Last updated: May 3rd, 2017 at 09:58 pm
Sentiment on Wall Street was strong on Friday into the close as the market gave the thumbs up to the prospect of a Federal Reserve rate hike. The solid Non-farm Payrolls report on Friday should help to remove a lot of the uncertainty surrounding the FOMC decision next week as aside from Retail Sales and CPI this was the final really important economic data release standing in the way of the beginning of normalisation of monetary policy. Traders are taking the positives out of the better data which is supportive for the economy. The implications this has for the FOMC has meant that the US dollar has continues to recover, but also helped to support equities. Following the lead from Wall Street, Asian markets were mixed to slightly higher with the Nikkei closing around 1% higher. European markets are trading higher in early moves, but after the selling pressure of the last couple of days this could be an important session today to gauge the near to medium term outlook.
Forex markets are showing the dollar continues to recover after Thursday’s sharp losses. The US dollar is trading higher against all the major currencies. Gold is giving back a small amount of Friday’s sharp gains, whilst the oil price remains under pressure in the wake of the OPEC meeting on Friday. There are no key economic data releases today, although watch out for the China trade data overnight, at 0200GMT tomorrow morning with exports expected to drop by 5.0% and imports drop by 12.6%.
The DAX has taken a lot of the focus when looking at Eurozone equities in the wake of the ECB monetary policy decision last week, however from a technical basis the move on the French CAC 40 is arguably more significant. The sharp selling pressure on Thursday formed a massive bearish key one day reversal and breached the key support at 4750. With the confirmation of this move seen on Friday (a doji candle which also bearishly filled an intraday gap) meant a two day close below 4750. This completed a top pattern which implies further downside in the current correction and a possible retreat back into the support band 4580/4600. There has also been a sharp deterioration in momentum (an understatement probably) with RSI confirming the breakdown and a Stochastics sell signal. The reaction today will be key and it will be interesting to see how high the early rebound can take the index. The intraday hourly chart shows there is an overhead resistance band 4750/4774 now in place for a technical rally. Overstretched momentum indicators are unwinding but there is now overhead supply in place. The bulls will need to battle hard to prevent a continued correction.
The euro is still looking to settle down after the huge economic data announcements (ECB and Non-farm Payrolls) that drove trading at the end of last week. The first key support which will come under scrutiny now is the old floor at $1.0810. I see this as a key near to medium term barometer for the euro and a closing breach would put the bears back in control. The intraday hourly chart shows resistance has built at $1.0950 just below Thursday’s high at $1.0980 and already it seems as though the euro is giving up the gains of last week with the dollar bulls beginning to re-assert themselves. Another lower high below $1.0950 today with a move towards $1.0810 would see the pressure build. Sub $1.0810 would open $1.0760 as the next level of support but would be a big blow for the recovery.
The technical rally on Cable that was seen on Thursday with such a big rebound has just started to roll over. A marginally negative candle on Friday (with around 30 pips of closing downside) has just taken the bite out of the recovery. The bulls will be concerned by this as the momentum indicators have not made enough of an improvement to suggest that the outlook has turned the corner in any sustainable way. The RSI still remains below 50 and is in line with the run of lower highs, whilst the MACD lines have barely budged. Only the Stochastics rising has improved the chart in any meaningful way, however much more needs to be done if this is to be seen as something more than a rally to be sold into. I spoke on Friday about the band of resistance $1.5100/$1.5150 and this is still where Cable is seeing the battle for control playing out on the hourly chart. A decisive breach of $1.5150 opens $1.5200, however whilst the outlook is uncertain near term, I still favour the sellers regaining control and a move back towards $1.5050 and $1.5000.
The pair remains in the sideways trading band 122.20/123.67 and with Friday’s strong rebound for the dollar, almost all of the bearish candle from Thursday has been unwound. The dollar bulls have re-asserted themselves with the RSI still positively configured , the MACD lines just unwinding nicely and the Stochastics looking to build once more. Whilst a breakout from trading ranges such as these can never really be called with any real certainty, I remain confident that with the bulk of candles being bullish and the bullish bias on the momentum indicators, the chart is building for an upside break of 123.67. The indicators on the intraday hourly chart are not pointing to an imminent breakout and the rally on Friday could even be struggling this morning. There is a minor pivot band within the range around 122.70/122.80 but the major levels remain the band extremes.
What a rally on Friday! I have to admit it was one that I did not see coming. There has been what seems to be a significant short covering rally which has seen gold jump through a whole batch of resistance with a large bullish candlestick. The move from $1060 added over $25 in around 3 hours (see on the hourly chart) where it has since started t consolidate. The move came counter to the market trends of the day (ie. a day of dollar strength) and in order for us to gauge the significance of this candle we need to watch for today’s trading now. Often you will see with short covering candles, the move begins to retrace fairly quickly. If the bulls are behind the move then they will want to build on the momentum today and continue to push the price higher. The key overhead resistance is now $1098. Just to gauge the mood of the market I think this is one to watch, at least early in today’s session. With the resistance at Friday’s spike high of $1088.70, the initial support comes in around $1080.
Volatility has been elevated in the past few days as the rumours have been circulating over exactly the outcome from the OPEC meeting would be. The technicals back up the fundamentals here though, with OPEC sitting on their hands and failing to cut production levels, which is negative for the oil price and something that the technical outlook agrees with. Selling into strength remains the viable strategy for WTI with continued pressure on the $40.00 support area now seemingly breaking down. A decisive breach would open the $39.00 November low, but there is still little real reason why a full retracement back to the big March low at $37.75 will not be seen. With daily Stochastics falling consistently and the RSI reflecting further downside potential, the momentum configuration remains negative. The hourly chart shows that key resistance has been bolstered at $42.00.
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