Markets are looking mixed today as weak trade data from China has taken some of the sheen off the risk rally of Friday’s Non-farm Payrolls report. Mixed signals given out from the world two largest economies in recent days are muddying the waters of sentiment today as markets look fairly cautious as trading begins for the new week. The surprising strength of Friday’s US Employment Situation report helped to drive positive risk appetite into the close on Friday. This move has been tempered slightly by the announcement that China’s trade outlook continues to deteriorate, with both imports and exports weaker than expected in dollar terms. With exports falling by 4.4% (-1.4% expected) perhaps the bigger concern is the 12.5% decline on imports (-5.5% expected) as this shows China is buying less from the rest of the world. Therefore the picture the Chinese data paints for global demand is not great but the focus is still seemingly on the risk positives from the Non-farm Payrolls report. Subsequently, the safe haven plays have been prevented from making any meaningful recovery, especially the yen and gold, whilst Friday’s rally on Treasury yields has also been sustained.
However European equity markets are taking a cautious approach this morning, despite the strong gains on Wall Street on Friday and the catch up gains in Asian markets today. In forex markets there is also a mixed outlook although as the European session is getting going the dollar is beginning to strengthen again. The greenback is gaining versus the yen and commodity currencies, with the euro is just managing to hold its ground. In the commodities space, precious metals are trading around the flat line, whilst oil is trying to kick-start its recovery again.
There is no more major economic data due today.
Chart of the Day – EUR/GBP
With the Bank of England monetary policy driving a weaker sterling, the bulls of Euro/Sterling are back in play. The bullish outside day (a bullish engulfing would ideally come at the bottom of a downtrend) posted on Thursday changes the near term outlook once more. The pair has spent the past week trying to build above resistance at $0.8470 and now the way higher looks open for a retest of the highs at £0.8625. The bulls will certainly point to the positive configuration on the momentum with the RSI consistently holding above 50, whilst the Stochastics have formed a “bull kiss” and the MACD lines look ready to cross higher again following the corrective phase over the past few weeks. The hourly chart showed a choppy reaction post Non-farms but there is a pivot band which is now supportive between £0.8425/£0.8460 with corrections seen as a chance to buy amidst positively configured hourly momentum. The key support is now clearly the reaction low prior to the Bank of England decision at £0.8350.
The euro had already started to turn lower again even before the Non-farm Payrolls gave the dollar an extra boost on Friday. However, there is still a mixed outlook on the chart despite the 120 pip lurch lower. The daily chart continues to show the long term pivot bands doing a job between $1.1050 and $1.1100 with the low of the bearish candle on Friday all but at the lower band (at $1.1043). The momentum indicators reflect the uncertain medium term outlook as although the latest three candles have been negative, they are still retracing the previous run higher. The indicators such as the RSI and MACD lines are now all but neutral too, although the Stochastics are falling near term and does reflect a slight negative bias now. Today’s early move has been for a rebound and the hourly chart shows this to be a mini retracement of Friday’s sell-off. There is minor resistance around $1.1110/$1.1120 and if another lower high comes below $1.1162 then the near term corrective move will continue. A close below $1.1050 would see the bears gather momentum but for now the outlook remains uncertain.
At one stage on Friday is certainly looked as though there was a decisive move about to be undertaken with the breach of the key near to medium term support at $1.3060. However the intraday move could now sustain the break and a late unwinding move meant that on a closing basis the support remains intake. However, that makes today’s candle very important. The market has already had one look at levels below $1.3060 and it will be interesting to see the reaction today if there is another. The daily chart momentum indicators however reflect the deterioration in the outlook of the past few days in the wake of the loosening from the Bank of England and then the strong Non-farm Payrolls report. The Stochastics which are always the most sensitive to the near term moves, is now in decisive decline towards negative momentum, whilst the MACD lines are plateauing and the RSI has also struggled. The hourly chart shows that the minor floor that had been building at $1.3100 could now become a basis of resistance having already been tested a couple of times since the breakdown. That means that in the coming days there will be a band of selling zone between $1.3100/$1.3175 as I expect pressure to ramp up on $1.3060. A closing breach opens $1.3000 and then the key low at $1.2796.
The selling pressure has dissipated over the past few sessions and there is an attempt at a recovery now coming through. However for now there is little to suggest that this rally is a sustainable move that will result in anything other than another chance to sell. The downtrend channel continues to drag the price lower at over the medium to longer term whilst the momentum indicators are negatively configured. The Stochastics have turned up in the past few days as the minor rebound has set in, however even then there is a struggle in the move with no cross back above the 20 line yet (no confirmation “buy” signal). There needs to be a move above the reaction high at 102.80 to really suggest there is any substance to the near term move as a failure under last week’s high would already put the fear into the bulls. The hourly chart shows the MACD lines crossing lower already and the resistance band 101.95/102.85 is an area that I have been eying as a next potential sell zone for a retest of 100.65 and then 100.02.
The profit takers hit gold fairly hard on Friday with the strong Non-farm Payrolls report giving an excuse just to lighten some positions. The strong outlook for gold is subsequently taking a bit of a near term dip, however I do not believe that this will be the beginning of a sharp move lower. In isolation the candle closed almost at the low of a day where $25 of downside was posted, which is a sizeable one day move. The move has impacted the outlook on the Stochastics which are falling (with a confirmed near term sell signal) and this may result in further weakness on a near term basis. However the momentum on RSI and MACD lines is holding up so far and I ultimately would see a corrective move as giving another chance to buy. I would now be looking for another buy signal above the key support at $1306 and view any weakness as a bull retracement. The hourly chart does show the breakdown of the initial near term support at $1346 which could also now become the basis of resistance, however holding above the support at $1330 is also a positive. Closing back above $1346 would now look to re-engage the bulls.
The rally on WTI hit the buffers on Friday with the strong Non-farm Payrolls report that drive dollar strength and impacted across the commodities complex. The interesting technical feature of the move was that the rally is stumbling around resistance of the 38.2% Fibonacci retracement of the bull run $26.05/$51.67 at $41.88 (with a little artistic licence of a high at $42.10). Also of interest has been that this stalling of a strong 2 day rally also comes under the resistance of the old downtrend channel which today comes in at $42.20. This would all suggest that oil is now at a key near term crossroads on WTI as the momentum indicators are beginning to show signs of decisive improvement. The Stochastics have confirmed a near term buy signal, whilst the MACD lines are threatening to also cross higher for a buy signal. The resistance at $42.10 becomes key now as a break back above would be a 7 day high on the daily chart but also be a near term base pattern completed on the hourly chart. The hourly chart now needs to hold on to support at $40.45 to maintain the improving outlook today, otherwise a retest back towards the recent low at $39.20 could be seen.