Last updated: May 3rd, 2017 at 09:59 pm
It is Non-farm Payrolls day and this could be a really important Employment Situation report. The FOMC remains data dependent (at least members such as Jerome Powell are in any case) and a strong payrolls report today could begin to swing their vote on a rate hike. The expectation is for 223,000 which would be the same as last month. The more astute analysts will be looking past the headline reading and more towards different aspects of the report such as an increase in the participation rate (last 62.6), and hourly earnings. Wage growth needs to pick up (i.e. move consistently above the average of around 2.0%) to reflect an underlying strengthening of the economy which is getting ever closer to the 5.0% to 5.2% level of unemployment which is considered by the Fed to be around “full employment”. The report is released at 1330BST.
Markets traditionally tend to consolidate in front of such an important report and it would appear as though today is currently following a similar pattern. Wall Street closed lower again on weaker earnings last night with the S&P 500 down 0.8%, however Asian markets were mixed to slightly positive as the Bank of Japan held steady on monetary policy and maintained its target for inflation. The European markets are broadly flat in early trading today. The forex markets are showing little direction with a mixed outlook on the dollar, although the Aussie dollar has bounced slightly after recent weakness. The precious metals are also in consolidation mode.
There has been a degree of consolidation over the past few weeks that has once more seen Euro/Yen shy away from the key resistance around 137. However there is still an underlying support coming from the mildly rising 89 day moving average (c. 134.90) which is leaving a series of higher lows now as the upside pressure is mounting. The latest reaction low has come in at 134.95 which has left a strong bull candle. With a slightly positive consolidation candle yesterday the outlook is on the positive side of neutral. However the momentum indicators remain rather indecisive and are a touch less positive currently, so there is little sign of an imminent breakout above the key 137 resistance, which needs to be seen on a closing basis to confirm the break. The intraday hourly chart shows a near term barrier of resistance around 136.40 which if this can be overcome then the outlook will begin to improve. Although not directly impacted by Non-farm Payrolls there will be a residual impact on the risk appetite in the forex majors from the report and there could still be some direction garnered. The near term support comes with yesterday’s low at 135.77 but more important is that 134.95 remains intact to continue the series of higher lows as the euro bulls build for a test of 137.00.
The euro has held on to the minor rebound that was seen a couple of days ago, but now has entered into a consolidation mode in front of the crucial payrolls report. The band of resistance that I discussed yesterday around $1.0930 is still playing a role near term, but all things remaining equal I continue to expect this rally will be sold into. The technical indicators on the daily chart are still implying that rallies will be seen as a chance to sell for a retest of the range lows $1.0810/$1.0820. The hourly chart has unwound from a slightly near term oversold position which has left a minor low in place at $1.0847 and is now just consolidating. I see this as likely to continue through the morning until the payrolls report provides us with some direction. Further overhead resistance comes in around $1.0990 and then up towards the key near/medium term resistance at $1.1130.
Has Mark Carney fired the starting gun on a sterling correction? Well not quite yet, if the chart is anything to go by. The consolidation that Cable has been in for the past three weeks is still in play. The initial knee jerk sell-off yesterday bounced from the support at $1.5465 almost to the pip and this remains intact. The concern here would be that the Stochastics have now started to signal the correction (this is not unsurprising as the Stochastics are the most sensitive momentum indicator that I study). However the RSI is yet to signal a breakdown and does not confirm the Stochastics. Looking at the hourly chart would lead you to suspect it is simply more of the same, with the Fibonacci retracement levels once more acting as the point of consolidation (or even turning point) with the 61.8% Fib of $1.5188/$1.5928 coming in at $1.5470. The range is still intact for now therefore. The consolidation is coming in front of the payrolls data which could easily generate some direction. A close below the support band $1.5450/$1.5465 would imply a breakdown and open a correction towards $1.5320. Just as an aside too, I have also noticed that the Bollinger Bands have narrowed significantly on the daily chart, a condition that tends to occur just prior to a volatility breakout, maybe payrolls will be the catalyst?
Despite a day of consolidation yesterday, I do not see this as a bad thing for the bulls. There has been a third day closing above the old key resistance of 124.43 and this was also a second closing day above 60 on the RSI. I see this as adding to the confirmation of the near/medium term breakout that should ensure a test of the multi-year high at 125.85 again. I see corrections now as a chance to buy. The hourly chart shows this consolidation has allowed the near term momentum indicators to unwind a slightly overstretched position and also give a chance to validate the breakout. I said yesterday about using a dip back into the old breakout resistance at 124.40/124.60 as being a chance to buy because it becomes supportive and this is still the case today. The pair is likely to consolidate in front of payrolls but all things remaining equal I still see Dollar/Yen as a chance to buy on dips. The support continues in a positive fashion back to 124.00 whilst a confirmed breach of 123.50 would change the outlook.
I will start the same way that I start every day with gold: the gold chart continues to consolidate. Even the slight downward slant that we have seen in the price in the past few days has been impacted by this consolidation which is simply unwinding the oversold technical indicators on the daily chart. The gold price continues to trade clearly below $1100 which is bearish , but as yet there is still not the appetite to continue the sell-off. The consolidation may now reach a head though with the payrolls report out today. In front of it though, the hourly chart shows the near term downtrend of the past few days has been broken, whilst the RSI continues to oscillate between 30/70 which suggests a rangebound outlook. Key levels to watch for today are supports at $1079.50 and more importantly at $1077; whilst the resistance comes in at $1097.40 and then $1105.60.
Despite a minor technical rally in the past 18 hours, the oil price remains on a bearish path within the downtrend and is coming ever closer now towards a test of the March low at $42.03. The technical outlook on the daily chart does not have much for the bulls to cling to with momentum indicators all in a strongly bearish configuration. Rallies have to be used as a chance to sell (even if they are merely on an intraday basis as this latest one has been). The intraday hourly chart shows an initial resistance range between $44.85/$45.40 which is now in play. Perhaps look to time this rebound which has unwound the hourly RSI towards the 50 mark and looks to be a chance to sell. The key resistance does not come in until the rebound high at $46.70, which is also where the downtrend resistance comes in today.
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