There are significant questions that are being asked of the dollar bulls now as the Dollar Index continues to fall away and major pairs such as EUR/USD have broken out. The concern is that the US data is just not supportive of conditions that would drive the Federal Reserve to hike interest rates this summer. The latest disappointment was the ADP Employment data which far from rising back to 200,000 yesterday as expected, actually fell on the month. Often seen as a harbinger for the crucial Non-farm Payrolls report this does not bode well. The dollar came under significant selling pressure once more.
On Wall Street it was the words of Janet Yellen which caused a sell-off into the close, with the Fed chair suggesting that valuations were generally quite high. High valuation equities and disappointing economic data resulted in the S&P 500 closing 0.5% lower. In Asian trading the equity markets were weaker, with the Nikkei playing catch up after being closed for the past few days. European markets are also slightly lighter in early trading today, with FTSE 100 traders looking at the impact of an uncertain election result.
In forex trading, the Asian session has handed over a fairly settled and calm outlook currently, but history suggests that volatility could easily start to increase on sterling as the day progresses with concern over the result of the UK General Election. Despite employment in Australia falling slightly overnight there has been little real impact across the Aussie dollar which is holding on to slight gains.
There is little on the economic calendar today, other than the US Weekly Jobless Claims which are forecast to increase slightly to 277,000 (from 262,000 last week).
Chart of the Day – FTSE 100 Index
It is the day of the UK General Election so what better a day than to talk about the FTSE 100. It is important to remember that around three quarters of FTSE 100 revenues come from overseas, so the international base of the index should mean that to a certain extent it may be insulated from any significant political fallout. However, there could still be a reaction and as polling day begins the pressure is building on the old support around 6900. This was an old ceiling that has provided the support over the past week. The downside break from the small double top pattern completed on a move below 6979 last week implied a corrective target of 6840 so there is also further downside potential. Also the uptrend that has been in place since December is creaking under the pressure. The intraday hourly chart shows resistance around the neckline at 6980, whilst Tuesday’s spike high at 7053 is acting as the resistance the is maintaining the top pattern. A decline below 6900 today would see a test of the initial support around 6840, but the big support comes in at 6765.
With a storming run higher yesterday the euro achieved a breakout above the initial resistance at $1.1290 and to add to the confirmation of the move it was done on a closing basis too. This now completes a small upside flag pattern which gives an implied target of around $1.1700. It now seems as though the next resistance at $1.1450 will in the least be tested. It is also interesting that if you take the break above $1.1050 as a completed double bottom the implied target is a minimum of $1.1580, whilst the 144 day moving average is currently falling at $1.1630. This would suggest a confluence of factors suggesting further gains in the euro. Daily momentum continues to improve and also suggests that intraday corrections are now being bought into. The intraday hourly chart is also strong across the board and there is a support band now between $1.1220/$1.1290 to be used as a chance to buy. The bulls are in control now until a breach of the support at $1.1065.
It is polling day for the UK and so far there has not been any significant reaction yet on Cable. As I started to write this, during the Asian session there has been a daily range of just 25 basis points, although the selling pressure is beginning to mount (with the daily range now over 50 pips). That is not to say that as the day goes on the volatility will not ramp up though. Currently the technicals are more aligned to what is happening with the dollar as yesterday’s upside move shows. The outlook for Cable certainly not as positive as it is for the euro near term and perhaps it is the UK election uncertainty that is holding the recovery bulls back. The near term outlook has been choppy over the past week, but the bulls will have been buoyed by the support formed at $1.5087. However the intraday hourly chart suggests a cautious outlook with momentum indicators only mildly positive with this latest rebound and failing to really ignite. The near term resistance comes in at $1.5300 which held back yesterday’s rally, above which $1.5400 is also a pivot level. Cable is a tough call in the next two days with so many fundamental drivers (and I have not even mentioned Non-farm Payrolls). Watch out for the volatility.
Every day I speak of the continuation of the 118.30/120.85 range and also the need to trade around the key pivot level at 119.40. Once more I have to make the same statement. Although 119.40 may not be holding to the pip (although often it has done in the recent past), there is still no denying that it is playing a role. Yesterday, once more as the corrective pressure has taken hold, the pivot (acting as support) has been a basis for trading. I have also been saying that the hourly RSI is an excellent way to play the range, using dips towards 30 to provide the buy signals and moves towards 70 as the sell signals, and once again this is proving the case. The price is now gravitating around 119.40 pivot as the next move is considered and as such I am fairly neutral very near term. The recent pressure has been to the downside and if the hourly chart starts to trade clear below 119.40 I would then be happy to back the bears near term for a push back towards 118.50 again. A confirmed move above the resistance at 119.70 would re-engage the bulls within the range.
As with the chart of Dollar/Yen, the gold price is also rangebound and also trading around the neutral point in the range. The recent rally that saw a couple of bullish candles have now settled into more of a consolidation. The interesting point to note here is still the lack of buying pressure on gold despite the significant weakness the dollar continues to come under. Yesterday’s completed candle was arguable a negative “spinning top” which is a slightly corrective candle and the follow-up move today has backed this outlook. The chart outlook still has a slightly bearish bias to it, trading below the moving averages, with momentum indicators broadly neutral (as are the Bollinger Bands). The intraday hourly chart shows that the support around $1185 is key near term and this is protecting a fall back towards the range lows. A close below $1178 would be bearish. The hourly chart shows resistance forming around $1200 which would need to be breached to turn the near term outlook within the range more positive.
WTI oil had an interesting trading day yesterday which may lead to a few heads being scratched. The weekly oil stocks showed an inventory decline for the first time since the second week of January, however this resulted in a sharp reversal of the price which had been climbing steadily. This may have been to opposite of the reaction that might have been expected but could prove to be a nice chance to buy. The techncials show a disappointing candle on the daily chart which could even be argued to be a shooting star as it had a sharp sell-off late in the day resulting in a weak looking candle. However the momentum indicators remain strong, so this is the only really negative signal that can be cited so far, so for now I am not getting too concerned about the health of the bull run. The intraday hourly chart shows the series of breakout supports remains intact with the latest band $60.00/$60.30 holding firm. As the hourly momentum indicators have unwound and are starting to settle, this could be used as a chance to buy with the upside target from the base pattern on the daily chart implying $65.00. The initial resistance is now with $62.58 and the bearish key one hour reversal, however for now this looks still to be a lone negative signal on a strong chart. Key support remains at $58.30.