It has been an incredible night in UK politics which appears to have resulted in a rather shocking Conservative victory (still running on projections). This has had shockwaves across UK asset classes, with sterling being a significant mover, rallying over 250 pips. Furthermore, as the FTSE 100 has opened it has shot higher, with the Conservatives being seen as the better outcome for the UK economy. However, as the dust settles this morning it may not be all rosy as traders could begin to factor in the prospect of an EU referendum during the next Parliament. You can also add into the mix that it is Non-farm Payrolls today as well, so volatility could run throughout the day.
The Wall Street session was fairly positive into the close last night as the oil price had calmed its recent rise and Treasury yields also began to come off their highs. However, concerns will be brewing over the potential for a disappointing number in the wake of the lower than expected ADP private payrolls on Wednesday. Asian markets have had a decent showing across the region with the Nikkei 225 clawing back some losses as it gained 0.6%. Euorpean indices are following the FTSE 100 higher.
In forex trading, Sterling is holding on to its overnight gains but volatility is high, whilst the euro correction that began yesterday has continued into the early European session. Traders on the commodity currencies seems to be fairly cautious and are probably waiting for the main event of the day which is Non-farm Payrolls at 1330BST. The expectation is for 224,000 to have been added in April, which would be well up on last month’s 126,000. The unemployment rate is expected to drop to 5.4% from 5.5%, whilst the average hourly earnigns will also be interesting with an expectation of +0.2% for the month. In other announcements, this morning there will also be the UK Trade Balance which is expected to improve slightly to -£9.8bn from -£10.3bn.
Chart of the Day – USD/CHF
After a fairly consistent bout of selling pressure on the dollar, there has been a strong bullish candle which could now suggest a near term improvement in sentiment. A bull hammer candle was posted yesterday leaving a low at 0.9065 and is the first really positive signal seen on the Dollar/Swissy chart for some time. This is still very early days but there has also been an uptick on the daily Stochastics (but no confirmed buy signals yet). It is also interesting that the RSI is also now unwinding from 30 which suggests a near term technical rally is underway. A positive candle again today would back up the improvement, as would a move above Wednesday’s high at $0.9277. The hourly chart shows a slight loss of near term positive momentum but perhaps it is understandable that there could be a consolidation in front of the Payrolls data this afternoon. The key resistance the bulls would need to overcome near term is at 0.9413 and if the 5th May reaction high can be overcome this would suggest that there is some concerted improvement in the outlook. Below 0.9065 continues the dollar weakness/Swissy strength.
The dollar has managed to claw back some lost ground in the past day or so which has dragged EUR/USD back lower. For now the near to medium term bulls still remain in control and the set up for the bull flag is still present, but their resolve is certainly being tested. Daily momentum indicators are still positive and not yet showing any real signs of correction. On the intraday chart, yesterday I spoke about any weakness into the support band $1.1200/$1.1290 being seen as a buying opportunity, the euro is falling below that band now. I am though still watching for any support forming and any possible buy signals on the hourly momentum indicators that could give that chance to buy again. Watch for a possible Stochastics buy signal confirmed or even a MACD crossover. The key support remains at $1.1065. The announcement of Non-farm Payrolls means that this morning could be a touch more cautious for EUR/USD, but the technical set up remains positive still, despite the decline in the past 24 hours.
The UK General Election looks to be returning a Conservative victory in some shape or form, and this is a result that favours Sterling. We have subsequently seen well over 250 pips of upside overnight. I have I the past refrained from talking about the implications of a break above the key March high of $1.5550, however, with the resistance now within touching distance I need to speak of the possibility of a huge b head and shoulders base pattern that has been forming throughout 2015. The momentum indicators would certainly suggest that there is a strong possibility that this will now complete, with the MACD lines forming a “bullish kiss” with Stochastics and RSI both also bullish. The intraday hourly chart shows the spike up at 10pm last night (on the election Exit Poll announcement) and this move has subsequently left the initial support at $1.5369. Today is likely to be doubly volatile as not only is there the continuing fallout from the election result but also Non-farm Payrolls, so newsflow will remain vital. A close above $1.5500 would certainly be a bullish move, whilst the $1.5550 resistance is also very important now. I would expect a very volatile day again as although the overnight volumes were higher than normal the serious European session is still to take a view.
Once more after two or three days of direction, there is a reversal. Dollar/Yen is still incredibly difficult to get a decisive move out of and the chart remains incredibly choppy as a result. There is a complete lack of conviction in the momentum indicators and consistently any move must be treated with caution. The pivot at 119.40 has not played such an important role over the past couple of days, however it would be far too soon to suggest that it is no longer an indicator to watch. The rally since yesterday afternoon has left a near term low at 119.03 with the interesting distinction that once more the intraday hourly chart shows the hourly RSI continues to be an excellent indicator using the classic rangebound overbought/oversold indicator. The rally shows the 120.00 initial resistance is being tested and it will be interesting to see if once more the price losing upside impetus as the hourly RSI nears 70 again. The key near term resistance remains the May high at 120.50 and subsequently at 120.85.
Gold continues to trade within a range between the low at $1170 towards $1224. There is though still s light bearish bias within this range and the bias would increase if there were to be a close in the price below the old support at $1178. Momentum indicators do not suggest that there will be an imminent breakdown so, for now I am just suggesting pressure on the range lows. The intraday hourly chart shows the breach of support at $1185 yesterday has subsequently seen this near term support turn into slight resistance which should be watched today. The overnight price reaction has been fairly calm and this could continue throughout the day until the announcement of Non-farm Payrolls, which in recent months has had a significant impact on the gold price, tending to be in negative correlation to the moves on the US dollar. The resistance above $1185 starts to come in at $1192.90 before the key resistance near term around $1200.
The importance of the corrective candle that was posted on Wednesday has increased. The drop in the WTI price yesterday has seen the bullish recovery trend tested. The shooting star candle followed up by a bearish candle is a negative development, but there still needs to be much more seen to suggest that locking in profits is the best strategy. As yet there is still no significant deterioration in the daily momentum indicators, although the recent uptrend is now under serious pressure. The intraday hourly chat shows that the correction is testing the key near term support at $58.30 that is needed to maintain bull control. Interestingly the hourly RSI found a low around 30 again, as it has done several times over the past month. For now if the support continues to hold I am viewing this as a chance to buy, but it is on a knife edge. A move above $61.30 would re-open the $62.58 high once more.