Market Overview
The dollar has been weak on the back of subdued US economic indicators, with Treasury yields falling away, however there are a few signs to suggest a consolidation, perhaps even the beginning of a rally forming. However, this could just be as traders begin to look ahead to this Friday’s key Non-farm Payrolls report, leading the dollar to stabilise. The market could subsequently take a lot from the payrolls data and with the dollar having reached a key level, it could drive direction in the coming days and possibly weeks. The strength of US earnings season has meant that US equities continue to push into all-time highs. Strong results in Apple’s earnings overnight have helped Asian markets higher, with a positive read through to the European session.
Wall Street closed positively, with yet another record close on the Dow, whilst the S&P 500 was +0.2% at 2476. Asian markets were positive with the Nikkei +0.5% and back above 20,000 again. European markets look mildly positive in early moves.
In forex, there are a few signs of the dollar just beginning to find support, with the yen being the big underperformer, whilst the commodity currencies are also pulling back. However, euro regaining some strength and sterling also higher is preventing a serious dollar rebound today.
This comes as the rally on gold is just stalling for now, whilst oil is lower by just over half a percent. The oil weakness came as the API inventories showed a surprise build last night which has increased concerns ahead of the EIA inventories today.
Today is the quiet day of the week for economic data releases, with the European morning largely only really focusing on the UK Construction PMI at 09:30 BST. Expectation is for a mild slip to 54.5 (from 54.8) but the reaction is likely to be minimal being only around 7% of the UK economy.
The US session will focus on the ADP Employment change at 1315 BST. Consensus is looking for 185,000 (up from 158,000 last month) but after once again failing to give any real clue to the subsequent Nonfarm Payrolls data, this reading may be given less intention this time around. The EIA oil inventories at 15:30 BST will be of interest with the crude stocks expected to again drawdown by -2.8m barrels, whilst distillates are expected to fall by -0.3m barrels and the gasoline stocks are expected to drop by -1.0m barrels.
There are also a couple of Fed speakers today with Loretta Mester (leans hawkish) and John Williams (neutral) although both are non-voters this year.
Chart of the Day – AUD/USD
Is the Aussie close to a corrective move? The sharp gains of recent weeks above $0.8000 have started to show signs of consolidation. The market has dropped back a touch in the wake of the RBA and it will be interesting to see if this consolidation turns into a correction. There has been an uptrend over the past three weeks and whilst this has been a sharp trend that would inevitably be broken, we have now seen the consolidation breach this trend. Yesterday’s negative candle is adding to the sense that the bulls have lost control. The momentum indicators reflect the loss of impetus in the rally as the RSI drops back below 70 for a basic sell signal, whilst the Stochastics threaten to follow and the MACD lines also have started to roll over. The support to watch near term is Friday’s low at $0.7933 which would complete a small top pattern and imply 90 pips of initial correction. This would then open the key near term support at $0.7875. The hourly chart shows the bulls are under pressure now, and a move back to 30 and below on the hourly RSI would be another corrective signal.
The dollar started to regain a little lost ground yesterday. This has pulled EUR/USD back from a high of $1.1845 which dates back to January 2015. However, as yet, the technical indicators are showing minimal impact and subsequently the recent strategy of buying into weakness remains valid. The uptrend of the past three weeks comes in today at $1.1715 which coincides with the support of the latest breakout at $1.1711. The RSI has dipped back a touch but still simply looks to be consolidating within the bull run. Ongoing positive configurations on the MACD and Stochastics back this assessment. The hourly chart also corroborates this with the hourly RSI continually supported around 35/45 and the MACD lines again looking to turn higher above neutral. This looks to be the latest pullback to be used as a chance to buy. The hourly chart shows initial support at a breakout $1.1760/$1.1775 above the $1.1711 old key high.
Whilst the euro corrected, sterling held up relatively well against the dollar yesterday and the candle was one of only minor weakness. The move was in effect one of consolidation, with a brief pause coming after two strong bull candles. This is not uncommon, whilst the momentum indicators remain strongly configured to suggest that corrections remain a chance to buy. The daily chart shows a series of higher lows and old breakout levels between $1.3050/$1.3155, whilst the support of the six week uptrend comes in today at $1.3060. Despite pulling back from yesterday’s high at $1.3245, the next resistance is $1.3280 and then $1.3345. Continue to expect corrections to be bought into. The hourly chart shows bullish momentum unwinding to help renew upside potential, with hourly RSI and MACD lines pulling back to buying opportunity levels. The previous breakout at $1.3150/$1.3160 is initial support.
The dollar managed to squeeze out some minor gains yesterday, and is continuing the rebound early today, however is this the beginning of a recovery or just another rally to be sold into. For now, with the amount of overhead supply and little yet on the momentum indicators to suggest a change in outlook, the rally is likely to find upside tough going. Momentum indicators remain negatively configured, with the RSI only ticking up to 40, the MACD lines falling below neutral and the Stochastics also only minimally picking up. Old supports continue to play out as new resistance levels, with a range of old levels between 110.60/111.70 ready as overhead supply. The reaction to the initial resistance at 110.60/110.80 will be interesting and this is already being tested today. A close above here tonight would be an encouraging first step for the bulls. However the hourly chart shows the RSI is at a level where previous rallies have rolled over and this is a key test today. There is further resistance around 111.30 and 111.70 should a rare bull candle hold on, but with the average true range of under 90 pips and one day rallies being consistently sold into of the past three weeks, the rally is unlikely to challenge too much overhead before failing once more.
Gold is consolidating within the three week uptrend but the strategy of buying into weakness remains valid. The last two sessions have been very neutral, yesterday’s long-legged doji reflects that, however there is a sense that this move is simply a pause for breath before the continuation of the rally. The pivot at $1260 is now a basis of support and any unwinding move towards here today should be seen as an opportunity to buy. The uptrend support comes in at $1253 today. Momentum indicators are strongly configured still, even though they also reflect the minor consolidation of the past couple of days. The hourly chart shows indicators having unwound to levels where the bulls have previously taken back control again. There is an initial band of support on the hourly chart $1258/$1265 which looks ready for the next higher low.
WTI Oil
The first negative candle in seven sessions suggests that the bulls have just taken their foot off the accelerator. The question is whether it is a viable reversal signal. In isolation, a bearish engulfing candle is a strong indicator, and if the market again closes lower tonight it could begin to threaten the longevity of the run higher. The run of higher daily traded lows has now been broken with a move below $48.85 confirming this breakdown. Momentum indicators have only started to be impacted and need to be watched. The RSI has pulled back from 69 and a drop below 60, a move below 50 would be a corrective signal. Furthermore, the Stochastics have crossed lower and a confirmation of a sell signal is close. The resistance of two days of highs failing around $50.43 means that this is now an increasingly key level near term as an upside barrier. The hourly chart shows the bulls have lost momentum and consistently residing below 50 will add to the momentum. Initial support is $48.35 with $47.85 now key for the bulls.
With 22,000 within reach the Dow has just backed away from the latest key barrier. With the breakout target at 21,890 having been achieved and the RSI stretched again well over 70, is there much further upside potential in this move? The treatment of the gaps could be key. As mentioned yesterday the gap from 21,841 remains open (or should that be unfilled still?) and coming with the momentum so stretched this is a concern for the bulls. The market once more opened a gap higher yesterday and there is a small gap still open from that at 21,930. What is also interesting is that there is also an uptrend channel that has formed over the past four months which the market is at the upper limit, whilst also we see yesterday’s session trading entirely outside the upper 2.0 SD Bollinger Band. This all suggests being close to an exhaustion point on the Dow, at least near term.
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