Market Overview
News flow and political risk have been the key drivers of financial markets of recent weeks, with one man seemingly the common denominator, Donald Trump.
One over-arching theme is also taking hold, how protectionist will the Trump administration position itself. Current fears are over a trade war with China and whilst the market reacts to the early opening salvos, risk appetite deteriorates and there is a flight to safety. Trump is a business man at heart and as such, his opening bid will always tend to shock, only for there to be a rolling back towards some sort of compromise.
Comments from Treasury Secretary Steve Mnuchin tend to lean this way this morning. I sense that this is what will play out on the trade tariffs, however China’s response to the targeted $60bn tariffs will likely cause another shock to market fear gauges. As yet they have kept their counsel, but they are unlikely to acquiesce to the sort of bully boy tactics that Trump likes to employ.
Financial markets closed last week fearful, and although there is still a degree of selling pressure today, the fact that the 10-Year yield is holding up above its recent low of around 2.79% is interesting. The safe havens such as yen, Swissy and gold are also paring some of their recent gains. Equities in Europe also seem fairly stable. Watching how these markets move early this week will tell a lot in terms of risk appetite. In the absence of any market moving data today, traders are still responding to news flow.
Wall Street closed strongly lower again with the Dow over 400 ticks lower (-1.8%) and the S&P 500 even worse, falling -2.0% to 2588. Asian markets were also lower in early moves today, whilst European indices have been supported in early moves with the downside pressure seeming to wane this morning.
In forex, there is still a weakness to the dollar but interestingly the yen and Swissy are giving back some gains today. Watching how Dollar Index reacts to a break of recent support at 89.40 will be interesting too.
In commodities, there has been a slight slip on gold but also oil today.
There are no key economic releases due today.
Chart of the Day – USD/CAD
It is interesting to see that the dollar has weakened again across the forex majors but also with the strength of the oil price, the Canadian dollar is performing much better. This has driven a correction on USD/CAD which has now broken a well-defined six week uptrend channel and now threatens the first higher key reaction low support at 1.2800. Will this support be broken? The momentum indicators are leading the market lower as the RSI has fallen to a five week low, the Stochastics are accelerating lower and most interestingly the MACD lines have posted a bear cross. The market is looking at this support with a couple of attempts at the support being rebuffed at the end of last week. There is a band of support now 1.2800/1.2825 now to watch. On the hourly chart a negative configuration on momentum indicators has formed as the market has become more corrective. The hourly RSI is consistently failing in the mid-50s whilst the hourly MACD lines spent last week failing under neutral. The resistance at 1.2950 is now key near term for the continuation of this correction. A move below 1.2800 opens 1.2650/1.2750.
After a choppy phase of trading which has neutralised the outlook, could there be a hint of direction now coming. The dollar is slipping across the major currency pairs and this is translating into a mild bull bias on EUR/USD. The market closed Friday at a six session high but with the early move higher today is also now breaking a five week downtrend. Initial resistance is $1.2390 but there is a series of lower highs in place during that five week period and a move above $1.2412 would break that series. Momentum indicators are cautiously ticking higher again but need more conviction if the bulls are going to feel more in control. The hourly chart reflects a positive configuration building, with the low at $1.2340 initially support and then $1.2285. For now there is still a ranging look to the market, but the bulls have begun the week well.
After a strong week of gains, the sterling bulls have continued to make ground early today. There is a positive set of technical indicators which suggest that buying into weakness remains on track. The market has reacted positively to Thursday’s negative candle to leave support at $1.4075 as old resistance looks to become new support. However there does still need to be a breakout above the resistance at $1.4215 which would put the bulls in decisive control for a test of the key highs between $1.4275/$1.4345. Momentum indicators are advancing well, with upside potential on the RSI into the mid-60s. The hourly chart also show corrections being bought into at higher levels, with the hourly RSI bottoming around 40 and MACD lines around neutral. The bulls will still be looking to use any correction as a chance to buy above the $1.4000 psychological and now pivot support.
Three strong bear candles have decisively broken the support between 105.23/105.60 and opened the downside once more. However, the reaction early today is showing that there will continue to be opportunities to sell. The run of lower highs formed a shallow downtrend over the past month which comes in around 106.85, with the latest lower high at 106.65 which is now a more key resistance. Old support becomes new resistance following a breakdown, so there is an initial sell zone between 105.23/105.60. There is a decisive deterioration now underway on the momentum indicators with the negative configuration on RSI, Stochastics and MACD bear cross. The early rebound today will be another chance to sell and only a move to break the sequence of lower highs would change this. Initial support at 104.55 now protects a retreat to 102.50 and beyond to 100.
Gold
Two strong bull candles in the past three completed sessions have completed changed the complexion of the three month trading range. A break above resistance within the range at $1241 has re-opened the key range high again at $1366. Momentum indicators are improving again whilst intraday weakness is seen as a chance to buy. Old resistance within the range will be seen as a chance to buy as support kicks in. This means that there is a small band of mid-range support $1330/$1341 which the bulls will be eyeing as an opportunity. The hourly chart shows an uptrend of the past week comes in at $1337 today whilst hourly momentum is unwinding from a strong position early today and should be a chance to buy with renewed upside potential. A move back below $1324.50 would shift the outlook once more, but certainly for now there is a sense of further gains towards the January high again.
WTI Oil
Having broken out above the old February high at $64.25 this old resistance becomes a basis of new support. Subsequently the bulls used the retest on Thursday to find support around $64.25 to launch another move higher. The momentum indicators are more positively configured now after the strong run higher in the past eight sessions, with the RSI into the 60s and MACD lines accelerating higher. Corrections remain a chance to buy, for pressure on the old January/February highs again between $66.30/$66.65. Already this morning there has been an initial attempt, although this has been rebuffed and the market has dropped back again. However, there is still a decent buy zone in place $63.30/$64.25 for the bulls to use should the rally fade further. Above $66.65 is a multi-year high and opens a move towards $70. The uptrend dating back to August comes in at $61.25 this week.
The protectionist fears that hit market risk appetite late last week showed little sign of reversing on Wall Street. Once more the market closed strongly lower with a decisive bear candle. The selling pressure has also now broken a longer term uptrend (that dates back to May 2017). Near term momentum indicators point towards further weakness, with the downside potential still present with the RSI still in the low 30s. The Fibonacci retracements of the February sell-off 26,616/23,360 still need paying attention as a basis of turning points, with Friday’s high of 24,106 just under the 23.6% Fib level at 24,128. A retreat for a full retracement to 23,360 is increasingly likely now. Futures are looking higher currently, but rallies are a chance to sell. Resistance of the 23.6% Fib at 24,128 and the overhead supply of the old March low at 24,218 adds to the barrier needing to be breached for a recovery now.
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