Market Overview
There has been a decisive negative shift in sentiment as traders take a more cautious outlook which is driving equities lower and helping to bolster support for the safer havens such as bonds, gold and the yen. Treasury yields have been reversing since the Fed meeting last week, but it seems as though there's also concern in the US over the ability for Donald Trump to pull off his substantial fiscal plans.
The trigger seems to have come from the perception that Trump will struggle to get through the changes to Obamacare, and if this is the case then what else will he struggle with? Wall Street sold off sharply and traders have moved into key safety plays such as gold, the yen and of course Treasuries. The yield on the 2-year Treasury has been hovering around the old key breakout of 1.300% in recent days but closed sharply below to now trade around 1.26%, whilst the 10-year yield is also under pressure. The US dollar is subsequently also having a rough ride and is now close to forming a large head and shoulders top. Closing below 100 and a six week low, a move below 99.23 would complete the big top pattern.
Wall Street closed well over a percent lower across the indices with the S&P 500 -1.3% at 2344 which is below a near term support. Asian markets were also weaker with the Nikkei -2.0%, clearly not helped by the strengthening yen. European markets fell sharply yesterday and are looking negative once more today. Forex markets show a risk-off outlook, with the yen the best performer, whilst the commodity currencies are weaker against the dollar. Gold is again reflecting the safe haven flow and is holding on to yesterday’s gains, whilst oil is again lower after the contract rollover.
It is a fairly quiet morning of data in the European session so the focus will turn to the US Existing Home Sales at 1400GMT. The numbers are expected to drop back slightly to 5.57m (from 5.69m last month). There is also likely to be a lot of attention given to the EIA oil inventories at 1430GMT after last week’s surprise inventory drawdown on the crude stocks which induced a rally on oil. Forecasts suggest crude inventories will increase by 2.5m barrels, whilst distillates are expected to drop be -1.5m barrels and gasoline to drop by -2.4m barrels. At 2000GMT the Reserve Bank of New Zealand monetary policy is not expected to move on rates of 1.75% after the recent disappointment in the Q4 growth numbers.
Chart of the Day – DAX Xetra
A strong bear candle seems to have quickly changed the complexion of the DAX. The market has been slowly but steadily posting a succession of higher lows over the past month as an uptrend has formed, however this trend was decisively broken yesterday as a bearish outside day closed the market at its lowest level since 10th March. The RSI is now at a 5 week low, whilst the Stochastics have turned sharply lower. This now brings the old key breakout support at 11,893 back into range today, an old resistance that has provided support throughout March. The hourly chart shows the deterioration in hourly momentum with the hourly RSI the lowest since the end of February and taking on a more corrective configuration now. The hourly chart also shows the support at 11,917 has been key throughout March and a decisive breach would be bearish. A close below 11,893 would open the next old key support at 11,696.
After a few days of consolidating the near term breakout above $1.0710 the market has used the support as a springboard for the next move higher. Emmanuel Macron’s positive performance in the French Presidential debate has pulled the euro higher and the market also found an extra boost from the dollar weakness, all of which has brought EUR/USD to its highest closing level since November over $1.0800. This now meant that the resistance band $1.0800/$1.0850 is being tested. This is a band of resistance that is protecting the market from completing a large head and shoulders base pattern. A move above the spike high of $1.0872 would confirm the base, whilst it is also interesting to see the primary downtrend since April 2016 also coming in around $1.0870 today. The momentum indicators are positively configured with the RSI above 60, MACD lines rising strongly above neutral and the Stochastics bullish. An intraday correction is now a chance to buy today with little suggestion that the bull run is fading any time soon.
It had looked early yesterday that the bulls were running out of steam, however the jump in UK inflation has given Cable a new lease of life again. The strong bull candle took the market soaring through the near term resistance at $1.2485 and now opens the key February range highs of $1.2570/$1.2582. The daily momentum indicators continue to improve and todays early gains suggest that the bulls remain positive. The hourly chart shows how the market continues to step higher, with the latest breakout above $1.2435 now becoming supportive. A decisive move back above yesterday’s high at $1.2495 re-opens the continued recovery. Key support comes in at $1.2320. As hourly momentum unwind this is being used to renew upside potential.
Yet another strong bear candle in the recent run lower now means that Dollar/Yen has posted six bearish candles in a row as the decline in the wake of the “dovish” FOMC rate hike continues. The market has been trading in a 400 pip range between 111.60 and 115.60 since mid-January, however this morning the range is being decisively broken. A minor intraday breach of the key support at 111.60 was seen yesterday but failed to close below, however the move has gone further today as the momentum in the correction remains strong. The RSI is falling back towards 30 and given the strength of the recent trend, this is not looking to be a ranging move and therefore has the potential to go way below 30. Furthermore, MACD lines are falling below neutral and Stochastics are also strongly bearish. A closing break below 111.60 would complete a range breakdown and imply 400 pips lower. There is minor support at 111.30 and an old key pivot at 111.00 but a continued run lower looks likely if the confirmation move is seen. The hourly chart shows rallies being continually sold into, and any move to unwind RSI, MACD and Stochastics could be pounced upon now. The previous support at 112.25/112.50 is now resistance.
Gold
Gold continues to react higher in the wake of the Fed decision, and now with a more safe haven shift in sentiment the price is taking more of a boost. The initial intraday correction turned sharply around to close strongly higher on the day and form another strong bull candle. The move has taken the market clear of the 23.6% Fibonacci retracement and suggests that a full 100% retracement to $1264 should not be ruled out now. The market has also paid little regard to the band of resistance between $1240/$1245 which also now opens the way towards a test of the February high at $1264. This comes with momentum indicators decisively moving higher, with the Stochastics climbing and the RSI moving into the 60s. The hourly chart shows how the market has been consolidating around $1245 overnight but a clear break opens the upside again, with $1250 and $1258 being minor lower highs within the sell-off from $1264. There is now breakout support at $1235.50 and yesterday’s low at $1226.30 will take on added importance as a key low.
Oil remains under pressure after another intraday rally disappointed into the close. This move subsequently formed another strong bearish candle and leaves strong near term resistance now in place at $48.75. This move which closed towards the low of the day reflects just how weak the buyers are at the moment, and also confirms a lower high below the $49.60 high. The deterioration in the momentum indicators suggests that rallies remain a chance to sell for a test of the recent $47.10 key low. The hourly chart shows bearish momentum configuration with a near term band of resistance $47.85/$48.30 comes in as a near term “sell zone” today. The EIA oil inventories have been crucial for near term direction in recent weeks and need to be watched for any surprises.
After over two weeks of going all but nowhere, the drive seems to now have finally been lost from the February rally. The largest bear candle on the Dow since September has now decisively broken the support of the four month uptrend. A close below 20,777 has changed the outlook decisively corrective. This is reflected in the deterioration in the momentum indicators with the RSI below 50, MACD lines accelerating lower and the Stochastics showing a “bear kiss”. The support is somewhat tenuous until the old December/January trading range highs between 20,000/20,125, with a minor level at 20,532. It also now confirms that 21,000 is now an official lower high below the all-time high at 21,169. Initial resistance comes with the previous support 20,777/20,786.
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