inventories coming broadly in line with expectations did little to change this yesterday. This now means that with three strong bull candles the market has broken key resistance at $66.55/$66.65. This resistance has capped the upside in 2018 and a decisive closing breakout would take the market into continued recovery of levels not seen since December 2014. The 50% Fibonacci retracement of the massive $107.73/$26.06 bear market comes in at $66.90 so this could still be an area of consolidation, however, there is little resistance until $73.25. There could also be regard given to $70 as a psychological level too. Daily momentum indicators have all swung decisively higher and are strongly configured with upside momentum now. The immediate outlook is likely to continue to be driven by newsflow on Syria, which needs to be watched. There is a good band of support now around $64.25 with $65.40 initially supportive today.
A slip back on the Dow has meant that the market has shied away from the five week pivot band between 24,450/24,650 again. However, this looks to be more of a consolidation candle with a tight daily range of just 216 ticks (Average True Range is currently 566 ticks). The market is still in a mini uptrend as the recovery from the 23,345 low has continued over the past eight sessions. The momentum indicators continue to show signs of improvement and are testing some key near to medium term levels with the RSI and Stochastics both hovering around neutral levels. This suggests that with the resistance of the 10 week downtrend providing resistance at 24,577 today, the market is trading around a confluence of key technical levels and is at a crossroads now. The moves in the coming days could drive the outlook for the weeks to come. A close above 24,650 would certainly put the bulls in control.
DISCLAIMER: This report does not constitute personal investment advice, nor does it take into account the individual financial circumstances or objectives of the clients who receive it. All information and research produced by Hantec Markets is intended to be general in nature; it does not constitute a recommendation or offer for the purchase or sale of any financial instrument, nor should it be construed as such.
All of the views or suggestions within this report are those solely and exclusively of the author, and accurately reflect his personal views about any and all of the subject instruments and are presented to the best of the author’s knowledge. Any person relying on this report to undertake trading does so entirely at his/her own risk and Hantec Markets does not accept any liability.