Market Overview
European assets may have had a strong run higher yesterday but with two key risk events, Non-farm Payrolls and the French election, there is a consolidation setting in today. Non-farm Payrolls is forecast to be an announcement that will not cause too many shocks, however add in the second round run-off of the French Presidential election and this is a recipe for a consolidation. However, expectations are firmly set for a Macron victory and could this mean limited upside?
In front of that, today’s US employment situation is in focus and with expectations of a June Fed rate hike firmly set, an in-line payrolls report would bolster those expectations. It is interesting to see how the dollar is back under pressure once more with the euro strength, whilst gold and the yen have also started to form some near term support. This dollar weakness comes despite US Treasury yields breaking higher, but this divergence does not normally continue for too long, so perhaps the dollar is due a technical recovery. It is also interesting to see little impact on markets from the victory for the House Republicans, getting the repeal to Obamacare through. Perhaps this is because the Senate is expected to remain a stumbling block.
Wall Street closed basically flat last night with the S&P 500 +0.1%. Asian markets were mixed overnight with Japan again on public holiday. European indices are mixed to mildly negative today. In forex, there are some mixed moves today, however there seems to be a risk negative move, likely driven by the sharp decline in the oil price, which is hitting the Canadian Loonie and Aussie dollar. Furthermore, the yen is beginning to claw back some recent losses. Gold has also found support, with oil down another 2% today.
Non-farm Payrolls dominate the economic calendar and the focus for traders today. The US Employment Situation report is released at 13:30 BST and the market is expecting a fairly middle-of-the-road report. The headline Non-farm Payrolls are expected to be 185,000 which would be a drastic improvement from the 98,000 seen in March (although March could easily be revised higher). Beyond the headline data, the market will be focused largely on the average hourly earnings which are expected to be +0.3% for the month which would be a mild drop in the yearly earnings to +2.6%.
The unemployment rate is expected to tick marginally higher to 4.6% (from 4.5%) but this would not be unexpected with the US approaching the levels that the Fed deems to be a settling level for the next few years. However the U6 unemployment which includes underemployment and discouraged still has a bit further to fall back from last month’s 8.9% to the levels seen during 2006/2007, around 8.0% to 8.5%. The labor force participation rate will also catch the eye if it increases further from the 63.0% which would be a multi-year high but could also be a reason behind an increase in the unemployment.
Chart of the Day – EUR/JPY
The rally on EUR/JPY has been spectacular in the past few weeks. Moving from 114.82 the market has rallied over 850 pips. With the French election being a major driver behind the move (driving euro strength as well as safe haven yen weakness) it will be interesting to see if the bulls continue the run into next week. Once the election is done and dusted (presumably with a Macron victory) will the market have fully priced in the result? Will it be a case of “buy on rumour, sell on fact”?
The market has rallied into the crucial medium to longer term band of resistance 123.30/124.10. This comes with the RSI rising strongly above 70 and MACD lines still pushing solidly higher the momentum is positively configured. The Stochastics are also strongly positioned still. Watch the hourly chart for early signals, with such strong configuration on momentum. The hourly RSI continues to see the bulls return around 50, with Stochastics around 40, and it is interesting to see that these levels are under pressure. The uptrend on the hourly chart is also being tested, with a support band 122.60/122.95 being close. A drop below 122.00 would open a more corrective phase. A breakout above 124.10 key December high would open 126.45 initially but also the bulls in firm longer term control again.
The euro has broken higher from the consolidation. A strong bull candle which added 100 pips on the day has broken through the resistance at $1.0950 to re-open the upside once more. The break from the 100 pip consolidation phase implies an immediate upside target of $1.1050 whilst the old resistance at $1.0950 now becomes a basis of support today.
The momentum indicators remain firmly bullish and corrections remain a chance to buy. It is Non-farm Payrolls Friday today and there is likely to be increased volatility this afternoon, however the technicals continue to point towards further gains. $1.1000 could be considered to be a psychological resistance, whilst $1.1100 is an old long term pivot. The hourly chart reflects strong momentum configuration across the indicators. Support comes in at $1.0925/$1.0950, with the importance of $1.0850 growing.
A strong intraday recovery has put the brakes on what looked to be a corrective slip back on cable. The past week has seen the bulls just relinquish some of the near term control and it will now be interesting to see if they can get a grip on the market and post a second consecutive positive candle. If so, then it would drive expectation of a renewed upside break above $1.2965 and towards the $1.3000s.
The momentum indicators have come to a crossroads now, with the MACD lines coming back together and the Stochastics just flattening off. This reflects the stumbling of the bulls, but they do still remain broadly in control. Yesterday’s low at $1.2830 now protects the $1.2775 long term breakout support. The overnight move is one of consolidation (not surprising in front of payrolls). The hourly chart reflects a ranging market with the moving averages clustered in neutral set up, and the momentum indicators oscillating around broadly neutral levels. A failure under the $1.2950 lower high would begin to question the appetite for the bulls. There is a minor near term pivot around $1.2875 which is initial support.
The bull run has just stalled a touch as the market has just unwound back towards the breakout support 111.60/112.20. Yesterday’s small negative candle was the first corrective candle in over a week and could still be considered to be an unwinding move that gives a chance to buy. The market has continued to slip back today but is likely to stabilise during this morning, in front of Non-farm Payrolls.
The hourly chart shows a broken uptrend which is now becoming the basis of resistance today at 112.65. Hourly momentum is corrective but at this stage not excessively negative. Expect volatility today, however whilst the support at 111.60 remains intact then this near term slip does not look to be anything more than another chance to buy for the continuation of the medium term recovery.
Gold made a key breakdown yesterday. The failure of the support of a pivot and the late March lows around $1240 was the latest in a line of key support breaches in recent days. This comes as the bearish candles rack up. With momentum increasingly negatively configured, rallies will be seen as a chance to sell.
The early morning rebound today is bucking the trend but a failure under the now resistance around $1240 would add to the concern for the bulls. Having breached $1240 the market is on course for a test of $1220 (which is another old pivot), whilst $1200 should not be ruled out, with the key March low at $1194.50. The old uptrend of the channel adds to the resistance at $1240 today. The hourly chart shows a resistance band $1252/$1257 and that today’s move is helping to unwind oversold momentum and should renew downside potential.
WTI Oil
Oil has made a crucial medium term breakdown. The support of the March lows at $47.00 has been decisively breached and this has taken the oil price back to its lowest since November. Furthermore, the long term support of the 13 month uptrend channel has also been broken.
Momentum indicators are very bearish on a medium term basis with the RSI falling decisively below 30, the MACD lines accelerating lower and the Stochastics strongly negative. Yesterday’s closing breach of $47.00 has already breached the next support at $44.80 but there is a real prospect of further downside towards $42.20 in due course. The strategy would be to continue to use intraday rallies as a chance to sell. The old support around $47.00 is now a basis of resistance, with the recent downtrend coming in at $48.25 today.
The bulls remain frustrated as another attempted move to gain upside traction has been reined in. A bear candle with resistance again coming in under the 21,000 barrier is once more a touch disappointing. It may be that markets are just consolidating in front of payrolls, but there is a continued move sideways that has been in place now for the past seven sessions.
Momentum indicators continue to view this consolidation as a pause for breath, but the longer the market remains shackled under 21,000, the more tempted the bears could become. The hourly chart shows a neutral configuration of momentum. Support is initially at 20,848 with the key multi-week high at 21,070 being key resistance near term.
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