05/12/2014: With markets still reeling from the ECB attention turns to Non-farm Payrolls

Market Overview

Often you will find with Non-farm Payrolls Friday that markets will be very cautious with traders unwilling to take much of a view ahead of the crucial data. This does not really seem to be the case this time around, or at least not yet. The dollar remains strong whilst equity markets are also positive. Whether this lasts throughout the day until the payrolls remains to be seen though. Wall Street closed cautiously after the Mario Draghi’s monthly meeting did not suggest anything substantially new from the ECB with perhaps a perceived lack of urgency with regards to potential further monetary easing. The S&P 500 closed 0.1% lower, whilst Asian trading was fairly mixed once again. European markets have started the day on a fairly positive note.

In forex trading, the dollar strength continues, with sterling, the yen and the Kiwi dollar all suffering in the early moves today. Non-farm Payrolls will be the key focus for traders for the day with the announcement as ever at 13:30GMT. The expectation is for 230,000 which would be an improvement on the 214,000 last month. This would also be an 8th consecutive month above 200,000 and despite the slightly weaker than expected ADP employment report meaning there is a potential for a slight under shoot, there should still be enough momentum in the labor market to hold on for a good number. Traders will also be looking out for unemployment to dip to 5.8% and the participation rate to at least hold on to last month’s 62.8%. However, perhaps now almost important as the jobs number itself, the market is looking for average hourly earnings to continue to pick up. This is a figure that the Fed is looking at as being an important trigger for potential rate tightening. The earnings are expected to come in at +0.2% thus improving to 2.1% for the year. If this was seen then it would be a slightly hawkish signal for the Fed and the dollar would strengthen.

Chart of the Day – DAX Xetra

Trading against big trends can be a risky business, however yesterday the DAX gave a series of signals that seriously questions whether the market can continue higher in the immediate term. ECB day always tends to be volatile for the DAX and this one suggested no different. However a big bearish key one day reversal has been left on the chart as the DAX reacted negatively yesterday. This has also now formed three successive negative candles for the DAX. The fact that this has come as the index poked to a new all-time high above 10,050 to 10,084 gives the immediate concern that this was a false upside break (which can also be a powerful bearish signal). The correction in the index has caused the RSI to give a sell signal, whilst MACD and Stochastics are also beginning to deteriorate. Today’s positive open is clearly encouraging for the bulls, however until the index moves to a new high above 10,084 then there will be a cloud hanging over proceedings with the bearish key one day reversal looming large.

DAX   05122014

EUR/USD

I spoke yesterday about the potential for the euro to engage in a disappointment rally if Draghi did not give the market what it was hoping for. Ant this proved to be just the case. However technically there is still an excellent case for selling the rallies and once more the resistance of the downtrend which has now formed part of the descending triangle has come into play. The downtrend today comes in at $1.2460. The intraday hourly chart shows a series of lower highs in place, whilst yesterday the apparent latest high at $1.2456 shows an hourly “shooting star” candlestick pattern which is bearish and suggests that this is the limit of the rally for now. I fully expect the bears to start to regain control now and ultimately retest the $1.2280 low in due course. The big caveat would be a second successive lower than expected Non-farm Payrolls number which would hit the US dollar and pull EUR/USD higher.

EURUSD   05122014

GBP/USD

Cable remains in the bearish drift lower but I am increasingly interested by the role that the falling 21 day moving average is playing in capping the gains almost to the pip on five of the past seven sessions. The 21 day moving average today comes in at $1.5715. The daily momentum indicators remain in bearish configuration and rallies continue to be a chance to sell for a retest of the $1.5585 low. The intraday hourly chart shows a very interesting breakdown from a symmetrical triangle (not a perfect one though which has already been skewed to the downside). This breakdown adds to the pressure on $1.5585, whilst the rate is now trading below all the hourly moving averages. An immediate test of support at $1.5618 is being seen today, but any rallies should be seen as a chance to sell. Below $1.5585 opens $1.5425, a low from August 2013. Non-farm Payrolls should add some spice to proceedings but even if there is a rally it would still be a chance to sell. Price resistance comes in at $1.5725 and then $1.5763.

GBPUSD   05122014

USD/JPY

With two days trading clear of the 161.8% Fib projection at 119.07 the outlook remains strong. There is a slight caveat with a “doji” candlestick on the daily chart from yesterday (open and close at the same level) but this appears to be a minor blip at present and there is little else to suggest the bulls are not going to continue higher. On the intraday hourly chart, I spoke yesterday about using corrections into minor support as a chance to buy potentially around 119. This did not quite get reached, however there is a low in place now at 119.32. There has also just been a buy signal on the hourly MACD lines (a bull crossover on a return towards neutral) and the next bull leg looks ready to take off into further multi year highs. Now there is a 120 handle on Dollar/Yen the next upside targets come at round numbers from minor resistance way back from 2007. There is 121 and 122 before the key 2007 high at 124.16.. I would look to use any Non-farm Payrolls volatility today as a chance to buy on a potential dip. Key support some in a band initially between 118.50/119.00.

USDJPY   05122014

Gold

The gold price continues its consolidation that it has been ever since hitting Monday’s high at $1221. Interestingly though the new sharper downtrend is still capping the gains as it looks as though gold traders are waiting for the next catalyst (which could easily be Non-farm Payrolls today). The intraday hourly chart is telling us very little now other than to confirm the consolidation phase, with momentum indicators neutral and hourly moving averages flattening off. I still see the psychological level at $1200 as a line in the sand or pivot level that can be used to play off and for the last two days it has been supportive. However the lower resistance at $1214.50 is still a barrier and I am concerned the longer that gold goes on without breaching Mondays reaction high of $1221 the more nervous the bulls will get as rallies have continued to be used as a chance to sell in recent months. Key near term support comes in at $1191.86.

Gold   05122014

WTI Oil

The volatility may have ebbed out of the WTI price, but a drift lower has taken over. With momentum indicators still very bearish this is understandable. The underside of the old downtrend channel continues to act as the basis of resistance (currently around $68.70). The intraday hourly chart also shows price resistance has been left at $68.22 which is below the $69.54 key reaction high following the sharp rebound from the low at $63.72. Hourly momentum indicators show a slight bearish bias and backs the case for further drift lower. Also the hourly Bollinger Bands are becoming interesting, as having previously narrowed during the past couple of days, yesterday’s downside break has started the see the bands beginning to expand again, which is also a bearish near term signal. There is little support now in place until the $63.72 low.

WTI   05122014

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