Market Overview
Trading continues to be choppy with the early days of President Trump still a key factor for sentiment. Markets are jumping around on expectation of a Trump presidency whilst the early moves today have come with Treasury yields again pushing higher to help support the dollar. However with a stream of executive orders expected from the president, the moves could remain choppy. Trump is looking to act on infrastructure spending with key oil pipelines in the US, a move that helped to send Wall Street back into new high ground once more. However he has also tweeted that he will be making big announcements on national security and that “we will build the wall”. Markets tend to take the infrastructure proposals as positive for the dollar, but the protectionist ones as dollar negative. However, for now the US dollar is still trending lower with the Trade Weighted Dollar Index briefly below 100 in the past couple of sessions. The markets look to be moving into an uncertain phase of trading.
Wall Street closed higher with the S&P 500 +0.7% at 2270, whilst Asian markets were also broadly higher with the mood helped by the surprise improvement in Japanese exports and some slight yen weakness yesterday helped the Nikkei +1.4% higher. European markets are also mildly higher in early moves. In forex markets, there is a slightly dollar positive move underway although the outperformance the yen is looking to be stronger today. Aussie dollar is an underperformer today after Australian inflation came in just shy of estimates today with year on year CPI at +1.5% (+1.6% exp). Gold has started to fall back a touch and is again under some corrective pressure today with the dollar strength, whilst oil is also mildly lower.
Traders will be looking out for German Ifo Business Climate at 0900GMT which is expected to tick mildly higher to 111.2 (from 111.0). There is little significant US data of note until the EIA oil inventories at 1530GMT in which the crude oil stocks are expected to show another inventory build of +1.5m barrels (+2.4m barrels last week) but also watch for the distillates to impact after a drawdown of -1.0m barrels last week and the gasoline stocks which had a big build of +6.0m barrels last week. Towards the end of the day in Europe, the New Zealand CPI reading at 2145GMT which is expected to pick up to +1.2% for the year from +0.4% last month.
Chart of the Day – EUR/GBP
After four weeks of gains, is there a corrective move being prepared? The strong bear candle at the beginning of last week seemed to change the outlook and the sellers have been gradually gaining control since. The momentum indicators have been unwinding but are becoming increasingly corrective. The RSI is below 50 and the lowest since mid-December, whilst the MACD lines have just completed a bear cross, whilst the Stochastics are falling in bearish configuration and again the lowest since the rally got going in mid-December. Yesterday’s bull failure early in the session left a sixth consecutive lower daily high (at £0.8650), whilst also the close below £0.8580 continues the sequence of lower lows. This left a one day pattern of a “shooting star” candle but in a downtrend which is just a continuation pattern when confirmed by additional weakness the following session. Also being a close below a medium term pivot at £0.8575 adds to the negative move. Selling into strength is now the strategy. This is reflected on the hourly chart with the mild negative configuration on the hourly MACD lines. A continuation of the recent trend would see a retest of the January low at £0.8445 in the coming days. Above £0.8705 changes the near term outlook more positive.
The pair has had a strong recovery move in the past few weeks and despite yesterday’s bear candle, there is still a positive trend in place which should continue to guide the price higher. The configuration on the momentum indicators has been positive with the RSI tracking the trend higher and the MACD lines now rising in positive territory. Corrective moves continue to be seen as a chance to buy, with support today around the breakout at $1.0670, although the trend higher is still intact around $1.0640 today, so there is still room for a further slip but still to retain a positive outlook. The hourly chart shows plenty of support between $1.0670/$1.0720. Hourly indicators are suggesting that a dip below $1.0704 would open a minor corrective move back towards the uptrend and to the pivot around $1.0670 again. Resistance is at $1.0775 now near term and a breach would re-open the upside towards $1.0850/$1.0870.
The increasingly positive outlook continues following the breakout above $1.2430 and after a volatile session, the bulls will probably have breathed a sigh of relief that the daily candle was not any worse. With only minor losses on the day (the market was over 110 pips lower at one stage), there has subsequently been little real damage to the momentum indicators. The hourly chart continues to show positive configuration with corrective moves being bought into. The hourly RSI is finding lows around 40 and moving up towards 65/70 which is a configuration set for further upside. Two days of highs around $1.2545 means this is the initial resistance and it is interesting as this level marked the low of an old trading band $1.2545/$1.2775 back in December. Therefore an upside break would be a strong signal. The initial support below $1.2430 is at $1.2370 with $1.2300 an old pivot and $1.2250 a key low.
Another rally off the support around 112.50 should once more be an opportunity to sell within the downtrend which today comes in around 114.70. Despite the positive one day candle posted yesterday, the move was still merely unwinding some of the previous session and is just a corrective move within the bear phase. The momentum indicators on the daily chart are still all falling away with the MACD lines now falling below neutral for the first time since September and the Stochastics also again turning lower. There is still around a hundred of pips of room overhead to the downtrend should there be another move higher today, however the initial signs are that the rally is stalling already around the minor resistance at 114.00 on the hourly chart, which comes ahead of the more considerable pivot around 114.35. For now, rallies remain a chance to sell, with 112.90 initial support above 112.50.
Gold
The rally on the gold chart is coming under some pressure once more. A negative candle posted yesterday dragged the price lower by almost a percent and there has been some further slide today. This has pulled the market back from the resistance at $1219.60 and the psychological $1200 level is once more under threat. Just as an aside, this move lower is especially given that the US dollar has only improved marginally in the same time. For now, it would seem that cautious is advisable as this could simply be a consolidation within the trend higher. The momentum indicators have dipped slightly and as yet the bullish configurations are still intact, however the RSI at a two week low is a concern. The key support is the higher reaction low at $1195.550 and if this is breached (and confirmed on a closing basis) it would complete a small top pattern. The hourly chart shows that as we move into the European session today the hourly RSI is around 30 and is at a level at which the bulls should be looking to support, making this an important session today.
WTI Oil
The bulls have made another attempt to break to the upside above the $53.50 resistance, but for now just cannot make that decisive closing breakout. This is the fourth time the market has failed at $53.50 however there is a feeling that the bulls are getting prepared to make a serious move. The momentum indicators have bottomed in their recent corrective slide with the RSI and MACD lines looking set to turn the corner. However the market is still in consolidation mode until the breakout is seen but holding above the $52.00 pivot retains a positive near term bias. The support of Monday’s low at $52.20 is also helping to bolster the bull control. Above $53.50 opens $54.30 initially and then the key high at $55.25. Below $52.00 re-opens the key support around $50.70. As is the tradition on a Wednesday, the EIA oil inventories report will add volatility.
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