The near term technical prospects for the dollar continue to improve as the weakness seen over the past few weeks shows signals of a retracement. This comes with the Fed’s Beige Book suggesting that growth and inflation are picking up, whilst Apple (NASDAQ:AAPL) unveiled plans to repatriate its overseas earnings that could mean a tax bill of around $38bn. This has been dollar supportive, but on the flip-side the jawboning from ECB board members seems to have begun, in an attempt to take the steam out of the recent euro rally. Ewald Nowotny suggested the euro’s recent strength against the dollar was “not helpful” and Vitor Constancio said that policy would be "very accommodative for a long time”.
Although there has been a slight rebound on the euro this morning, this could be the beginning of a corrective slip on the euro if the jawboning continues. US Treasury yields have ticked higher, with the 2 year yield remaining strong, now above 2.05% whilst the 10 year yield is pulling higher to eye the key barrier 2.60%/2.64%. Equities on Wall Street also benefitted from the news from Apple and swung sharply back into all-time highs again. It seems that there is little that can keep the bulls down for long. Whether the same can be said in the European indices is another matter.
China GDP came in ahead of expectations at +6.8% for Q4 (+6.7% exp, from +6.8% in Q3), leaving +6.9% for the year. However there was a more mixed picture with the other data, with China Industrial Production beating at +6.2% (+6.0% exp, +6.1% last), but China Retail Sales was a big miss at +9.4% (+10.1% exp, +10.2% last). Fixed asset investment also beat at +7.2% (+7.1% exp, +7.2% last). Australian unemployment ticked higher to 5.5% (+5.4% exp) but came with rising participation rate.
Wall Street closed sharply higher with the S&P 500 +0.9% at 2802 whilst Asian markets were mixed, with the Nikkei +0.4%. In Europe the DAX is positive after the Wall Street gains, but FTSE 100 is underperforming.
In forex markets the gains yesterday for the dollar have not yet followed through and there is a cautious look to major pairs this morning.
In commodities, gold is also mixed with oil also consolidating.
There is little of any note on the economic calendar during the European morning for traders to be overly concerned about, with the US Building Permits at 13:30 GMT which are expected to tick slightly lower to +1.29m (from +1.30m last month), whilst the Housing Starts are expected to also tick slightly lower to +1.28m (from +1.30m). The Philly Fed business index is at 13:30 GMT and is expected to remain very strong at +25.0 although tick mildly down from last month’s extremely positive +27.9.
The EIA oil inventories are delayed by a day on public holiday weeks and are out at 16:00 GMT with crude stocks expected to drawdown by -3.5m barrels (-5.0m barrels last week), with distillates also expected to drawdown by -1.3m barrels (last week +4.3m barrels) and gasoline stocks expected to build by +3.7m barrels (+4.1m barrels last week).
Chart of the Day – USD/CAD
As expected, the Bank of Canada hiked interest rates by a further 25 basis points, but as the dust begins to settle it seems that the Canadian dollar seems to have come off worse. Aside from the fact that the move was entirely priced in, the BoC also suggested a note of caution with the tightening and a degree of policy “accommodation” still being needed. Subsequently USD/CAD has begun to pick up. A particularly choppy session yesterday formed a “long legged doji” which although reflects uncertainty, is helped for direction by the subsequent candle. The consolidation continues today but the pair does seem to now be building support with the January low at 1.2350 remaining intact. Could this now be the beginnings of a near term recovery phase? It is interesting to see that the market has started to improve on the daily momentum indicators, with the RSI and MACD lines looking to bottom whilst the Stochastics are improving. On the hourly chart, aside from the noise immediately in the wake of the BoC decision, there is resistance at 1.2470 which the bulls will be eyeing today. A decisive move through this would be a mini breakout and see the bulls building for a test of the key near term resistance at 1.2590. There is near term breakout support at 1.2450/1.2460 above the basis of support around 1.2400.
The near term reversal signals are beginning to stack up on EUR/USD. Having recently broken into new three year highs, the pair is now looking at risk of a corrective move. A bearish engulfing candle(bearish key one day reversal) was posted yesterday which has left resistance at $1.2322 and seemingly implies a shift in sentiment on the euro. This comes as the RSI has crossed back below 70 (a near term corrective signal) along with the Stochastics crossing lower (although not yet a confirmed sell signal). The near term deterioration is reflected also on the hourly chart with a breach of the initial support at $1.2193 which has completed a small top pattern of around 100 pips. This all lines up now for a retreat back towards the support of the key breakout of the old September high around $1.2090. Near term rallies should now be seen as a chance to buy, with a lower high resistance at $1.2287. There is initial support at today’s low of $1.2163.
The dollar is looking set up to form a recovery across several of the major pairs, however not on Cable where the Sterling bulls are standing strong Another positive close was seen yesterday as the advance higher towards $1.4000 continues. Momentum remains strong with the move, as RSI and MACD lines continue to advance, although the Stochastics tailing off are perhaps a slight concern. The reason the Stochastics have just ticked slightly lower is due to the spike higher and retracement late in yesterday’s session that leaves resistance at $1.3942 but also a slightly mixed candle. So far this does not seem to be impacting the bulls, but it is worth watching. The hourly chart is positively configured still on momentum whilst good support is in place at $1.3740/55 as the bulls remain in control for now to resist the corrective forces.
A bullish engulfing candle (bullish key one day reversal) has been posted on Dollar/Yen as the prospects of a near term recovery improve. This comes with the market bouncing from 110.20 to close above near term pivot resistance at 111.00 yesterday. The momentum indicators have picked up with the RSI back above 30 and the Stochastics crossing higher. The technical improvement is also shown well on the hourly chart with a small base pattern completed above 111.00 which implies 80 pips of upside. The hourly RSI is now far more positively configured having moved above 60, whilst the hourly MACD lines have positioned above neutral. There is now a basis of support 110.60/111.00 to build from. This adds up to the potential for a near term recovery on Dollar/Yen which could unwind the market back towards the old support around 112.00 which is now new resistance. The support at 110.20 now becomes near to medium term important.
Gold
After running so strongly higher in the past few weeks, gold is now threatening a reversal move. A bearish engulfing candlestick (bearish key one day reversal) was posted in yesterday’s session also comes with a breakdown of a five week uptrend. The move has left resistance now around $1344 and suggests that the bulls have just lost their control, for now. The reaction of the market in the next couple of sessions will be key to how the next move progresses. There is a basis of support around $1325 which is the top of a previous band of consolidation and this seems to be holding initially. However, the momentum indicators are beginning to roll over and this could signal increased corrective pressure in the coming days. Watch for a confirmed bear cross on Stochastics, the MACD lines also crossing lower and the RSI below 60. The key support remains in the long term pivot band $1300/$1310 with the early January lows $1305/$1307. The hourly chart shows a small top pattern completed below $1331 which implies around $13 of correction and is now a basis of resistance.
WTI Oil
Having threatened to roll over, the reaction of the bulls was solid yesterday as initial selling pressure was contained and the market posted a mild gain on the day. This leaves increasingly important near term support at $63.05 intact as the market continuing to trade above the support of the old uptrend channel. There is a degree of consolidation that has taken over the market in the early days of this week but the positive trends remain intact, with the support of the 5 week uptrend today coming in around $62.55 which continues to suggest that any unwinding moves will still be seen as a bull market correction. The hourly chart does though show that the support of the 89 hour moving average which had been an excellent gauge in recent weeks having now been broken and plateauing. A breach of support at $63.05 would open further correction with a small top of around $1.70 to the downside.
The first sign of a corrective move has not been enough to see the bulls flooding for the exits, instead the bulls just want more. The support has come back in again and the desire to support this market continues. So much so that another hugely impressive session was seen yesterday with the market closing again at all-time highs and above 26,000. The market may be stretched but the bulls just don’t care at the moment. Momentum indicators on the daily chart remain positively configured and resistant to any unwinding. Despite this though there is still a sense that the market is stretched and due a correction of sorts. Momentum remains strong, even on the hourly chart, even though there may just be hints of a negative momentum divergence which should be watched for today. The market also remains supported still by the rising 21 hour moving average (currently 25,911). Price support initially at yesterday’s traded low of 25,865 and then the low at 25,703. For what it is worth, the initial resistance is 26,130.
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