So Mario has made his move. Some might accuse him of being too late, but the ECB has put together a rather comprehensive package of easing measures. The initial reaction was positive, with equity markets pushing higher and the Euro lower. However as the afternoon rolled on these moves began to retrace, possibly as the overall size of the TLTRO (Targeted Long Term Refinancing Operation, you will be hearing a lot about this in the coming weeks) at €400bn could have been bigger. However Draghi said in his press conference that “we are not finished” so this give him room to do more. I think it was a very good start nonetheless.
In any case, Wall Street clearly liked it, as after several days of rather watery gains, the indices started to push forward with a bit more gusto. Asian markets have not picked up the baton overnight though, with markets mixed. Perhaps this could be due to caution for today’s Non-farm Payrolls, but the the Nikkei has been slightly held back by a minor strengthening of the yen once more. European markets are trading with a slightly positively, however if today is similar to usual trading on Non-farm Payroll Fridays, indices are likely to pare their gains in front of the big data.
As can often be the case on Non-farm Payrolls Friday, forex trading is showing little real direction in early trading. The Dollar is showing a negligible gain against most of the major currencies, although the yen has continued its strength from yesterday.
Traders will certainly now be focusing on the release of Non-farm Payrolls at 13:30BST. The expectation is for 218,000 jobs to have been added in the month of May (down from 288,000 last month) and some might be a little nervous after the ADP employment numbers disappointed on Wednesday. There is also the expectation of a slight uptick in unemployment to 6.4% (from 6.3%), although this can strangely be considered to be a good thing as more people return to the workforce, while the participation rate is always closely watch by the Fed. In other data, the UK is expected to show a slight deterioration in its trade balance to -£8,650m at 09:30BST, whilst Canadian unemployment is forecast to be flat at 6.9% at 13:30BST.
Chart of the Day – S&P 500
After several days of rather disappointing gains, the bulls were back on form yesterday with a decisive move into new high ground. This now makes it 11 positive sessions out of the past 14 as the S&P pushes towards the initial upside target of 1950. However, the RSI is now officially overbought, closing last night at 70.8 which is the heist level in 2014. This does not necessarily mean a reversal is coming, it just suggests that potential for further strong gains are becoming limited. With almost 80 points added in 3 weeks, the run has been strong. The intraday chart shows the rising 21 hour moving average (at 1928 has been a good basis of support in the bull run. Just as an aside, often you will see turning points (at least near term) coming with important days (such as Non-farm Payrolls).
One might wonder whether Mario Draghi woke up today, only to look at the price of Euro/Dollar and ask himself why he bothered at all. On the technical front, yesterday’s price action has seen a simply enormous bullish key one day reversal. Having fallen to almost hit $1.3500 a huge turnaround resulted in a close that surmounted all of the previous six days trading. Should we be backing the bulls now then? Perhaps we will know more after today as it it Non-farm Payrolls day, but my gut feeling is that this move to the upside will be short-lived. The resistance of the big top pattern comes in at $1.3670 and this has held back the advance overnight. However, I think this is one of the occasions that taking a step aside might be wise. Once the volatility of the ECB and Non-farms is out of the way we can begin to re-assess the impact on the chart and how to look forward. The next major resistance comes in around $1.3730 with immediate support $1.3650 and below that the major resistance is again back at $1.3585.
I talked yesterday of a move away from the dollar near term and this has shown in Cable as a rally that has taken it back to the resistance of the old uptrend that comes in at $1.6830. This is test of the corrective outlook now that has formed a downtrend over the past few weeks. If this move now starts to back away once again then it could prove to be a good opportunity to sell again. That means that this becomes an important moment for Cable now. The intraday chart shows immediate price resistance formed overnight at $1.6824 and above there not until $1.6881. It also suggests the upside break from yesterday was a positive move to improve the chart. We are therefore left with probably more questions than answers on Cable for the near term. However with Non-farm Payrolls announced we are also likely to get a few answers this afternoon too.
The pullback in Dollar/Yen is underway and now the bulls will be looking for the next move to be a posting of another higher low. If this higher low can be found above 102.00 then this would be considered to be a bullish development and help to form a possible recovery uptrend from which to build higher. The daily momentum indicators are giving mixed signals, although the MACD is coming from quite a low base to start with. Despite this, the moving averages are now turning higher, which denotes an improving outlook nd could also be set to provide additional support. The intraday hourly chart reflects the corrective move of the past couple of days and is now back into the first of the two supports at 102.24 (before 102.00 comes in). The hourly RSI and Stochastics momentum indicators are back to a level which has seen the bulls start to regain control over the past few weeks. A move back below 102.00 would begin to question the sustainability of the recovery near term.
Has the recovery in gold been triggered by Mario Draghi? The announcement of preparation of QE by a major global central bank is a positive for gold and this has helped the price to pull higher. How high the move can go is another matter. As yet this looks to be just a bear market rally and will be watched. The intraday hourly chart shows the overhead resistance levels come in at $1260.10 and then $1268.24. However, the technical outlook has improved with momentum indicators far more positive. Also, if support can now form above the initial level around $1251 then this move can start to build. The first test of a recovery may come with today’s Non-farm Payrolls where a positive number should be a drag on gold.