Market Overview
If traders were looking out for the FOMC minutes to give some much needed direction this week, they have been left somewhat bereft of ideas. Fed officials have been increasingly hawkish in recent weeks, and the hope was that the minutes may have provided some cause for justification for a continued long dollar position. However the minutes were packed with debate over the impact of the new administration’s fiscal policy, whilst it would be appropriate to rate rates “fairly soon” if employment and inflation trends continue. There was very little reference to balance sheet reduction either.
Key markets such as sterling/dollar, dollar/yen and even gold have become increasingly neutral in recent days, however the Fed minutes have done little to stir a reaction. Market reaction has been rather muted overnight, with the Treasury 2s/10s spread falling as the yield curve flattened slightly, pulling the dollar mildly lower. Developments in France regarding the election (another key factor impacting the euro), see suggestions that potential Presidential candidate Bayrou (centrist) may be ready to put his weight behind Emmanuel Macron, has helped to pull the French/German yield spread back below 80 basis points and helped pull the euro higher.
Wall Street closed mixed in the wake of the Fed minutes with the S&P 500 -0.1% at 2363, whilst Asian markets have been mixed to slightly lower overnight (Nikkei -0.1%) whilst European markets are flat to mildly higher in early moves. The dollar seems to be showing a mixed performance as European traders take over, with little real direction across the majors. Gold and silver are all but flat again, whilst oil has held on to the rally into last night’s close and is again higher.
There is a fairly light economic calendar today, with a very quiet morning for European traders, whilst the US session only has jobless claims and the oil inventories. US Weekly Jobless Claims are at 1330GMT and are expected to stay around these recent record low levels with 242,000 which is only marginally above last week’s 239,000. The oil traders will be looking at the EIA oil inventories which are at 1600GMT and are a day delayed due to Presidents Day on Monday. The crude oil inventories are expected to show another inventory build of +3.4m barrels (down from +9.5m last week) which would be a seventh consecutive week of inventory build. Distillates are expected to drawdown by -1.0m barrels (-0.7m last week) and gasoline stocks are expected to also drawdown by -1.5m barrels (+2.9m barrels last week) having shown an inventory build in six of the past seven weeks.
Chart of the Day –EUR/JPY
Despite a rally which saw the market close well off the low yesterday, the outlook remains under pressure on Euro/Yen and rallies are increasingly being seen as a chance to sell. The sequence of lower highs and lower lows in 2017 have resulted in a two month top pattern completing below 120.50 which implies 360 pips of downside in the coming months (towards 116.90). The daily momentum indicators have subsequently turned increasingly corrective with the RSI consistently below 40 and the MACD lines falling below neutral. The early decline in yesterday’s session saw a breach of 119.30 support intraday, that although did not close below the support, the bear intent is there and the early move today is for another move lower. Expect pressure to grow on the support from a long term pivot at 118.50 which was initially tested yesterday. The intraday hourly chart shows that rallies are now simply moves to unwind oversold momentum and that they are selling opportunities. There is a band of initial resistance between 119.30/119.90, whilst any significant sell signal below the near term pivot resistance at 120.30 is likely to now be pounced upon again. Expect further pressure on 118.50 and a move below would re-open the 116390 implied target and the subsequent key support at 116.30.
The euro has been trending lower over the past three weeks since topping out at $1.0828 and within that trend there is scope for near term technical rallies, however, these bounces are being seen as a chance to sell. The market broke below the support at $1.0520 yesterday on for a late intraday rally (on newsflow regarding the French election) to drive an intraday rally and post a bull candle. However the momentum indicators are bearishly configured still and continue to suggest that technical rallies will be short lived. There is still resistance from the old support around $1.0577 towards $1.0620 (which will act as a near term “sell zone” today), whilst the downtrend of the past three weeks comes in today around $1.0630. The hourly chart shows little real sustainability to the recovery with hourly momentum simply having unwound back to an area where the selling pressure has tended to resume. Expect the sellers to take control again soon for a retest of yesterday’s low at $1.0490 and then $1.0450. The bears are in control near to medium term whilst the market trades below $1.0680 resistance.
Cable has entered very much into consolidation mode now. The daily candles are increasingly of small bodies and inconsistent control whilst the market trades around the old pivot at $1.2430. Momentum indicators are somewhat benign with RSI having been between 45/50 for more than a week now, whilst Stochastics and MACD lines are showing little sign of any decisive direction. On the hourly chart, despite a brief rally on Wednesday morning, the market is trading back within converging trendlines as a series of lower highs and higher lows ever tightens. Initial support is now around $1.2400, whilst yesterday’s high at $1.2505 is the resistance now. The market is in need of a catalyst and it does not seem as though the FOMC minutes have given it the direction it increasingly needs. A close back below $1.2430 would give the market a mild bear bias but the sequence of higher lows would need to be broken to generate a real move.
Once more it seems as though a hint of near term direction has been snuffed out as another minor rally has been tempered. A couple of bull candles at the beginning to the week have been halted in their tracks by a negative candle yesterday as the recovery has stuttered again. Momentum indicators on the daily chart may not be as neutral as on Cable, however the RSI and Stochastics are again very flat close to 50 and there is little sign of any real direction. The hourly chart at least shows a big negative candle posted on the Fed minutes but even that has failed to drive any serious positions. There is a mild negative bias with yesterday’s high of 113.65 failing under the 113.75 reaction high, however there is support at 112.88 that is helping to protect the important medium term floor at 112.50. Again this is a market that needs a catalyst and unless the European traders come in this morning with intent, it seems as though the search for direction will continue.
Gold
The sideways consolidation shows little sign of ending as the past five daily closes have all come within $4 of each other between $1235/$1239. Furthermore, the bodies of the candlesticks are increasingly small and yesterday’s range was just $9, and that was despite the release of the FOMC meeting minutes. The technical indicators may have lost their impetus but there is still a positive bias with the RSI above 60 and Stochastics still strongly configured. There is a hint of a deterioration in momentum but the uptrend since the mid-December lows remains intact and is now above $1220 and should help to put pressure on for an upside break of the recent range $1220/$1245. The hourly chart shows a very neutrally configured outlook with support at $1225.70 and $1231.20. Resistance at $1240.30 protects $1244.70. However, until there is a close either above $1244.70 or below $1220 this is very much a consolidation range play.
WTI Oil
Oil bulls would have been frustrated by the lack of confirmation of the recent run higher that took oil for a first close above $54.00 since December. However, the posting of a strong bear candle does not mean that all is lost in the rally quite yet. The momentum indicators are looking to push higher still and there is still a sequence of higher lows that form an uptrend over the past couple of weeks. The daily RSI is still stuck below 60 which is a drag, but the Stochastics are rising still. The hourly chart shows the importance of the support around $53.35/$53.50 which has previously been a basis of resistance and is now supportive. A decisive breach would open the key near term support at $52.70 once more. Furthermore, a second consecutive bear candle today would question the development of a positive outlook, whilst the EIA oil inventories today will add to volatility. Resistance is growing around $54.60/$54.70.
DISCLAIMER: This report does not constitute personal investment advice, nor does it take into account the individual financial circumstances or objectives of the clients who receive it. All information and research produced by Hantec Markets is intended to be general in nature; it does not constitute a recommendation or offer for the purchase or sale of any financial instrument, nor should it be construed as such.
All of the views or suggestions within this report are those solely and exclusively of the author, and accurately reflect his personal views about any and all of the subject instruments and are presented to the best of the author’s knowledge. Any person relying on this report to undertake trading does so entirely at his/her own risk and Hantec Markets does not accept any liability.