Janet Yellen’s dovish comments may have changed the sentiment on the dollar once more, but the early moves today suggests that there is something of a near term retracement underway again. The dollar was hit hard on Tuesday and Wednesday but we are seeing a bit of an unwinding move underway that could now be seen as markets preparing for the Non-farm Payrolls report on Friday. However it is also likely to be seen as another chance to sell the dollar, as Yellen’s comments have all but guaranteed no Fed hike in April, and is now questioning June (which would be the likely meeting to hike again, given the proximity of September to the Presidential election). Markets are coming into today on a slight negative as well, being the last day of the month and the quarter too, so some squaring of positions could also be seen. Wall Street managed 0.4% of gains for the S&P 500, but Asian markets were more cautious overnight with the Nikkei down 0.7%. European markets are also slightly cautious in a marginally negative open to trading.
Forex markets show the US dollar is dragging back some of the losses from yesterday, but the moves are only slight currently and as yet there is no real appetite for a serious recovery. The gold price is also slightly higher as yesterday’s decline is supported. The oil price has fallen away once more as yesterday’s intraday gains in the wake of the lower than expected oil inventories have been unwound.
Markets will be looking towards the release of Eurozone inflation at 1000GMT and after German HICP beat expectations yesterday there is potential for an upside surprise to the -0.1% expected. UK final GDP is at 0930GMT and is expected to stay at +0.5% for the quarter. US weekly jobless claims are at 1330GMT and are expected to remain at 265,000.
Chart of the Day – USD/CHF
The dollar is weak, but the selling pressure is by no means all encompassing. The immediate selling pressure in the wake of the Yellen comments is just waning slightly near term and this could mean a bit of a retracement, however this is likely to give another chance to sell the dollar against the major currencies. The Swissy is one such major, with yesterday’s break down below 0.9650 confirmed on a closing basis (but only just). Whilst this formed a bearish candle, the intraday rebound into the close and support today suggest a near term rebound. However the technical indicators are all bearishly configures with the RSI consistently now putting pressure on 30, the MACD lines just having formed a “bear kiss” and the Stochastics also in negative formation. This suggests that rallies are a chance to sell as with the breakdown of 0.9650 the next key support of the October low at 0.9475 is now open. The hourly intraday chart reflects the bearish outlook, with the configuration of the momentum indicators suggesting that the rebound is just unwinding some of the bearish move and that it will be seen as a chance to sell. There is near term resistance 0.9650/0.9680 whilst there is further resistance on a technical rally at the 0.9720 pivot line resistance. Only a move above resistance at 0.9785 would abort the bearish outlook.
For all this talk of a weaker dollar, the overhead resistance on Euro/Dollar has been a significant barrier, and once more it seems as though the February high is a key level that the bulls are struggling with. The move higher in the wake of Janet Yellen’s dovish comments on Tuesday seem to be stumbling again under the $1.1375 high as yesterday’s run turned lower from $1.1365. The outlook for the technical indicators remains strong, but for now the bulls cannot make the breakthrough. Once again, today the price has turned lower as the bulls consider their next move. The hourly chart shows a slight rolling over of the near term momentum but there have been no explicit negative signals yet to suggest a correction is going to set in. So perhaps it is a waiting game for now? There is initial support at $1.1260/$1.1280 to hold up a correction and it will be interesting to see if the bulls can regain the momentum for another go at $1.1375. A successful breach opens the long term range highs at $1.1465.
There have been a few questions posed by yesterday’s trading. A late intraday correction has turned what had previously looked to be a strong run higher into a potential correction once more within the recent range. The subsequent formation of a doji candle with a long upper shadow suggests there is a lack of conviction for the bulls and uncertainty over the continuation of the run higher. The early move lower today is simply adding to the mixed outlook. This is coming as the RSI was again pushing towards 60 (a level where the recent selling opportunities have set in, whilst also around the resistance of an old key downtrend. The intraday hourly chart shows that the initial support at $1.4360 failed overnight and this could now mean a corrective slide back towards $1.4280 as the momentum unwinds. The support around $1.4280 is also key near term as it is the 50% Fibonacci retracement of $1.4050/$1.4515 and a breach would mark a more negative slant to the outlook. The resistance at $1.4400/$1.4410 is back in play once more.
The last couple of days have been corrective for Dollar/Yen and the impact that this has had on the technical indicators suggests that there will be a continued slide back towards the support around 111. The bearish engulfing candle on Tuesday, the Stochastics bearish cross and the RSI failing around 50 mean that there is still a bearish control to the chart. This is also reflected in the momentum indicators on the hourly chart which have become far more negatively configured in the past couple of days and now suggest that rallies should be seen as a chance to sell. An initial band of support 112.00/112.20 is now being tested, whilst the unwinding rallies are now finding resistance between 112.65/112.80 (underneath the 113.15 pivot level). With hourly moving averages all rolling over again the bears look to be mounting for a test of the lows of the seven week range.
I find it interesting that the last two big positive candles have come in the wake of dovish comments from Janet Yellen, but there has been no bullish run following the move. In fact, as with yesterday’s sharp retracing candle, the bears seem to merely use it as a chance to sell. This means that the small downtrend of the past three weeks continues to post lower highs and adds bearish pressure today at $1246. The daily momentum indicators remain in corrective mode and the 21 day moving average which had previously been acting as a basis of support is now adding to the resistance around $1244. I discussed yesterday about the pivot lines on the intraday hourly chart still having a role to play and once more, overnight we have $1225 acting as an element of support. A breach of $1225 would resume the correction and pull the price back towards a test of supports at $1214.90 and $1208.10. There is now resistance in place at $1242.90 which has been the high for the past two days.
I am increasingly concerned about the near term outlook for oil. The strong intraday rebound seen on oil yesterday which came as the US dollar weakened and the EIA crude oil inventories came in lower than expected, failed to abort the small top pattern and now the sellers have quickly returned. The right hand shoulder of the pattern provides resistance at $40.15 and this needs to be breached to abort the pattern. There has now been a sequence of 6 consecutive corrective candles which is also beginning to trade below the 23.6% Fibonacci retracement of the $26.05/$41.90 rally. Also the technical indicators continue to show that the bulls no longer have control. The Stochastics are corrective, whilst the MACD lines have crossed lower and the RSI is suggesting that the impetus in the rally has now gone. The key near term support of Tuesday’s low at $37.90 has been breached now and a move clear of the of the 23.6% Fib level would open 38.2% at $35.85, a level that coincide well with the mid-March reaction low at $35.95. Resistance at $39.85 is adding to the overhead supply.