Market Overview
Today’s meeting of the Federal Reserve could be a bit of a non-event. There is no expectation of any rate hike, there is no press conference and no economic projections. However, it will be interesting to see how the FOMC responds to a string of weaker than expected economic data points, including the recently announced Q1 GDP disappointment and a drop in the core PCE.
Does the Fed choose to look past these as one-offs? It is likely that the FOMC will look to prepare the market for another hike at the June meeting, but a failure to allude to this could induce a continuation of the dollar correction. Treasury yields have been fluctuating in recent days without real direction and the dollar index is on the brink of a major break of trend support. Equity markets are beginning to look supported again and an upbeat FOMC statement could help this. There will also be a focus on ISM Non-manufacturing today, especially after the manufacturing component disappointed on Monday.
Wall Street closed mildly higher with the S&P 500 +0.1% at 2391. Asian markets were mixed with the Nikkei +0.7%, continuing to benefit from the yen weakness. European markets are mixed around the flat line in early moves. In forex, the euro and pound have just pared some recent gains in the Asian session, with the Aussie resuming its corrective outlook. Gold and silver are consolidating ahead of the Fed, whilst oil has rebounded after sharp losses in the previous session.
The Federal Reserve monetary policy at 19:00 BST will dominate traders’ thoughts today. Expectations of a rate hike are non-existent and in the absence of a Yellen press conference or economic projections, the focus will be on the wording in the FOMC statement. Balance sheet reduction is looking in the coming months but this will not feature yet in the statement (however reference could be made in the minutes of the meeting). This is likely to be more of a wait and see meeting, with the next move still likely in June. Aside from the Fed, UK Construction PMI at 09:30 will be watched with an expectation of a mild tick lower to 52.1 (from 52.2). The ADP employment change at 13:15 BST did a terrible job of forecasting the Non-farm Payrolls number, however the dollar will still react, with expectation of 178,000 (down from 263,000). The ISM Non-Manufacturing is at 15:00B ST and is expected to improve to 56.1 (from 55.2 last month).
Chart of the Day – Silver
The precious metals are under pressure, with silver having now reached the full downside target of the small top completed below $17.71 in April. However now the $16.77 target has been achieved, the market is now at a key crossroads again as there is a potentially even bigger corrective top pattern close to formation. A closing price below $16.78 would complete a much larger double top pattern that would suggest a correction back for a full retracement to the big December low at $15.59 in the coming few months.
The momentum indicators are bearishly configured but also the RSI looks stretched well below 30. The expectation of the breakdown and tendency for the market to consolidate around key Fibonacci retracement levels suggests that it would be best to wait for confirmation of a move below the support at $16.59. The hourly chart shows a consistent run lower with old support being used as near term resistance. Momentum indicators continue to reflect rallies being sold into at lower levels. Initial resistance is now $17.00 and then $17.19.
Although the consolidation continues, there is a mild positive bias that has taken hold in the past few sessions which has pulled the euro up from testing the $1.0850 support towards increasing the pressure on $1.0950. The bulls will be looking for a break and close above $1.0950 which has been limiting over the past eight sessions. That would then open the way towards $1.1000 initially as a psychological test but realistically the main resistance would then come in around $1.1100 up towards the $1.1140 resistance. Daily momentum is strongly configured still and medium term corrections are still a chance to buy.
The hourly chart reflects the mild bull bias with support at $1.0885.
Sterling bulls remain in control as a return to full market capacity (after the May Day public holiday) saw the market posting a solid bull candle. The bulls will now be looking at the run higher up from the breakout support at $1.2775 and feel that yesterday’s low at $1.2860 could also now be another higher low to work from. The momentum indicators are strongly configured still to suggest that corrections are a chance to buy and yesterday’s recovery from the early dip looks to be just that.
It will be interesting to see the reaction as today’s session progresses as the early move has been mildly lower again. Will the bulls use this as another chance to buy? There is minor support around $1.2900 which could be seen as a buying level. A drop below $1.2860 would though complete a small top pattern and imply a further 100 pips of correction. For now though the prospect of a move to renew upside potential and a retest of $1.2965 remains on.
Dollar/Yen has broken above the resistance at 111.60 and looks to be building for further upside. The resistance from the late March reaction high at 112.20 was breached yesterday but could not quite be held into the close. However there is little reason not to believe that this resistance will not have further pressure. The positive candles are being posted and the momentum indicators are increasingly bullishly configured. The hourly chart shows very strong configuration that reflects corrections being seen as a chance to buy.
A close above 112.20 would confirm a required change of outlook, with the bears having lost control. The hourly chart shows a band of support now between 111.60/111.90, with key near term support at 110.85. Above 112.20 the way is open towards 113.85.
Gold remains under pressure following the break below the key near term support at $1261. Yesterday’s doji candle (which denotes uncertainty) was more of a consolidation move rather than any serious prospects of an immediate recovery.
The momentum indicators show no sign of any change of direction in the market, with the RSI and Stochastics continuing to fall into corrective configuration and MACD lines still dropping away. The hourly chart shows that the intraday rebound from $1251.40 has done little more than help to renew downside potential for the continued correction. Since breaking $1261 the way is open for a retest of $1240. The old support at $1261 is also now a basis of resistance for a rally, with further resistance at $1268 and more importantly $1271. Initial support is at $1247.
WTI Oil
Once more a session that had initially looked so promising was turned on its head yesterday as the bears regained control. Selling pressure through the latter part of the session to close with another strong bearish session again. The move has broken decisively the previous support at $48.20 and it seems on track for a test of the full retracement to the key March lows at $47.00.
A series of lower highs is in place with $49.30 adding to the resistance band overhead between $49.60/$50.20. The concern is that momentum is bearishly configured but also with downside potential. The early rally today will need to overcome the overhead supply of the od support at $48.20 but currently looks to be little more than another chance to sell.
Can Wall Street break the shackles and end the recent consolidation? As the market continues to drift, perhaps the bulls are building themselves up for another go. A series of candles with a slight negative bias has now been broken by yesterday’s rebound of around 35 ticks and realistically there is a lack of selling pressure throughout this consolidation.
This looks to be a drift that could easily catch a bid any time soon again. The hourly chart shows a breakout support 20,777/20,887 whilst the hourly momentum is positively configured and now unwound. The market is still in need of a catalyst though. Resistance is initially at 20,977 and the lower high at 21,005.
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