Market Overview
Donald Trump’s inauguration last Friday has been a concern for traders for several days as a consolidation had taken over markets. Although perhaps the market reaction to his speech was initially somewhat muted, there were all the hallmarks of a man that will look to put “America first” but who in doing so will drive a protectionist agenda. The fears of Trump’s concerning trade policies look set to come to fruition. There is a safe haven flow from Trump’s speech that is now beginning to form, whilst the dollar is also being sold off. Treasury yields are lower, whilst gold and the Japanese yen are pulling higher.
Wall Street closed mildly higher on Friday as the buy on rumour, sell on fact trade has not been borne out, quite yet. Asian markets were lower early today whilst European indices are also weaker. Forex majors show the dollar is weaker across the pairs, with the yen being the standout performer. Gold and silver are higher today, with oil marginally weaker on the contract roll over.
As markets continue to react to Donald Trump’s inauguration speech, there is little on the economic calendar that might change the market outlook. The release of Eurozone Consumer Confidence at 1500GMT is expected to remain at -5 and is likely to be little more than a brief footnote on the say.
Chart of the Day – EUR/AUD
Is the market at another turning point? Has the rebound from Friday last week started the ball rolling on another technical rally? Since the turn of the year the pair has been in sharp decline and the move resulted in a breach of the to levels not seen since May 2015. However the trend lower has been broken and with Thursday’s decline turning higher and the breach could have been a false downside break. The daily candles in the early days this week will be key as if a run of bull candles can be put together then the buyers could begin to back another rally. Ending the run of lower highs has already been achieved on Monday, and a second bull candle is in formation. Furthermore, the Stochastics have already started to turn higher and are close to a buy signal. However, calling a reversal is always a risky strategy, whilst there is overhead supply between 1.4200/1.4300 to contain a rally. The initial resistance is 1.4213 and then 1.4255. The hourly chart shows a progression of higher lows with the band of support 1.4075/1.4100 now protecting the key low at 1.4025. There is a band of initial resistance 1.4175/1.4215 and a break above would open the recovery.
After a somewhat uncertain week last week, the bulls have opened strongly as Asia and now the European traders get to react to Donald Trump’s inauguration. The assessment seems to be dollar negative so far and this is helping to push EUR/USD out to its highest level since 8th December. The technicals had been pointing to a continuation of the bull move and now with the uncertainty of the Trump’s first speech as US President out the way, the breakout this morning should help to open further upside. Moving above resistance at $1.0710/20 the upside is open towards $1.0850/70 now. The momentum indicators are bullish with the RSI pushing above 60 an MACD lines now above neutral whilst the Stochastics are also strongly configured. The hourly chart shows a band of support between $1.0670/$1.0720 and corrective moves will now be seen as a chance to buy. Support is at $1.0623 and $1.0577.
For several months Cable has been trading sideways, but the negative outlook within the range is now improving once more as the dollar has started to weaken. The consolidation last week below the resistance at $1.2430 seems to be breaking to the upside as the European traders seem to be taking a dollar negative stance early today. Momentum indicators for a Cable recovery are improving, with the RSI back above 50, the MACD lines ticking higher and the Stochastics moving into the strongest they have been since early December. The bulls need a closing break above $1.2430 to confirm a breakout today which would open the initial resistance at $1.2502 but then the resistance in the upper portions of the trading band around $1.2550/$1.2775. The hourly chart shows a few pivot lines now supportive with $1.2300 and $1.2250. The bulls will remain in control for the breakout whilst above $1.2370 with hourly momentum now more positively configured and corrective moves ready to be bought into.
The positive safe haven flows are back in play as the yen has strengthened (amidst the dollar weakness). This has turned an attempted recovery on its head today after the previous two candles were so uncertain. It appears that the rebound has helped to renew downside potential with the RSI back lower the MACD lines turning lower as have the Stochastics. The daily chart shows a strong bear candle forming for today which looks set up for a retest of the 112.55 low. The hourly chart shows a small top pattern completed below 114.35 to imply 113.05. Hourly momentum is negatively configured and with a string of lower highs, suggests that rallies should be sold into today. Initial resistance is 113.75 with the mini neckline at 114.35 also key. Underneath 112.55 the next key support is 111.32.
Gold
Watching gold on Friday there was a distinct consolidation around $1200 until just prior to the Trump speech and then the concern for a protectionist rhetoric which pulled gold higher. This concern is driving a continued appetite for safe havens today and gold has benefitted. Gold has subsequently broken out above $1218.60 to a new high dating back to late November. This continues the recovery and a closing break above last week’s high tonight will help to drive further gains towards subsequent resistances $1233 and then the key levels at $1241/$1251. The hourly chart shows good support initially in the band $1209/$1211 for the bulls to buy into any intraday weakness today. The higher lows continue to be posted and a decisive breakout above $1218.60 today would leave $1295.50 as the next key level to watch.
WTI Oil
An impressive rally on Friday has turned what looked to be an increasingly concerning outlook for the medium term basis, to one in which the key support at $50.70 has been bolstered. This is an important turnaround as a break below $50.70 would have suggested the bears were in increasing control. The prospect of this top formation has still not be dispelled however the market has opened strongly again today and there is a sense that this is becoming a range trade. This comes as the momentum indicators that had been corrective are starting to settle down now with the RSI stable above 50 and the MACD lines plateauing. However, for the bulls to regain control of the range, there needs to be a close back above $53.50. The early gap higher at the open today on the contract roll over just failed to push above the $53.50 resistance and this will be a key aim for the bulls today. There is a gap open at $52.90 meaning there is a buy zone $52.30/$52.90 today. The hourly chart shows the pivot level around $52.00 also still remains a consideration for traders.
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