- Focus is now on the economic data as geopolitical drivers such as Ukraine and Greece take a back seat. This means focus on tier 1 macroeconomic data from US this week. Despite the disappointing IS Manufacturing data (falling for a 4th straight month to a 13 month low) the dollar has held up well. The ISM Non-manufacturing PMI data becomes increasingly important now. The ADP report did not act as an especially good indicator for Non-farm Payrolls last month so this may reduce the impact today. Non-farm Payrolls is as ever the big focus for markets. With the labor market remaining “strong” traders will also be looking for signs of wage growth again.
- In other events on the calendar, the ECB press conference will add meat to the bones of the Eurozone QE programme and will be interesting on Thursday.
- Treasury yields are rising again after a brief dip last week, whilst the US yield curve is steepening (suggesting that markets are getting ready for a rate hike). The US 10 year is back above 2.0% and a move above the resistance at 2.164% would now be a two month high.
- The Dollar Index has broken out to multi-year highs again. The dollar has positioned itself well in recent days and there are some key resistance levels that are approaching on major currencies which could result in a dollar breakout. A decisive and confirmed break above 95.50 on the Dollar Index would suggest further gains could be seen which would finally break the consolidation range of the past 5 weeks. On the euro, the old key support at $1.1260 becomes new resistance; the Kiwi has rallied back to its old major floor again around 0.7600 and this is a key overhead barrier; whilst the Aussie dollar is back to its downtrend and the resistance around 0.7850. Dollar/Yen is trading around the support which comes in around 119.40.
- Equity markets look stretched to me, and there are a few signs of correction. A bearish key one day reversal on the DAX is the first really negative signal seen for months, whilst the FTSE 100 has never confirmed its break into new all-time highs with a close above 6950. Wall Street looks stretched with the S&P 500 on a cyclically adjusted price/earnings valuation of around 27 times.
- Oil has been giving off some mixed signals (especially on WTI), however support is holding. Despite the continued fall in the Baker Hughes rig count, the oil supplies remain high in the US. The EIA oil inventories have shown strong growth in the past 7 weeks and it will be interesting to see the reaction on the price if inventories growth starts to turn negative. The band $47.36/$54.24 has been intact now for the past 4 weeks on WTI. Brent Crude is more positive but is also broadly rangebound.
- Watch for: US ISM Non-manufacturing, ECB press conference , US Non-farm Payrolls and average hourly earnings
EUR/USD – Shaping for a downside break of $1.1098
- The US data may not be especially great of late, but the market is still pushing Treasury yields higher and FOMC members are increasingly coming out with more hawkish rhetoric. This should drive a stronger dollar. The ECB press conference outlining QE mechanisms could be a catalyst for further downside but focus is likely to come on the key Payrolls data where another strong month would be the dollar driver.
- Technically, momentum is negative and the price is coming under pressure. The key January low at $1.1098 is a multi-month low and a breach would open levels not seen since 2003 and $1.0760 is the next support.
- Watch for: ISM Non-manufacturing, ECB press conference, Non-farm Payrolls
GBP/USD – Support at $1.5300 increasingly coming under threat
- UK data has been improving of late (other than the Services PMI) and UK Gilt yields have been rising and today the 10 year yield has broken out to new 2015 highs. The Bank of England will not be in a position to hike rates with a General Election so close (in May). The outlook for the FOMC tightening path is pointing towards Q3 or Q4 for the first rate hike still. Data dependence is increasingly in focus.
- Technical indicators have begun to deteriorate and suggests pressure will be on $1.5300. This is a medium term threshold the bulls need to hold on to in order to prevent a loss of control. I am increasingly neutral with a slight bearish bias in the near term forming.
- Watch for: ISM Non-manufacturing, Bank of England monetary policy, Non-farm Payrolls
USD/JPY – Bulls looking to hold on to the near term breach of 119.40
- Despite a breakout on the Dollar Index the slightly cautious market sentiment means that the yen is holding on and the Dollar/Yen is struggling to make gains. A storng payrolls report on Friday could generate the improvement in risk appetite that would drive a move away from the yen safe haven.
- The support band 119.40/119.10 is key near term as a breach would turn the outlook more neutral again. The 118.30 support remains key.
- Watch for: ISM Non-manufacturing, Non-farm Payrolls
Gold – A near/medium term trading range has formed between $1191/$1223
- Gold price rallied on a dovish Janet Yellen last week, but this move has retreated once more this week. Strong US data is strong dollar and should be weak for gold and the payrolls data will be in focus this week. If the reaction is anything like last month then a sharp sell-off on gold would occur on another positive report.
- The medium term bears may be in control still, but a near term range has formed between $1191/$1223. The market may not see consolidation in front of Payrolls (certainly if price action today is anything to go by.
- Watch for: strong US data is negative for Gold, Non-farm Payrolls
Indices – Looking increasingly susceptible to a correction near term
The S&P remains in a broad consolidation and focus will turn to US data to drive now earnings season is basically over. There are question marks over the sustainability of the market up at these levels trading on 27 times Cyclically Adjusted Price/Earnings. The DAX should be underpinned by QE, but the FTSE 100 continues to disappoint in its performance.
- S&P 500 – continues to trade around an all-time high at 2120, with support now 2080/2100.
- DAX Xetra – has just formed a bearish key one day reversal which is a corrective near term signal. Momentum indicators are just unwinding and there is good support around the breakout 10,950/11,000.
- FTSE 100 – despite intraday moves into new highs, the index has failed to achieve a close above 6950 and this leaves question marks over the move. Very near term support is at 6859 and a breach could re-open a correction back into the support band around 6773. Momentum indicators are threatening a correction.
WATCH OUT FOR THIS WEEK
Wednesday 4th March
- Australia – GDP
- UK – Services PMI
- US – ADP Employment report
- US – ISM Non-manufacturing PMI
- Canada – BoC monetary policy
- US – Crude Oil inventories
Thursday 5th March
- UK – BoE monetary policy
- Eurozone – ECB Monetary policy & press conference
Friday 6th March
- US – Non-farm Payrolls
- US – Average hourly earnings
Tuesday 10th March
- China – CPI
- China – Trade Balance
- US – JOLTS Job Openings
Wednesday 11th March
- UK – Industrial Production
- US – Crude Oil Inventories
- New Zealand – RBNZ monetary policy
Thursday 12th March
- Australia – Unemployment
- UK – Trade Balance
- Eurozone – Industrial Production
- US – Retail Sales
- US – Weekly Jobless Claims
Friday 13th March
- Canada – Unemployment
- US – University of Michigan Consumer Sentiment
- US – Baker Hughes – rig count