Market Overview
There is an uncertain feel across financial markets this morning as traders take a more cautious outlook. However the correction on the Japanese yen continues to play out in the forex markets as the retracement unwinds the recent strength. More jawboning from Finance Minister Aso seems to have helped to drive the move which looks to be a case of short covering for now. However, this move is helping to lift the trade weighted US dollar in a recovery which is now into its sixth day. However the dollar strength against the euro and sterling have become painfully slow which are now looking to potentially form some sort of support. Wall Street lacked any direction yesterday however the Asian markets have been buoyed by the weaker yen (Nikkei up 2.1%), whilst a surprise upside beat in Chinese PPI inflation (CPI was in line at 2.3%) has also helped to support sentiment. European indices are trading reasonably positively in early moves today.
The Aussie dollar is posting some gains in the wake of the uptick in China inflation, whilst gold and silver have also managed to find a touch of support after yesterday’s sharp declines. The oil price is mixed after yesterday’s sharp intraday sell-off.
Once more there is little to drive the markets from an economic standpoint, however the UK trade balance or March is at 0930BST and is expected to show a marginal improvement to -£11.3bn (last -£11.9m). with only really the US JOLTS job openings at 1500BST which was expected to drop slightly to 5.43m (from 5.45m).
Chart of the Day – USD/CHF
The dollar has been strengthening across the majors and the chart of Dollar/Swiss is no different. However, is this rally set to continue? The sharp rebound in the past few days has started to stall, with a series of strong bull candles being followed by a doji candle denoting uncertainty with the recent move. This came on a day where risk appetite was stronger and the dollar was performing well. The recent rally has unwound the pair back to the downtrend that is in place since early February (aside from the intraday spike in mid-March) and also back to the falling 55 day moving average (currently 0.9730) which has been a basis of support for the past few months. The momentum indicators have been unwinding but retain a medium term bearish configuration and suggests that rallies remain a chance to sell, with the MACD lines around neutral again and the RSI back over 50. There is a considerable overhead resistance at 0.9785 which has been pivotal in recent months and can be expected one more to play a big role. This is now the time to start to look for the next sell signal. The hourly chart shows small bearish divergences on the hourly RSI, MACD and Stochastics with the last couple of days. The time for the next sell signal could be close. A move below 0.9648 support could be the trigger.
The slide on euro/dollar continues as a fifth consecutive bearish candle completed yesterday, however you could hardly say that the sell-off has been precipitous. It has become something of a slow drift in the last couple of days which is showing through in a shallowing of the negative moves on the momentum indicators. The move is also drifting back to the old pivot band around $1.1330 which is now supportive near term. This is a support that protects the key April low at $1.1213. For now the bears have some sort of control and the hourly indicators still show negative configuration but there is a lack of conviction in the move. This would suggest caution for near term shorts. Initial resistance is at $1.1420 and then the reaction to Non-farm Payrolls at $1.1475.
Cable has also now completed five corrective days of trading lower and as such for now the preference is for near term short positions. However as with the euro, there is a support to be tested and the reaction of the bulls could be important for a potential near term turn around. There is an old pivot area around $1.4400 which although it is not strictly accurate (yesterday’s low was at $1.4372), it has been a consistent turning area for the past few months. After trading for much of yesterday around $1.4400, the early consolidation again today suggests the market is considering its next move. I now see the key support at $1.4300 which is the reaction low from 21st April to be key as this is the support that protects a test of the key February/March lows around $1.4050. For now I still see this to be a medium term retracement of the bull move and that this pivot around $1.4400 could house the next low. The next day or so could be key for the outlook.
Having broken back above the old support area 107.60/80 dollar/yen has had the shackles taken off in a recovery and continues to rebound. This move has some similarities with the move in mid/late April which was ultimately a short squeeze and was once more sold into. For now it looks to be that this could be playing out again, with the momentum indicators unwinding from a deeply oversold position. The strategy here would either be to stand aside and wait for the resistance to form and the next sell signal (the more risk averse way to play it), or to run up with the recovery, in the knowledge that you are still trading against the trend (more risky). The resistance levels overhead are good reference points now. The initial resistance at 108.70 is being tested and looks to be breaking today which would then open the old neckline around 109.75, but I would continue to see the old key floor around 111.00 as an area of overhead supply, meaning that a sell zone comes in between 109.75/111.The RSI is already unwinding towards 50. The hourly chart now shows that the previous resistance around 107.40 towards 107.80 is now supportive.
The bulls are certainly being tested now after a large bearish candle resulted in $25 of downside yesterday. I have spoken frequently of the support between $1260/$1282 being ideal for the bulls to reclaim the initiative on a pullback, but this is being tested now to the limit. The bulls have returned to support to an extent overnight but the support around $1260 remains under threat. Momentum indicators have pulled back with the move and are near term corrective but the RSI will remain bullishly configured for the medium term above 45. The rising 55 day moving average (at $1246.30) has been a basis of support through April and will be watched as an indicator for continued bullish control. There seems to have been a degree of buying pressure overnight around $1260 but the intraday hourly chart now shows $1268/$1270 as a near term resistance area. The reaction in the wake of Non-farm Payrolls at $1295.70 is now key resistance.
WTI Oil
The intraday turnaround on the oil price amidst little fundamental reasoning (perhaps aside from reports of a build in Cushing inventories) has left the chart with another candle that simply adds to a messy period of consolidation. A bearish engulfing candle works best at the end of a trend, so coming within a consolidation period means less decisiveness, however the sentiment of the candle remains negative. The support band between $42.50/$43.50 is once more set to come under threat but until this recent consolidation between $42.50/$46.80 is resolved, then it is difficult to take a view of any real conviction. However, the momentum indicators are now rolling over and it is no real surprise that the Stochastics are leading the way lower. The fact that the MACD lines are also beginning to cross lower is also concerning for the bulls. The uptrend support today comes in at $41.65, so this move could still easily play out as a bull market correction, but the bulls needs to hold on to the support band. The intraday hourly chart is though still rangebound with the RSI oscillating between 30/70, but the bulls will have to work hard to retain this today. The resistance just above $46 is now the near term level to breach to re-ignite the bulls near term but $46.80 remains key.
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