Market Overview
The market moves since the payrolls report last Friday have been significant and the market volatility has exploded (at least on the VIX anyway). The wild swings on equity market show little sign of settling down quite yet, with Wall Street sharply higher and then lower yesterday.
The driving factor has been the big jump in longer dated Treasury yields on fear of a jump in inflation. The 10 year yield jumped back higher again yesterday towards 2.85%, a big swing back higher from the drop to 2.65% a session earlier. Can the comments from FOMC members act to calm the market down? The fear is that the Fed will have to accelerate its tightening of monetary policy. Fed member John Williams (San Francisco) usually cuts a fairly hawkish stance but seemed to try to calm the nerves by suggesting the Fed should keep rate hikes at a 'steady, gradual' pace. The 10 year Treasury yield has dipped slightly today. The dollar has certainly rebounded in recent sessions, however this has also come with a safe haven feel to the market with the strong performance of the Japanese yen too.
How Dollar/Yen moves in the coming days could be a gauge for the market sentiment as a whole. With longer dated yields dropping back a touch today, the rally on the dollar is pausing, but for how long?
Wall Street closed lower on another volatile session with the S&P 500 -0.5% at 2682 and although the Nikkei was up +1.1% on a weaker yen, European markets are following a disappointing close on Wall Street, and are down in early moves.
In forex, with the major forex currencies that have been badly hit against the dollar in recent days, starting to find a degree of support. The key underperformer so far is the Japanese yen.
In commodities, the gold price is $5 lower whilst oil is ticking lower again after the sharp declines on the back of yesterday’s EIA inventories report.
The Bank of England is the big focus for traders (certainly of sterling, but also subsequently FTSE 100) today. The Bank of England monetary policy decision is at 12:00 GMT, with the market expecting no change to the rates (at +0.50%) or asset purchases. The MPC minutes are expected to show a vote unanimously again 9-0 in favour of holding rates steady, as it did last month, however it will be interesting to see if there are any dissenting voices on the committee, which would move sterling. Also it is “Super Thursday” for the BoE, with the Quarterly Inflation Report which is likely to significantly influence market expectation of potential rate hikes this year.
Especially looking out for inflation and growth projections. Today is also the day for US Weekly Jobless Claims with 236,000 expected (slightly up from 230,000 last month).
Chart of the Day – Silver
The coming trading sessions could be key for the outlook of silver in the near to medium term. The huge volatility across markets in the wake of Non-farm Payrolls drove silver lower to break the support of the old pivot at $16.80. However, this level has not since been confidently reclaimed by the bulls. On Monday and Tuesday the market tested higher only to fail, with the negative candle on Tuesday showing the growing negative sentiment on silver. Wednesday’s session failed just under $16.80 to form another negative candle. This suggests the bears are growing in control now. A close below Friday’s low at $16.54 means that momentum is building to the downside. This comes with increasingly corrective momentum indicators with the RSI falling at lower levels around 40, the MACD lines finding corrective traction too. If this move grows to the downside then the outlook on momentum would be increasingly deteriorating. Already on a near term basis, rallies are being sold into, with resistance $16.54/$16.76 as a “sell zone”. The hourly chart shows negative configuration with hourly RSI failing 50/60 and hourly MACD lines failing around neutral. The close below $16.54 opens $16.00 as initial support but then the key December low at $15.57.
The recovery of the US dollar in the wake of last week’s Non-farm Payrolls report took a step forward yesterday. The market has recently been trading in a sideways range between the breakout support at $1.2320 and resistance at $1.2535. However there was a decisive break below the support at $1.2320 with a solid bearish candle and a close below the support. This now completes a small double top pattern of around 210 pips and now opens for a move back towards $1.2100 area. The move needs to be confirmed though, as old support becomes new resistance and if a technical rebound today fails around $1.2320 then the selling pressure could begin to mount. This all comes in the backdrop of deteriorating momentum with the MACD having crossed lower and Stochastics falling. The RSI is still above 50 and is in retreat but as yet not decisively corrective. A run of lower highs in the past few sessions means that resistance of yesterday’s high at $1.2405 is important today. This is reflected on the hourly chart with a minor resistance band $1.2315/$1.2355 a near term sell-zone now.
The dollar is also in recovery mode against sterling as Cable has completed a near term reversal. In the past two weeks the chart has been more volatile, with increasingly larger daily ranges (the Average True Range is now around 163 pips which is a 12 month high). There is a definite top pattern that has formed too as the market has this week broken below the support at $1.3975 to complete a 300 pip top which implies a retreat towards $1.3675. If achieved, this would bring the market back to the support of a 3 month uptrend (currently around $1.3670) and the 61.8% Fibonacci retracement of the Brexit sell-off (at $1.3670). Old support becomes new resistance, with the past two sessions failing around $1.4000, to pull back lower again. The momentum indicators are corrective, with the RSI falling (although as at today is still above 50), the MACD lines accelerating in their decline and Stochastics also deteriorating too. The hourly chart shows resistance today at $1.3935/$1.4000, whilst hourly momentum is negatively configured to suggest rallies are a chance to sell. Initial support is $1.3835/$1.3845.
It is interesting that whilst the dollar has gained ground across the major pairs, against the Japanese yen (a big safe haven play) the market has been more uncertain and look more range bound. There is a basis of support at 108.25 which has developed in recent weeks and having been tested on Tuesday, is still holding up well. In the past few sessions there has been a run of contradictory candles that again reflects the uncertainty. However, there is a degree of recovery underway as the market has pushed out to a three session high early today. The momentum indicators are ticking higher with the MACD lines having crossed up and the RSI also rising. However there is also a degree of caution that should remain following the failure of the market at 110.50 which was only just above the old key floor around 110.20, meaning there is a band of key near term resistance 110.20/110.50. The hourly chart shows the market is testing an old pivot around 109.75 this morning and a successful breakout would give the bulls some encouragement. Today’s low at 109.10 is supportive and something to work from too. It would need a close above 110.50 to change the ranging outlook.
Gold
The correction on gold in the past week has now dragged the market back to the long term pivot supports between $1300/$1310. The magnitude of the negative candles reflect the corrective momentum that has developed in recent days, with the MACD lines accelerating lower, the RSI falling towards 40 and the Stochastics especially negative. This suggests that the coming days could be crucial for the medium term outlook of gold. Is this a correction, or is it the beginning of a bear market move? Market reaction around the pivot support around $1300/$1310 will be key to this. The hourly chart shows the near term power of the correction, with old support becoming new resistance twice now in the past two days, around $1332 yesterday and around $1320 today as intraday rallies are being sold into. Can the support at $1300 hold?
WTI Oil
Oil has come off as the market risk appetite has receded. The break below a key old low within the previous uptrend at $62.85 is a key move now. This confirms the near term move lower, with lower highs and lower lows. The next big test is a retreat back towards the 5 month uptrend which currently comes in at $60.60 today. With momentum indicators reversing lower on RSI and MACD lines (along with a bear kiss on Stochastics), the outlook is corrective and could now retreat back towards the old key breakout at $59.05 if the trend is breached. A run of negative candles also adds to this outlook. The negative reaction to EIA inventories rising again and US production also rising suggests there is a concern now and this is a factor in this correction. The old support at $62.85 is new resistance today.
The huge volatility on Wall Street continues, with wild intraday swings on the market and massive moves. Whilst these huge daily ranges continue (Tuesday was 1,167 ticks) whilst yesterday had a huge round trip of a well over 300 ticks higher, only to close slightly down on the day. This is the largest Average True Range since September 2015 (at 452 ticks). Technically there does seem to have been a low of sorts in place now, however yesterday’s failure at 25,294 will be of concern for the bulls. Also that does not mean that the market will settle down any time soon. The Fibonacci retracements of the sell-off seem to be watched now, with the 50% of the sell-off from 26,617/23,778 is at 25,197 a good ball park level to consider for the bounce. For now the 38.2% Fib at 24,862 is attracting the market. Holding above 24,713 is an important move near term and will be watched as a basis of support today.
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