Last updated: May 3rd, 2017 at 09:58 pm
The first week of the month is jam packed with crucial tier one economic data that can create significant volatility, and today is the we can expect some choppy moves from the purchasing managers index surveys. However, early data from Asia has not been encouraging, with a disappointing set of Chinese PMIs which will give traders renewed fear of China’s economic slowdown. The PMIs are forward looking and already the China manufacturing and services data overnight will give risk pause for thought. The official manufacturing PMI fell back to 49.0 which missed expectations and coming with the disappointing drop in the services PMI, there will be further cause for concern. The People’s Bank of China took the unexpected move to drop the Reserve Requirement Ratio by 50 basis points yesterday in an attempt to free up liquidity for lending and this has mitigated some of the impact of the disappointing China PMIs today. This is just the beginning though with Eurozone and UK early this morning and the US this afternoon.
Wall Street had already closed moderately weaker with the S&P 500 down 0.8%, however Asian markets have been mixed in response this morning, amidst the conflicting pulls of the RRR cut and the weaker PMIs (Japanese Nikkei +0.4%). European markets have opened with losses. In forex markets we are seeing US dollar weakness across the board, albeit minor, however the standout performers so far are the Aussie and the Kiwi which have been supported in the wake of the Reserve Bank of Australia’s move to stand pat on rates (which was largely expected). Gold continues to creep higher and another positive factor for markets is that the oil price also continues to gain.
The Eurozone final manufacturing PMIs are spread early in the session with the regional data released at 0900GMT and is expected to match the flash reading at 51.0. The UK manufacturing PMI is at 0930GMT and is expected to dip back to 52.2 (from 52.9), whilst the big number of the day which is the US ISM Manufacturing PMI is due at 1500GMT and is expected to improve only very slightly to 48.5 from last month’s concerning figure of 48.2.
I have been discussing the consolidation range between $0.6560/$0.6750 on the Kiwi over the past few weeks and once more the price has bounced off the range lows to keep the range intact. However we must now be on the lookout for a time at which the range breaks down. The sharp intraday reversal from an attempted breakout on Friday completed a bearish engulfing candle (bearish one day reversal) and although the significance of the reversal is tempered slightly as it has come within a range play, the sentiment of a false upside break has turned the outlook more negative. The support at $0.6560 provided the basis to the lows yesterday before the support came in. However the momentum indicators are rolling over into a corrective outlook with the Stochastics falling now and moving to a 4 week low. Watch out for a close below $0.6573 which would effectively complete a top pattern whilst a close below $0.6560 would confirm the breakdown. Look to use yesterday’s high at $0.6650 as a resistance point now within the range. Despite the early morning bounce today, the Kiwi bulls are beginning to come under more pressure and a breakdown could be the result.
Having broken the uptrend that has been in place since the December low, the euro fell sharply for a second consecutive session yesterday and now trades below all the moving averages. The outlook continues to now suggest that there is pressure towards the next medium term pivot support around $1.0800. Daily momentum indicators remain bearishly configured with the RSI yesterday ending at the lowest level since early December and Stochastics still in decline. Near term rallies are being seen as a chance to sell and the early showing of support today is not expected to last. The hourly chart shows resistance in the range $1.0910/$1.0960 and the hourly chart shows any unwinding on the RSI towards 50/60 is a chance to sell to at least test yesterday’s low at $1.0855. Further resistance comes in at $1.1000 and $1.1050.
Although the selling pressure has slowed there is still a sense that the bulls are not strong enough to drive a rally of any substance yet. Friday’s initial attempted rally was sharply sold into and I do not see anything in the technical indicators that would suggest there is a recovery in the offing. There is a band of overhead supply between $1.4045 (Friday’s high) and $1.4080 (the key January low) to hold back the bulls. The momentum indicators are bearishly configured and rallies simply look to be another chance to sell. The hourly chart has now unwound from oversold and indicators such as the RSI and MACD are now at levels where the bears have tended to return. I expect a retest of the low at $1.3835 as with little sign of any reversal on the indicators this looks to be another opportunity to sell. A move above $1.4045 would be helpful for the bulls, but in truth there is still plenty of overhead supply to prevent much further recovery.
If this is a recovery, it is going to be done the hard way. Yesterday’s strongly bearish candle which saw Dollar/Yen trading over 100 pips lower throughout the day has seriously questioned the recovery. This has so far been followed by a mixed Asian trading session which has dipped to a low at 112.14 but interestingly, the daily momentum continues to reflect a recovery. The near term outlook though has been impacted by yesterday’s bear candle with a move back under the 23.6% Fibonacci retracement at 113.50 again is a concern on the daily chart, whilst the hourly chart shows a breach overnight of the support around 112.50. The bulls need to get a handle on this chart once more and that means reclaiming the 113.15 pivot as otherwise the hourly chart will look decidedly corrective again. The outlook has become somewhat uncertain again. A close below 112.00 would be a big bearish move now.
Even though gold is breaking higher, I remain sceptical of the move as the momentum indicators are not confirming the upside break. So I believe that this move needs to be treated with caution. The price is still moving higher, and this could even result in a test of the $1261 February high, but I am a very cautious bull on gold now. Holding on to the to and a half week uptrend yesterday the price closed at its highest level since the day of the spike to $1261. However, the unresponsive momentum indicators are why I am concerned about the longevity of this move. The hourly chart shows a strong run higher throughout yesterday but it will be interesting to see the reaction of the bulls to the resistance around $1252.90. There is now a band of support $1232/$1235 for the bulls to work from.
The oil price continues to find support. Once more the bulls came back in yesterday to maintain a 12 day uptrend as the prospects of a key base pattern grows. On Friday the price just failed up at the key January high resistance at $34.80 which is the resistance of the key January lower high which would now mark a potential base pattern. A close above $34.80 would be needed to complete the pattern which would then imply gains of around $8.75 upside. The RI is the positive momentum indicator settling for the past few sessions nicely above the 50 mark to suggest momentum continues to improve. There are caveats though with the “shooting star” candle from Friday still intact as a negative influence on the chart. However the intraday hourly chart remains positively configured with the momentum indicators continuing to unwind to buy levels and the support of the 144 hour moving average at $32.30 still intact, which today coincides with yesterday’s reaction low at $32.32 which is initially supportive. Support at $30.55 is now key.
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