Market Overview
Once more the market reaction to a geopolitical shock has been fleeting and the safe haven bid has unwound. Market sentiment is looking more positive today with Treasury yields higher whilst the dollar and equities are also moving positively. Driven also by an uncertain reaction to a mixed Non-farm Payrolls report on Friday, a change of near term market direction is now threatening. The safe haven of US Treasuries had looked previously to be in demand, however this move is unwinding. Into Monday morning the 2 year Treasury yield is up towards 1.340% again and the 10 year yield is also looking to push higher from Friday’s remarkable one day turnaround (which was arguably a bullish engulfing and a false downside break of the old range low at 2.300%). With Treasury yields pulling higher again, the US dollar has started to also find some strength again and is looking to test some key levels on forex majors now.
With Wall Street consolidating into the close on Friday (S&P 500 -0.1%) and Asian markets mixed overnight, equities have started to look a touch more positive today in Europe today. Forex majors show a mixed dollar outlook, but the main factor is that the yen is the underperformer. Gold and silver are trading mixed today, whilst the oil price continues to rebound and is marginally higher.
It is a very quiet day on the economic calendar with no major economic announcements due. However late in the day a speech from Fed chair Janet Yellen will be watched for any hints on the path of monetary policy. Yellen speaks at 2100BST.
Chart of the Day – NZD/USD
The kiwi has been under consistent pressure in recent weeks, hugging the bearish resistance of a nine week downtrend. The medium term deterioration of the momentum indicators suggests that this is a trend that is ongoing and will continue to find selling pressure at lower levels. It looks increasingly that the old pivot support around $0.6900 will come under pressure in the coming days/weeks. This was the old breakout resistance that had been key for six month between 2015/2016 and also the basis of support for the December and March sell-offs which found support at $0.6860 and $0.6887 respectively. With the MACD lines crossing lower, the RSI in decline below 40 and the Stochastics also corrective, rallies were still being sold throughout last week. Initial resistance is at $0.6990 which had been a floor throughout late March but once broken has turned into resistance and a become a pivot in the past few weeks. Rallies should be seen as a chance to sell, with the downtrend today coming in at $0.6980.
After a short phase of consolidation, the dollar bulls have regained the near term control. Posting a strong bear candle for EUR/USD on Friday the momentum is once more building to the downside. A breach of $1.0600 now means that the next support of any real significance are the February/March lows of $1.0492. The daily momentum indicators also confirm that these levels are set to be tested with the RSI and Stochastics at a 5 week low whilst the MACD lines are also falling. The previous consolidation band $1.0640/$1.0690 now becomes a basis of overhead resistance for unwinding rallies. This is reflected in the hourly chart which is negatively configured and that rallies are a chance to sell. The hourly RSI is now struggling around 50/60 and this morning’s technical rally will likely find further selling pressure to retest the overnight low of $1.0570 before further weakness. There is minor support at $1.0523.
With Fridays strong bear candle in the wake of Non-farm Payrolls, the negative technical signals are beginning to rack up. The RSI and Stochastics are now beginning to track decisively lower, whilst the MACD lines have posted a bear cross. Along with the closing break below the support at $1.2375 the pressure is mounting. A decisive breach of $1.2345 which is an old key low, would now put the bears in strong control of the broad medium to longer term trading range once more. The hourly chart shows a rebound off $1.2360 and the reaction of the buyers today could be key for the outlook. A failure in the $1.2380/$1.2420 band of old key lows within the range would be a worrying signal for long positions. The hourly RSI is also struggling in the 50/60 area whilst the hourly MACD lines failing below neutral would also be a negative signal today. Resistance at $1.2505 is now key.
Yet another failed attempt at breaking the support at 110.09 on Friday has resulted in a spell of buying pressure which has continued into the new week. The last few days may have been consistently testing the uptrend in place since September but the trend has never been breached on a closing basis and once more was held intact on Friday. The momentum indicators are now beginning to look at upside traction with the Stochastics lines ticking higher along with the RSI. This will though be merely a sideways consolidation until a break of the reaction high at 112.20 is seen. Once more the overhead resistance of the old pivot at 111.60 is a barrier that is in focus today. The hourly chart has a ranging look to it, with the RSI oscillating between 30/70. There is a minor near term pivot at 111.00 now.
Gold
A false upside break on gold has seen the price initially breakout only to find the move scuppered late in the session on Friday. This failure happened almost bang on the resistance of the long term downtrend. The concern for the bull run is that this has also contributed to the Stochastics now gaining legs in a corrective move. If the RSI and MACD lines begin to follow suit then the selling pressure could begin to ramp up. The reaction today has been fairly neutral with little real direction. The hourly chart showed an interesting session on Friday with the initial upside breakout above the old $1261 which became supportive but once breached back to the downside, the sellers returned again. This will once more be initial resistance again today. The key February high did not appear to be considered too much but Friday’s high at $1270.50 is now key. An old near term pivot around $1250 is initially supportive, with $1244 and the key support at $1239.50.
WTI Oil
The breakout and recovery on oil remains on track despite the mildly disappointing loss of upside momentum on Friday. The recovery uptrend is still supportive today around $51.60 and this is now above the support at $51.20 from the February low. This means that the overhead supply seems to not be looking to use this rally as a chance to sell and this should give the bulls some confidence if there were to be any intraday dips. The daily momentum indicators will be interesting now, with the RSI now decisively above 60, which has previously been a barrier to gains during January and February. The hourly chart reflects a market with strong near term momentum and that corrections are being seen as a chance to buy now. The key support near term is at $50.80, with Friday’s reaction low at $51.50 to be watched as a basis of support today. Initial resistance is Friday’s high at $52.95.
The fact that equities held up well on Friday in the face of the safe haven flow (following the US bombing of Syria) and the headline miss on Non-farm Payrolls should help to give the bulls confidence. The corrective move in the wake of the Fed minutes left a failed breakout of the downtrend, but this downtrend continues to be tested. Friday’s doji candle suggests the move is still in the balance and the outlook uncertain. The momentum indicators have also now fully unwound in the correction over the past few weeks, with the RSI settling around 50 with the MACD lines and Stochastics also increasingly benign. This comes as the Dow has closed for the past nine sessions within 250 ticks amidst a sideways consolidation. However the market is still looking to use the 20,518 low as a higher low to build from. Whilst the downtrend is intact there is still a corrective element to the chart, with the trend falling today at 20,730.
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