03/10/2014: Dollar looks to regain its poise in front of the crucial Non-farm Payrolls data

Market Overview

Is this dollar run showing signs of creaking? For weeks the dollar has pushed higher almost without stopping, but now there are the first signs of a potential reversal. Still in the very early stages, there have been signals on major pairs with the euro, yen and Aussie dollar that have suggested a potential near term turn around. Driven by some data (such as the ISM Manufacturing and yesterday’s factory orders) that has not been as strong as perhaps had been expected the dollar bulls may be just considering locking in some recent profits. There is also an element of a euro recovery as the ECB failed to signal the size of its asset purchase scheme and refrained from steering the market towards potential full blown quantitative easing.

Wall Street has been under a bit of pressure over the past week but reacted well to early weakness yesterday (the S&P 500 dropped to 1926) to close almost flat on the day. Asian markets are still under pressure with the pro-democracy demonstrations ongoing in Hong Kong. European markets are taking account of the late rebound on Wall Street and are solidly higher. In forex trading, the dollar is looking to regain some of its poise, with a rebound against all the major pairs today.

It is Non-farm Payrolls Friday, and traders will be cautious in front of the number, meaning usually both equity and forex markets calm down in front of the release before significant volatility on the reaction. However, this month we could have a more active European session with the services PMIs being released. The expectation for Non-farm Payrolls at 13:30BST is for a recovery from 142,000 last month (although this is likely to be revised higher as it was widely seen as an anomalous month) to 215,000 with unemployment steady at 6.1%. Also of interest will e the average earnings growth which is forecast at 0.2%.

The other data due today include the UK services PMI at 09:30BST which is expected to fall to 59.0 from 60.5 and the US ISM Non-manufacturing PMI which is due at 15:00BST and is expected to fall to 58.5 from 59.6.

Chart of the Day – AUD/USD

Incredibly, the low from Wednesday at 0.8660 was within 2 pips of the critical January 2014 which is a multi-year low. The Aussie has since then started to engage in a bit of a recovery. Wednesday’s session could be classed as having formed a bullish hammer candlestick (although not perfect as there was a slightly lower close) whilst this recovery signal has been backed up by a strong day yesterday. The Aussie is slightly weaker today but if it can look to form a higher low then the bulls will begin to gain in confidence. The intraday chart shows a decent band of intraday support is now in the 0.8750/65 area and this could become a starting point. Volatility will be elevated today, being Non-farm Payrolls Friday, but if the support can survive then the prospect of a recovery will improve greatly. The resistance on the daily chart comes in mostly at the big figures, with 0.8900 and 0.9000.

AUDUSD   03102014

EUR/USD

So have we seen yet another near term rebound that will be simply sold into, or is this the beginning of a recovery? The daily chart remains significantly bearish, with momentum indicators showing no conviction (yet) in the rebound. But we see more on the intraday chart. The first real test is already being seen. There must be a move above the old support which is now the new resistance in the band $1.2700/$1.2715. This has already acted as a ceiling late yesterday, and although the resistance remains intact there are a sequence of higher lows above $1.2570  over the past three days now at $1.2612 and $1.2583. If these can remain intact then the bulls will build in confidence. However, these levels are likely to be tested today with much volatility to be expected as it is Non-farm Payrolls today.

EURUSD   03102014

GBP/USD

It has now been confirmed that the recovery that Cable had formed since the low at $1.6050 is now over. Yesterday’s breach of the support at $1.6160 which was the key higher low in the recovery has been breached. With Cable now having fallen for 7 straight sessions the pressure is mounting. The daily RSI is not even below 30 yet so there is further downside potential in the move, whilst MACD lines are turning lower again and Stochastics are also bearish. The intraday hourly chart shows a consistent downtrend over the past week with resistances at $1.6250 and more importantly $1.6280. The support at $1.6160 had initially held yesterday, but having been breached is already looking to be used on an intraday basis as support. I now expect a full retracement back to $1.6050, whilst if that level is broken then the flood gates will open once more.

GBPUSD   03102014

USD/JPY

Having climbed almost incessantly over the past few weeks the appearance of the first negative signals suggest we should be increasingly cautious with the gains now. A bearish key one day reversal (a move to a new high, rejected intraday to close below the previous session low) on Wednesday has left a high at 110.08 has also subsequently resulted in the 5 week uptrend being breached. The move has also triggered a bearish crossover on the MACD lines, in addition to a confirmed negative crossover on the Stochastics. A rebound is being seen today and it has not paid to back against the dollar in recent weeks. In strong uptrends, sell signals should be taken more as profit trigger on long positions and the be cautious.  If the rebound today starts to fail then there could be something in these recent sell signals. On Non-farm Payrolls Friday it could be another interesting one.

USDJPY   03102014

Gold

The bulls may well be counting the positives that come with a consolidation and a slowing of the selling pressure. However, there is still a sequence of lower highs that are being seen underneath the resistance of the old downtrend channel (which currently comes in at $1228). Daily momentum indicators are just unwinding without showing the improvement in momentum necessary for a recovery. I still expect a move to $1200 and also back towards $1184.50. There would need to be a break of the sequence of lower highs with the latest at $1230 and $1234.80, which the intraday chart shows to be a key resistance area near term.

Gold   031092014

WTI Oil

Another incredibly volatile day for WTI included a fall to a level not seen since April 2013. However, a low has been left at $88.18 and the bounce has been so strong that it has completed a bullish hammer candlestick pattern. The strength of the intraday rebound suggests there is an appetite for buying at these levels, but this also means that today’s session is important for the prospect of a near term recovery. If there is a positive close today it would be confirmation that there is an acceptance of the bullish reaction yesterday. However, the intraday chart shows that despite the gains there is resistance that needs to be overcome at $92.96. This is a lower high that is now under the key resistance that comes around $95. The daily chart shows momentum indicators that suggest rallies are just another chance to sell. Unless $95 can be overcome this bounce will be seen as another selling opportunity.

WTI   03102014

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