Market sentiment seems to be rather cautious as traders prepare for the latest Non-farm Payrolls report, and one which could help to determine the chances of a rate hike by the FOMC in June. After a somewhat muted session yesterday, once more there is little real indication that traders are willing to take a view on the dollar this morning ahead of such a high volatility event. The expectation is for 202,000 jobs for the head line payrolls number, whilst also unemployment staying at 5.0% and average hourly earnings growing by +0.3% on the month (which would be a tick higher to 2.5% for the year). Traders will also be keenly watching the labor force participation rate which has been rising to 63.0% over the past 6 months. However the disappointing read on the ADP Employment Change on Wednesday has put some doubt into the minds of traders as we approach the number. Wall Street closed all but flat yesterday, whilst Asian markets were mildly weaker overnight (with the Nikkei 225 trading -0.3% after three days of public holiday). European markets are cautiously slightly lower in early moves today.
In forex markets the major currencies are broadly flat, whilst the big mover is the Aussie dollar which has slid again in the wake of the decision by the Reserve Bank of Australia to cut its interest rate forecast. This is dragging on the Kiwi too. The Canadian dollar is also weaker as the oil price has dropped away in the past 18 hours. Gold and silver are also broadly flat, whilst the oil price has continued yesterday’s late decline and is around 1% lower.
Chart of the Day – AUD/USD
The correction on the Aussie has been building for several weeks with the bearish divergence on the momentum indicators, but a series of negative one day candle patterns has really put the bears in charge now. The latest huge bearish engulfing pattern on Tuesday came as the RBA unexpectedly cut the interest rate by 25 basis points. The medium term technical outlook has now flipped around and looks increasingly negative. The broken 14 week uptrend has coincided with a sharp deterioration in the momentum indicators. The RSI, MACD lines and Stochastics are now all at three month lows and it is clear that rallies are now being seen as a chance to sell. The breakdown below the supports in the range $0.7475/$0.7545 now means that this is an area of overhead supply for rallies. The failure of yesterday’s rally into the close also suggested that the bulls were unable to gain any traction in a recovery and means that support will come under increasing pressure. A breach of the near term low at $0.7443 has put pressure on the old medium term old breakout level at $0.7385. A breach would open minor support at $0.7327 and more likely a retreat into the support band $0.7245/$0.7260.
The strengthening of the dollar continued to drag EUR/USD lower yesterday as the retreat back into the old trading band continued. With 80 pips lost on the day the euro has now retraced over 200 pips in three days. This means that the Stochastics are now falling back having crossed to give a near term sell signal, whilst the RSI is also falling. The price is back into the next band of support now between $1.1380/$1.1395 where a consolidation is beginning to form, however a continuation of the slide would then open $1.1330. The hourly technical indicators show a negative configuration and that the pressure is building to the downside now. It is Non-farm Payrolls day so there may be a degree of caution with the trading before the announcement at 1330BST. Once more we must view the old long term range resistance at $1.1465 as resistance, whilst a breach of $1.330 opens the key reaction low at $1.1215.
The correction on Cable in the past few days has started to slow down a touch resulting in a very small bodied candle with a 90 pip daily range. With the selling pressure less pronounced the decline in the RSI has certainly reflected this, however there is still a deterioration in the Stochastics. This would suggest that the dollar strength is still an issue moving into Non-Farm Payrolls today. The market seems to be consolidating above the support around $1.4400 which if this can hold post the payrolls report then the bulls could begin to return once more. I now see the support at $1.4300 as key for the medium term bullish control as a break would reopen the lows at $1.4050. We are not there yet though and for now I continue to see this near term pullback as a move that will form support around $1.4400. The hourly chart shows the near term corrective momentum has slowed and support is around yesterday’s low at $1.4440. Initial resistance is $1.4523 with a move above $1.4570 re-engaging the bulls.
The near term key level of overhead supply in the range 107.60/107.80 remains a key level of resistance that is intact moving into the Non-farm Payrolls data today. The past few days has seen a drift higher which has been unable so far to penetrate the resistance and it looks to be that this is still a bear market rally. In conjunction with a series of small bodied candles, the momentum indicators on the daily chart continue to show a lack of any conviction in the recent move. I continue to see this as a move that will provide another chance to sell. Once the volatility of Non-farm Payrolls is out of the way it will be easier to ascertain where that selling opportunity might be. The indicators on the hourly chart reflect a rally that is lacking impetus now. A move above 107.80 would open the next resistance at 108.70. Initial support is at 106.78 and then 106.23 below which is the key low at 105.52.
The negative drift continues on gold but there seems to be a lack of intent from the bears that adds to my view now that a next support and higher low will be seen above $1260 support. There have been four bearish candles but the price has only fallen by around $16 on a closing basis, whilst yesterday’s move was very mildly bearish. I continue to see the current correction as an unwinding move rather than the start of a new bear leg lower. The band of support between $1260/$1270 has been an area I have been looking at for the next buy opportunity and this remains intact. The benign move lower in the past few days could be reflective of a market cautious with Non-farm Payrolls ahead today, an announcement that drives volatility on gold. Initial support is $1268.90 with resistance at $1289.30. Below $1260 opens the next support band $1237.60/$1250.60 and the medium term pivot at $1243.
The bulls looked to be regaining control yesterday but an intraday slide into the close has meant a rather disappointing candle has formed with only mild gains on the day. This disappointment has continued overnight with further weakness and the near term support at $43.20 is now back under pressure again. This means that resistance has been left at $46.07 and the potential for this to be a lower high under $46.78. The dip into the close yesterday has impacted the momentum indicators too badly yet, but the Stochastics are now falling and the RSI needs to hold up above 55 to prevent a corrective outlook from burgeoning. A breach of $43.20 would open the more important support level at $42.50. For now the intraday hourly chart show sthe price as falling back to $43.20 in more of a ranging configuration, but a breach of this support would impact on the near term outlook. I remain bullish medium term on oil above the uptrend currently at $41.20.