The market is still looking to settle in the wake of a weaker than expected Non-farm Payrolls report (126,000 jobs versus an expectation of 245,000) which put downside pressure back on the dollar. US markets are still reacting as though hopes of a delay to the Federal Reserve rate hike are being seen as a positive. Wall Street pushed higher last night with the S&P 500 up 0.7%, with the ISM Non-Manufacturing PMI data in line with estimates at 56.5 which has helped the Asian markets to also push higher. The European markets are initially higher but with so much information to process over the last couple of days, this could be a choppy session.
Forex trading shows a mixed bag for the US dollar currently. Sterling is slightly stronger whilst the big move is coming on the Aussie. Interestingly the Reserve Bank of Australia decided to keep rates on hold overnight (amid expectations of a 25 basis point rate cut). This also pushed the Australian dollar sharply higher, but this is still likely to be short lived, with the technicals still more negative.
Traders will be watching out for the services PMIs from the Eurozone during the early part of the European session, whilst the UK data is out at 0930BST and is expected to show a slight pick up to 57.0 (from 56.7). Into the afternoon, after the disappointment of Non-farm Payrolls on Friday the US will be looking for some labor market good news from the JOLTS job openings which are expected to show a very slight improvement to 5.01m (from 5.00m last month).
Chart of the Day – AUD/USD
The surprise move by the Reserve Bank of Australia to keep rates on hold and not engage another cut has again impacted on the Aussie. The currency rebounded by over 100 pips in the wake of the decision, but there is very little real positive impact that can be got from the move yet. Taking a step back and the chart of the Aussie is one of a consolidation with a slightly bearish tilt. The moving averages are all still sliding lower, whilst all momentum indicators have got a bearish skew to them. This would suggest that selling into rallies remains the strategy to employ. The overhead resistance levels on the intraday chart therefore become important. The initial key level is the pivot at $0.7740 before $0.7800. Any sell signal around these levels should be used as an opportunity to go short as the bounce overnight still looks to simply be giving a chance to sell for further pressure on the lows. Initial support is at $0.7650 but expect pressure back on $0.7590 and $0.7575 in due course.
It is becoming clearer for me that the euro is now engaging in a medium term consolidation which will be punctuated by spikes higher and lower (mostly on economic data) but which generally speaking very little ground is being made. Having not written on the euro for a few days I notice that very little ground has actually been made up despite a sharp move higher on the weaker than expected Non-farm Payrolls. The immediate factor that strikes me on the daily chart is the overhead resistance forming on the daily chart under the $1.1098 old key floor, whilst momentum indicators show little sign of any real recovery. The intraday hourly chart is interesting as having broken above the $1.0900 pivot level, this level is once more acting as a pivot to the downside. This is again the important level near term. A breach re-opens $1.0800, whilst support above it will add to pressure on the resistance band $1.1000/$1.1050.
There is still a big ceiling in at $1.5000 which Cable cannot break above. The technical indicators on the daily chart may have improved slightly in the past few days but there is little to suggest that there is any real improvement underway, and certainly not without a breach of $1.5000. Following the Non-farm Payrolls report, the hourly chart has picked up with a move above $1.4870 which is now acting as a basis of support. There is a marginal improvement in the hourly momentum indicators, but more realistically the RSI has become a range play in this sideways market. Therefore it is possible to play the extreme moves, buying the hourly RSI towards 30 and selling towards 70. It would appear we must await the next decisive move, which despite the consolidation is still likely to be lower.
Another major pair that the dollar has had a choppy ride on over the past few days is Dollar/Yen. However, once more the move following the weaker than expected Non-farm Payrolls report has been mostly unwound without too much damage being done to the dollar. On Dollar/Yen the key floor remained intact at 118.30 and the spike reached 118.70 before the bulls started to support again. The daily chart just looks as though the sideways consolidation move continues, with little more than two or three days being able to be made in on direction before a retracement kicks in. This still suggests short term trades of maybe a two day time horizon is just about all that can be achieved at the moment. The intraday chart shows the pivot around 119.40 is still prevalent and having broken back above this level on the rebound yesterday, 119.40 is becoming supportive. This is becoming a chart where, once more with the unwinding of the move having been seen, we await for the next catalyst for direction. There is resistance at 120.35 and support at 118.70.
The price action on gold in the past few days shows that it is very much data dependent on US economic announcements. This is making for a choppy recovery in the past few weeks. However, despite the price pushing higher on a net basis there is still a uncertain feel to the daily momentum, which feels rather tentative still. There is no denying that the price has been able to put pressure on the resistance at $1223.20, however in peaking yesterday at $1224.10, a fairly negative candle has been formed which again leaves the bulls feeling rather inadequate. This is a difficult period to trade gold but despite the choppy trading, the intraday hourly chart shows a decent move which is now looking to hold above the support band $1200/$1210. If this can hold in the next couple of days then the outlook would begin to look more solid. The bulls would be far more in control above $1224.10.
The WTI price has laid some decent foundations once more as the bulls have picked up again at $47, whilst putting pressure on $52.50 resistance. The momentum indicators are not suggesting an imminent sharp more higher, with MACD still around neutral but there is certainly an improvement underway. The hourly chart shows that a ceiling is in place at just over $54 and this will be in the sights of the bulls if they can gather some momentum. They will also be looking to hold on to the support around $50 now as corrections are being bought into. For now I continue to see WTI as a volatile consolidation play, but if the bulls can continue the move of the past few days then this outlook may begin to change.