Market Overview
The tit-for-tat that comes with the prospect of a trade war between the US and China has taken another step forward.
The US is looking to combat China’s intellectual property infringements by imposing tariffs on a range of around $50bn of some 1300 products from China, including those in the tech and aerospace markets. China has already promised to respond accordingly, but interestingly the prospect of negotiation is still open and this could be why there has been little significant negative reaction on financial markets. In fact, the reaction has been strangely muted, given the risk aversion that has tended to greet previous moves to step up the tensions.
Perhaps the market is looking past the brinkmanship of this whole situation and is beginning to expect a compromise? However, perhaps this is because the market is simply waiting for China’s response which is supposedly going to be some time today.
Despite this uncertainty, safe haven assets have not benefited to any significant degree, with the yen under pressure, little move on gold, whilst Treasury yields pulled higher. Furthermore, equities are also mixed in response. The dollar has also strengthened and started to outperform the euro. This comes in from of two key data points today that could significantly impact the outlook of EUR/USD, with flash Eurozone inflation and the US ISM Non-Manufacturing. There are several markets on our radar that are sitting around key crossroads now that could change the near to medium term outlook.
Watching moves on EUR/USD and USD/JPY could be key as to how the US dollar reacts moving forward.
Wall Street rebounded yesterday with the S&P 500 +1.2% at 2614, although futures suggest the market struggling to sustain this positive momentum. Asian markets were mixed (Nikkei +0.1%) whilst European markets are similarly positioned in early moves today.
In forex, there is almost no direction early today aside from minor gains for the New Zealand dollar.
In commodities, once more there is a very mixed outlook for gold, whilst oil is slipping back a touch having found some support yesterday.
There is much to keep traders interested throughout the day although first up the UK Construction PMI at 09:30 BST is unlikely to do much to move the needle. Construction is around 7% of the UK economy and the PMI is expected to tick only marginally lower to 51.2 (from 51.4 last month).
Big focus will come with the first look at Eurozone inflation data for March, with the Eurozone flash CPI at 10:00 BST. The headline CPI reading is expected to increase back to +1.4% (from a mild downward revision of +1.1% last month), whilst the core CPI is also expected to tick higher to +1.1% (from +1.0% last month).
The ADP Employment change at 13:15 BST is also seen as a possible indicator for Friday’s payrolls number and is expected to drop back to 205,000 (from 235,000 last month). The ISM Non-manufacturing PMI is at 15:00 BST and is expected to slip slightly but remain strong at 59.0 (down from 59.5 last month).
US Factory Orders are also at 15:00 BST and are expected to improve by +1.7% on the month after last month’s decline of -1.4%.
The EIA oil inventories are also at 15:30 BST and are expected to show the crude stocks are expected to build by another +2.0m barrels (+1.6m last week), with distillates in drawdown by -0.5m barrels (-2.1m last week) and gasoline drawdown by -1.5m barrels (-3.5m last week).
Chart of the Day – USD/CAD
Sign of positivity in the NAFTA talks and the Canadian dollar has strengthened. In the past few weeks as the recovery in the loonie broke the multi-week uptrend but the prospect of a decisive turnaround would be significantly increased by a breach of the key support at 1.2800. This would be the first key higher reaction low that would have been broken, but also now marks the neckline of a one month head and shoulders top pattern. A closing break of 1.2800 would imply a further retracement of 325 pips in the coming weeks and at least a retreat to the next key support area at 1.2650. The momentum indicators have been slipping back for the past few weeks but are already signalling the breakdown, with the RSI back below 50 and at an 8 week low whilst the Stochastics have just crossed lower in negative configuration. Although the market has breached 1.2800 on an intraday basis, a closing breach is needed to confirm the pattern. On a closing breach of 1.2800, intraday rallies back towards the neckline would become a chance to sell but whilst the resistance at 1.2945 is intact as a lower high the corrective move remains in play.
EUR/USD
The euro ended a three day run of consolidation with a minor break to the downside yesterday, which is beginning to give the chart a slight negative bias once more within the medium term trading range. Since the beginning of the year, the market has been ranging between $1.2155/$1.2555 with an increasingly neutral technical configuration. However, this configuration is now just beginning to show signs of turning more corrective. The support of the March low at $1.2235 will be seen as an initial gauge of this and is now well within range with the Average True Range of 86 pips today. The support of a 12 month uptrend comes in at $1.2240 too and is also therefore under threat from a negative session. The hourly chart shows little intraday rallies now being sold into with the RSI failing around 60 and MACD lines failing around neutral, whilst a lower high at $1.2345 adds to the pivot resistance around $1.2360. Pressure towards the key support at $1.2155 could be mounting, especially if the uptrend gives way.
Cable bulls are making very tentative progress as another very marginally positive gain was posted yesterday to once more maintain the support of the five week uptrend. The market is again trading on the bid this morning, but once more seems to be somewhat tentative. The hourly chart shows that a decisive move above $1.4095 would start to improve the outlook, whilst the hourly momentum is also gradually improving again. The subsequent resistance is at $1.4200 and then $1.4245. This is all helping to build the basis of support at $1.4000 which is an increasingly important level now for Cable bulls. Five month uptrend support comes in at $1.3935.
USD/JPY
Another strong bull candle posted yesterday means that pressure is increasing on key levels of resistance overhead. The downtrend of the past seven weeks has left a string of lower highs from 107.90, 107.65, 107.30 and most recently at 107.00. However the recovery last week and the magnitude of another bull candle yesterday means that there is an increasing risk of a reversal now. Momentum indicators have taken on a far more improving configuration with these moves, with the MACD lines pulling higher, RSI to 50 and Stochastics rising above 70. A close above 107.30 would now complete a head and shoulders base pattern and begin to signal a change in outlook. However, there is much that still needs to be confirmed and the hourly chart shows a mixed outlook. However, the low at 105.65 will now be taken as a key gauge for the bulls as a potential higher low. The pair has reached a very interesting crossroads.
Gold
Gold continues to throw up a rich variety of signals on almost a daily basis. The contradictory run of candles, just in the course of the past two weeks leaves the outlook very much in doubt. However what is clear, is that in 2018 the market continues to trade in a trading range of around $65 between the long term pivot support around $1300 and the January high of $1366. Within that, the buyers return between $1300/$1310 and the sellers return between $1355/$1366. Yesterday’s bear candle has left initial resistance at $1345 but the support at $1321 has been defended by the early rebound today. Momentum indicators are increasingly neutral with the RSI around 50, MACD lines flattening around neutral and Stochastics lacking direction. The hourly chart also reflects these ranging conditions. A chart that is in desperate need of a decisive catalyst.
WTI Oil
The bull reaction to Monday’s selling pressure would be an important indication of how sentiment of the week could begin to pan out. The near term correction has posted lower highs and lower lows in the past week, but the seven month uptrend remains intact and now old near term pivot levels between $62.20/$62.80 are coming in as a basis of support. However the near term move is still corrective within the uptrend, with momentum indicators also tracking lower and lower highs/lower lows in the price over the past week. Despite this though there is now a basis of support to work from at $62.80. The hourly chart shows there is a barrier that the buyers need to breach with a band of resistance between $63.75/$63.25 now. Another lower high around here would add further corrective concern, with the hourly RSI failing consistently around 60/65 not helping the bulls. Below $62.80 support, the trend line comes in at $61.90.
There is still a concern that the market is failing at lower levels. Is yesterday’s bounce just another sticking plaster on what looks like being an increasingly nasty wound of a correction? Lower highs and lower lows are in place and this means that 24,314 and 24,445 are two levels to watch. As the market has rallied to the overhead supply of the old key March low at 24,218, is this not just another chance to sell? Increasingly, with overhead supply building and negative momentum configuration developing, the bulls need to put together a run of positive sessions to begin to sustainably improve the outlook again. Otherwise the downside pressure will simply tell again and a retest of the 23,360 and 23,344 lows will be seen. A closing break of 23,500 would be a four month closing low.
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