Friday’s US Employment Situation report has done little to change the market’s view that a third 2017 hike will be seen. The dollar continues to make ground after the strong headline Non-farm Payrolls and a pick up in the participation rate point towards stronger labour market. However the stubbornly low earnings growth remains a concern for pulling inflation sustainably towards the Fed’s mandated 2% target. The dollar has strengthened in the wake of the payrolls, and as yet retains this strength. The move has also driven the US 10 year yield ever closer to a test of its May high being 2.42%. There has been a key downside break of gold below its big May low, whilst Dollar/Yen remains on track to test its May high. A positive session on Wall Street into the close has put the bulls back in the driving seat today but the question is whether the move can be sustained and break the shackles of what has seeming been more of a corrective outlook across European equities in recent weeks. China inflation data overnight has come in almost bang in line with estimates with no change on last month’s +1.5% for CPI and +5.5% for PPI.
Wall Street closed positively with S&P 500 +0.6% higher at 2425 and this has helped Asian markets all stronger (Nikkei +0.8%) which in turn has helped the European markets all higher today. In forex there is mild dollar strength, with no significant move on the euro but it is interesting to see the improved risk sentiment drive yen underperformance. In commodities, Gold is lower again having broken down on Friday, as is silver, whilst the oil price has found a touch of support today but it will be interesting to see if this can last with the Baker Hughes rig count again higher on Friday.
There are no major economic data announcements today.
Chart of the Day – FTSE 100
Having held on to support at 7302, can the FTSE 100 engage in a recovery now? Friday’s candle was mildly positive in the wake of the Non-farm Payrolls report, and the bulls again positive today in early moves. The early rebound today is gain challenging the overhead however this move is still simply back to the necklines of the top pattern around 7378. This means that it is an important time for FTSE bulls. Can they break through a resistance that has been holding them back for the past week? The uptrend of the past six months is beginning to come under more considerable test now, and unless the momentum indicators begin to pick up appreciably, the market will take on an increasingly corrective outlook. The recent low at 7303 has held twice now and a closing breakout above 7378 today would in form a small base pattern and imply around 75 ticks of recovery.
The euro has just pulled back once more from a test of the $1.1445 May high. This comes in the wake of a payrolls report which was strong but still posed questions over inflation going forward. The mild negative candle has done nothing to sustainably change the direction of EUR/USD with a 22 pip decline, and there is still an argument to buy into weakness. The momentum indicators retain a strong positive configuration with RSI above 60 whilst the MACD and Stochastics lines continue to rise. The three month uptrend also remains intact, coming in around $1.1260 today. The hourly chart shows more of a bullish consolidation forming an a move that should still result in further pressure on $1.1445 and the eventual target at $1.1500.The hourly chat shows initial support at $1.1310 with Friday’s low at $1.1380.
The market is beginning to look more corrective having posted a lower high at $1.2982 on Thursday, whilst Friday’s bear candle also posted a lower low at $1.2865. This continues what looks to be a corrective theme back towards the pivot at $1.2775. Momentum is also beginning to track lower however retains a medium term positive configuration that would suggest medium term buying into weakness. The hourly chart is now more correctively configured too with the bulls having lost control of the move. Another lower high below $1.2980 will be turn the near term position weaker once more. The hourly RSI is increasingly failing around the 60 area.
A strong move on Dollar/Yen in the wake of not only the payrolls report but also the BoJ buying further 20 year JGBs now eyes a test of the 114.35 key May high. The strong bull candle has once more cleared out the consolidation to push higher. This leaves the market within touching distance of 114.35 which was touched on a couple of occasions. The momentum indicators are strongly configured with the MACD and Stochastics looking positive. The RSI is now above 70 and the equivalent move in May had the RSI at 73 before the market turned corrective. The uptrend of the past few weeks is now at 113.10 today. This is similar to he hourly chart where momentum remain positively configured with the RSI supported between 35/45 before pushing higher again. The support at 113.85 is the first real support of note, with the band 112.45/112.90 now for more significant near term corrections.
Gold has broken and closed below the key support of the May low. This is a key breakdown as a large top pattern has completed. However also important is that a run of higher lows has now been breached and this now ends the bull formation over the medium term basis. The run of lower highs has been bolstered further with last week’s mid-week peak of $1.2910 and the downtrend that currently comes in around $1233. There is initial support now from the March low at $1194.50 and then the January low at $1180. Rallies are now a chance to sell with the hourly RSI failing around 50 now. Fridays low at $1207.20 is now initial support. The near term breakdown at $1217.10 is now a basis of initial resistance.
Another sharp sell-off has put a significantly more bearish outlook to the oil price once more and any intraday rallies should now e seen as a chance to sell. The last few candles reflect a strengthening bear control. The move back below the 23.6% Fib retracement of $52.00/$42.05 means that the way is now open for a full retracement to $42.05. The concern is also that the late June rally was configured in such a way that there is little real support either until the low. The only support of any note would be the old key low at $43.75. Rallies are now a chance to sell with the momentum turning sharply corrective again. The hourly chart shows any unwinding move into 50/60 on the hourly RSI is a chance to sell. There is initial resistance for this early rebound at $44.90/$45.05.
Dow Jones Industrial Average
The Dow is in a trading range 21,197/21,563 and so for now we must continue to trade the market as a range play. This is reflected in the corrective drift of the momentum indicators are the failure for the bulls to gain any sort of traction last week. The technical rebound on Friday in the wake of Non-farm Payrolls helped to stem what looked to be a developing test of the range lows, however the rally was merely an inside day of the strong bear candle of Thursday and as such there is still a degree of corrective pressure within the range. Can the bulls back up the move with further recovery gains today? The hourly chart shows initial support now at 21,305 above the 21,197 near term key low, but a sequence of lower highs forming. Initial resistance is now 12,433/12,478.