Market Overview
There has been a notable change in sentiment for the dollar in the past few sessions.
The run of dollar strength in the past month came with a combination of factors including a more hawkish Fed, speculation over the next Fed chair, positive US data and of course the potential for Trump’s tax reform. However, it is almost that a saturation point was reached in the wake of Friday’s payrolls with the jump in average hourly earnings. However, the course of tax reform is finding some bumpy road as the divisive President seeming could scupper his own key legislation by alienating enough Republicans to destroy his own Party’s majority in the Senate. A spat with Republican Senator Bob Corker could now tip the numbers the wrong way. This has impacted on Treasury yields and been a drag on the dollar in the past few days. However, this dollar slip means that major forex markets now look to be at a series of key crossroads which could signal a drive a further correction. EUR/USD above $1.1820 and Dollar/Yen below 112.20 would be key gauges, whilst gold is nearing the key long term pivot of $1300/$1310 again. The early move on Treasury yields today has been higher and the dollar correction has settled slightly so it will be interesting to see which way the crossroads take.
Wall Street was strong again yesterday, seemingly brushing off the prospect of a near term blip with another push back higher again and the S&P 500 +0.2% at 2550. Asian markets were also broadly positive with the Nikkei +0.3% and the European markets are following suit today.
In forex the dollar is still mildly underperforming today. The euro is stronger after the political risk of the Catalonian independence settled slightly with the Catalonian government suspending its push for independence for now.
In commodities the dollar underperformance is again supportive for gold whilst oil is also hanging on to yesterday’s sharp rebound.
Looking at the economic calendar, it is a quiet morning for European traders with little to get anyone interested until the JOLTS job openings at 15:00 BST. Expectations are that the JOLTS will remain strong at 6.14m although this is slightly down from 6.17m last month.
The FOMC minutes will be the main focus for the day, released at 19:00 BST. The minutes always include interesting extra detail to the meeting, whilst the tone of the hawkishness will be key, especially on inflation expectations. Other than that the FOMC, comments from Robert Kaplan (voting mild dove) will be of interest at 13:00 BST.
Chart of the Day – USD/CAD
The moves of the past few days are asking significant questions of the US dollar strength now as the greenback has hit some selling pressure across the major pairs. USD/CAD is just that way too. The well-defined recovery uptrend of the past for weeks since the September low at 1.2057 has been broken. The rally has failed around 1.2600 just under the 1.2660 resistance, whilst the recovery also seems to have also lost its way just under the old five month downtrend.
The bearish candle from yesterday has now broken the four week uptrend whilst It is also interesting to see the momentum indicators beginning to roll over. Watch out now for a confirmed Stochastics sell signal, which is likely if the market continues to track lower in the next couple of sessions. The initial support in the recovery trend will be key at 1.2445 and means that there is a strong band of support at 1.2412/1.2445 and this will be an important near term test. A closing breach of this support band would begin to accelerate the correction. The hourly chart shows a lower high at 1.2560 whilst the hourly momentum is on the brink of turning negatively configured. Watch for the hourly RSI failing again between 50/60 and pulling consistently below 30. The 144 hour moving average has been a strong basis of support on the recovery and is also becoming a basis of resistance overnight at 1.2517.
EUR/USD
The rebound on the euro in the past few sessions has now reached a key near term crossroads. The neckline of the one month top pattern completed below $1.1820 is an area of overhead supply and marks a turning point in the outlook. A closing move back above the neckline would signal a shift in sentiment for a market that has been corrective for the past four weeks. The initial pullback in late September failed at $1.1832 and a breach would end a run of lower highs. Momentum indicators are also looking to improve once more, with the RSI around 50, MACD lines bottoming and the Stochastics already having turned higher. However can we trust the move? The hourly chart still shows the hourly RSI is oscillating between 30/70 and suggests range play between the low at $1.1667/$1.1832. Today’s session could be key for the near to medium term outlook on EUR/USD.
Cable has rallied strongly in the past couple of sessions, with two strong bull candles adding 140 pips. The market has reached a near term crossroads. The downtrend that has been in place for the past few weeks comes in today at $1.3225 whilst the 50% Fibonacci retracement of the Brexit sell-off is at $1.3247 and the near term old support turned new resistance is at $1.3220. This confluence of resistance all within around 30 pips has seen the rebound just finding pause for thought under yesterday’s high of $1.3225. This could be where the market just begins to consolidate now and the early move that has dropped back slightly this morning is reflecting this. Daily momentum indicators are back around somewhat neutral levels with the MACD lines beginning to settle around neutral and the RSI coming back towards 50. The hourly chart shows that the recovery of the past two sessions has just begun to roll over and the resistance at $1.3225 will become increasingly important near term now. Watch for the hourly RSI dropping consistently below 50 and MACD lines dropping below neutral to suggest that the selling pressure is growing again. Initial support now $1.3125/$1.3155.
The pressure is mounting on the downside but as yet there has been no confirmed break lower. The range of the past couple of weeks between 112.20/113.25 has now been breached on an intraday basis both to the upside (to 113.43) and now to the downside (to 111.98). However neither break could be confirmed and the range continues. Having said that though the dollar bulls are losing their grip and there is a definite rolling over of the candlesticks now. Another intraday test of 112.20 has already been seen this morning and the momentum indicators are beginning to track lower. The MACD lines are now crossing down with the RSI below 60 and Stochastics at a three week low. A close below 112.20 would complete this small rolling top which would imply around 120 pips of correction and a retreat back to the 111.00 key medium term pivot. The hourly chart also reflects the market at a crossroads, with the hourly RSI now struggling around 50/55 whilst MACD lines are under neutral. This reflects growing downside pressure. Yesterday’s high at 112.82 is now an important near term resistance. A close below 112.20 and/or an intraday breach of 111.98 would open initial support at 111.45.
This sense that markets are at a near term tipping point is also seen in the gold chart. With three consecutive positive trading sessions, gold has decisively broken the four week downtrend channel in a move that has also pushed above initial resistance at $1290. However this recovery is facing a few questions as the market has twice in the past 18 hours pulled back from a move towards $1300 and back below $1290 again. The daily momentum indicators have ticked higher with the Stochastics rising and the MACD lines close to a bull crossover. However the RSI needs to decisively breach 50 to suggest the bulls are really pulling higher with strong momentum, whilst the long term pivot band $1300/$1310 will be a key barrier. The hourly chart shows the rebound has just lost some impetus overnight and the initial support around $1280 needs to hold otherwise corrective momentum could kick in again, with $1270 a further near term pivot support . Initial resistance is $1294.20 now.
WTI Oil
Yet another highly volatile trading day has flipped the outlook around once more. The market posting a strong bull candle has dragged the price back into the resistance band $50.50/$51.20. It does seem increasingly difficult to call oil on a day to day basis at the moment. The hourly chart probably gives more insight currently with the resistance at $51.20 being the key resistance, after the bulls have broken through the barrier at $50.80. Te hourly momentum suggests there is some near term traction building in this move now though and a break above $1.51.20 would re-open the late September resistance with the high at $52.85. There is also a near term pivot support at $49.80 to help maintain the improving outlook, whilst the support at $49.10 is increasingly key.
The market continues to hug the upper limit of the six month uptrend channel, whilst the Bollinger Bands are also playing a key role too (today will be around 22,885). The market is posting new all-time intraday highs on a daily basis whilst daily momentum indicators remain very strong. The opening move higher yesterday has now left a near term support in place at 22,730 which is above another minor level of support at 22,645. Intraday corrections continue to be seen as a chance to buy.
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