Market Overview
It seems as though the markets are being thrown around by the Fed once more. In the wake of the clutch of hawkish FOMC member speeches last week (although most were non-voting members), Janet Yellen the Fed chair appears to have scotched speculation of an April rate hike with a dovish confirmation of the recent Fed meeting. Yellen suggested that the Fed would be cautious on rate hikes and her dovish/accommodative rhetoric have again moved financial markets to drive a weaker dollar. Her chief concern it would appear is now the slowdown in the international economy which is apparently the main difference between the December and March meetings of the FOMC. Yellen’s speech has had a sharp impact to drag Treasury yields decisively lower, the dollar lower (gold higher) and also helped to support equities. It seems that this could be another turnaround moment for the dollar in this rather choppy phase of trading in the past few weeks.
Wall Street closed nicely positive, with the S&P 500 up 0.9%. Asian markets were positive for the most part, although the Japanese Nikkei 225 was still 1.3% lower as the yen strengthened again. European markets are though set for a positive early move. In forex markets the dollar weakness across the majors seems to be confirming again with little sign of any sustainable dollar fightback yet today. As yet there is no standout performer, only the dollar weakness continues. The rally on gold suggested that the negative correlation with the dollar is back in play, however perhaps a little more caution is required from the bulls with a slight corrective move early today. The oil price failed to rally on the dollar weakness and will be interesting to see how it performs today, currently slightly higher.
There is little on the economic calendar today, but with Non-farm Payrolls announced this Friday, focus will be on the ADP Employment change today, which is announced at 1315GMT and is expected to drop slightly to 194,000 (from 214,000). There is also German flash HICP at 1300GMT which is expected to improve slightly to -0.1% but remain in deflation territory. The EIA weekly crude oil stocks at 1530GMT are expected to show 3.0m build in inventories (9.36m last week).
Chart of the Day – EUR/JPY
I have spoken previously about the building recovery on euro/yen and the band of support between 125.00/125.60 has held firm under considerable pressure in the past two weeks. Subsequently, the outlook is beginning to improve again. The big question is whether the move can push decisively to break above the resistance of the mid-March high at 127.30. The run of four positive candles (including over the reduced Easter trading period) is a positive but the overhead resistance at 127.30 has questioned whether the bulls are able to make the break. The momentum indicators are though increasingly positive with the RSI yesterday pushing to a seven week high, the Stochastics remaining in positive configuration and the MACD lines also ready to move into positive territory. A close above 127.30 which is an old base of support from January would open for further recovery, initially to 128.15 but potentially once more back towards the old long term downtrend which today comes in at 129.80. The hourly chart shows there is breakout support between 126.60/126.75 which could be seen as a chance to buy now. The bulls would not be so happy below 126.00.
A strong bull candle has helped to reaffirm the positive outlook on EUR/USD, with the weaker dollar induced by the dovish rhetoric from Janet Yellen being the primary catalyst. This has strengthened the support that has been left now at $1.1142 and the bulls will now be eying a test of the $1.1342 key reaction high from mid-March. The technical outlook is positive with the outlook trading above all the moving averages and with momentum indicators all bullishly configured to suggest that corrections are a chance to buy. Since the rally high of $1.1303 late in US trading, the pair has been consolidating overnight, with support now in the band $1.1250/$1.1280. Expect the upside pressure to remain and a move above $1.1342 opens $1.1375.
The mixed outlook has taken a positive turn once more with two strong bull candles in the past two days, although for now this still needs to be treated as a choppy range play. The daily chart shows that the rally is now pushing through the pivot band around $1.4410 which has previously acted as a turning point of the previous few weeks. The momentum indicators have a mild positive bias for now with the Stochastics rising, but also simply help to reflect the ranging period of trading. If the daily RSI were to be able to gain traction above 60 then perhaps the could be some legs in a run higher, but with the overhead resistance coming in between $1.4410 and the mid-March high at $1.4515, the upside potential looks a touch limited for now. The hourly chart shows that a break through of the resistance around $1.4400 and the 23.6% Fibonacci retracement of $1.4050/$4515 rally at $1.4405 is positive for a push to the $1.4515 resistance . The initial support is at $1.4370 before $1.4280.
The 8 session rally seems to have come to an end as a bearish engulfing candle (bearish key one day reversal) hit a high at 113.80 before closing below the previous day’s low. The fact that this is another instance of a lower high in the past seven weeks (below 114.87, 114.55, 114.44 and 114.00) is also interesting. The gradual drift improvement of the momentum indicators has also started to deteriorate again with the Stochastics crossing lower and the RSI back below 50. The intraday hourly chart shows a decisive break back below the medium term pivot at 113.15 and now momentum indicators are bearishly configured. With further losses today the hourly momentum has turned decisively corrective again and any intraday rebounds today look to be a chance to sell. The next near term support at 112.20 is being tested today and a breach would open 111.35 and the bottom of the seven week range around 111.00 once more. There is minor resistance around 112.80.
Gold
The negative correlation with gold and the US dollar was alive and well yesterday as a strong day of gains on gold coincided with the Janet Yellen induced dollar weakness. This is now an interesting phase for gold as the sequence of lower highs of the past couple of weeks has formed a small downtrend, which today comes in around $1248. The daily momentum indicators also reflect the corrective trend, whilst the 21 day moving average which has been a decent gauge for gold in recent weeks adds to the pressure overhead at $1245. The initial reaction today is for a slight unwind of the bull move as the bulls pull back from the downtrend resistance, seemingly unwilling or unable to maintain the momentum. Yesterday’s high at $1242.90 therefore becomes a key level today and needs to be breached to sustain the recovery otherwise this could become another rally which is a chance to sell. I would still pay attention to the recent pivot levels at $1225, $1237 and $1247.50.
WTI Oil
The outlook for oil is becoming increasingly concerning as a number of technical sell signals have been seen near term. Firstly, the run of consecutive negative candles is now up to five, a run that has not been seen since the bearish days of January and early February. The correction has now also completed a near term head and shoulders top pattern (viewed more clearly on the hourly chart) having breached the support at $38.35. The close below $38.35 now implies further correction of around $3.50 to the downside. A close below $38.60 is also significant as this is the first real key reaction low of the rally that has been broken and signals a shift in sentiment. This all now means that there could be further downside towards the key reaction low at a$35.95 which was the mid-March support. The concern is that the momentum indicators all confirm the completed top pattern and suggest that oil is increasingly corrective. The RSI has fallen to a 4 week low, the MACD lines have crossed bearishly and the Stochastics have confirmed their sell signal. The Fibonacci retracements of the $26.05/$41.90 rally also reflect key turning points with the 38.2% Fib level at $35.85 coinciding with the mid-March low. There is a basis of support around 236% Fibonacci too around $38.15 and a breach would again re-open the downside. The hourly chart reflect the deterioration in the price, the completed top and the fact that momentum indicators now show that near term rallies are a chance to sell. There is now a resistance band $38.35/$39.00 for the next lower high. A move above $40.15 is needed to abort the corrective outlook.
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