The trade tensions between the US and China still have the ability to drive markets. As the rhetoric has ramped up again from the US in recent days, with China feeling the need to respond, the flow is out of emerging markets, out of Asia and into the US as the dollar has taken renewed strength. Although yields remain stuck (the 10 year Treasury yield still struggles under 3%), the dollar is looking to regain momentum with traders now looking towards Non-farm Payrolls today. This is impacting across forex markets, with major dollar pairs all pulling in the direction of a stronger dollar. Global equities have been pressured from the renewed tensions, with Asia and especially European markets strongly lower. These moves tend to be short-lived though, and already there is a degree of support that came in for US markets overnight. I suppose I should make passing reference to Apple moving above a $1 trillion valuation as this is getting headlines; but in truth, it is just a share price moving higher, little else. Furthermore, with such fanfare around the move, it sounds like a lovely level to take some profit, or at least that could be the risk. The Bank of England rate hike has done nothing to steady what looks to be ongoing underperformance of the pound. Traders are seeing a central bank almost forced into a corner of a rate hike with little slack in the economy and inflationary pressures forcing its hand. The Bank of England almost had to raise rates, but with Brexit tensions rising and political uncertainties high, the prospect of another rate hike looks distant. Sterling certainly does not have the performance of a central bank confident in its tightening cycle.
Wall Street closed mixed to higher (having been strongly lower) with the S&P 500 +0.5% at 2827, with futures flat. Asian markets have been mixed overnight (Nikkei +0.1%) but Chinese equities remain under pressure on the trade story, with European markets set up for early gains today in the wake of the late rebound on Wall Street. In forex, yesterday’s stronger dollar still has some residual performance today, but essentially markets are flat ahead of payrolls. In commodities, gold was hit again yesterday and continues lower by $1 today, whilst oil is just looking to hang on to yesterday’s rebound.
A hectic week of announcements ends at a pace with services PMIs and the US jobs report keeping traders on their toes. The Eurozone final Services PMI at 0900BST is expected to stay at the flash reading of 54.4, whilst the Eurozone Composite PMI is expected to be 54.3 (down from 55.2 last month). The UK Services PMI at 0930BST is expected to slip a touch to 54.7 (from 55.1) whilst the US Non-Manufacturing at 1500BST is expected to drop back to 58.6 (from 59.1). The main focus of the day will come with the US Employment Situation report at 1330BST which is expected to show headline Non-farm Payrolls at 190,000 (down from 213,000 last month). Within the report though, jobs growth is great, but roundly expected and therefore, the US Average Hourly Earnings are all important. Consensus expect a +0.3% month on month improvement which would keep the yearly growth steady at +2.7%. Also watch out for Unemployment which is expected to drop back to 3.9% following a surprise jump to 4.0% last month, but also the U6 Underemployment which increased to 7.8% last month, and the Participation Rate which was 62.9% last month but has not been above 63.0% since early 2014.
Chart of the Day – EUR/CHF
The weakening performance of the euro is beginning to really show the strain on Euro/Swiss as the outlook has shifted decisively negatively once more. It had looked in the middle of July that the market was positioning well for a renewed push higher, however a broken uptrend has since been followed by a break back below 1.1600 which is now becoming a key pivot and selling trigger. This overhead supply had been tested on each session this week until pulling decisively lower yesterday as the bears appeared to regain control. This move has now formed a three week downtrend channel which falls today at 1.1580, whilst the momentum indicators also reflect the deterioration. The RSI is tracking lower, whilst the MACD lines are now pulling below neutral and Stochastics are negatively configured. The market is increasingly selling into strength and there is room for a pop higher initially and today’s early gains could just be that. However, anything around the downtrend will remain an opportunity to sell for a retreat towards 1.1530, 1.1510 and then the key June low at 1.1475 are coming back into view. The resistance is strong around 1.1600 now, with 1.1640 now a near term key reaction high.
The mild convergence of the trendlines has been broken as the strengthening dollar formed a decisive bear candle yesterday and a third consecutive close lower. The move below initial support at $1.1620 now threatens to generate some direction that has been notably lacking in recent weeks. This direction is being confirmed on the momentum indicators, with the RSI below the 45/55 range and MACD lines beginning to now roll over. The next support is the $1.1570 July low and this is the key higher reaction low that protects the bottom of the eleven week trading range. A close below $1.1570 opens $1.1505. The hourly chart reflects this negative momentum having built up, whilst there is a band of initial resistance now between $1.1620/$1.1650. The Non-farm Payrolls report adds an extra dimension to the chart today and any strength in the report will now likely drive the market for a test of the range support at $1.1505.
Despite the rate hike from the Bank of England, sterling remains under pressure and a decisive bear candle on Cable suggests that once more the negative momentum within the downtrend channel has resumed. A break below initial support at $1.3070 means that the psychological $1.3000 is now being tested today, whilst the next real price support is at $1.2955. Momentum indicators are decisively negatively configured once more with the RSI below 40 and Stochastics crossing back lower, both of which have further downside potential. The hourly chart has now taken on a negatively configured outlook and rallies that unwind the hourly RSI towards 50/60 are a chance to sell, with the old support at $1.3070 now a basis of initial resistance. Payrolls will drive volatility, but the outlook for Cable is once more looking precarious. Below $1.2955 opens $1.2850 and $1.2775.
The yen seems to be one of the few currencies managing to hold off the dollar bulls right now, but even then, due to Tuesday’s strong bull candle on USD/JPY there is still a positive outlook which points towards further gains. The last two candles (very mild negative) have though showed that the bulls are not in entire control, however the uptrend remains broadly intact and there is little suggestion that the market is not going to continue higher. The momentum indicators remain positively configured, with the RSI above 50, MACD lines bottoming above neutral and Stochastics ticking higher. Holding above 111.40 (which was an old pivot) was important for the bulls to maintain their mini break higher earlier this week. The hourly chart remains positively configured with the RSI continuing to bottom around 35/40 whilst moving averages have resumed their progress higher. A push back above the 112.20 resistance re-opens the 113.15 high, whilst the 111.15/111.40 band of support will again be a gauge for the bull control.
With two decisively negative candlesticks in the past two sessions, the market is now beginning to find traction once more within the downtrend channel. It had looked yesterday morning that gold may be starting to pick some better performance up from a safe haven flow, but the stronger dollar prevailed into the close aand a decisive close below $1211 support is now testing the July 2017 low at $1204.50. The next support below there is the crucial March 2017 low at $1194.50 (crucial because it is the last real support before the completion of a long term top area and a new decisive bear trend formation begins to take shape. Momentum indicators on the daily chart remain negatively configured and there is still a sense of selling into strength within the seven week downtrend channel (which comes in today at $1220. The recent consolidation also now houses a batch of overhead supply too under the key resistance at $1236. A concerning time for the gold bulls.
The recent weakness on WTI has tested the key pivot around $67 once more, and so far the support has held again. Yesterday’s rebound from $66.92 maintained not only the pivot but also held on to an 11 month uptrend. A decisively positive candlestick will also give the bulls hope that these supports will continue to hold. It has been a choppy week for oil traders, with momentum indicators increasingly uncertain. The lack of decisive direction comes with the market now effectively building a range above the $67 pivot where the rallies have failed at $71.10 and $70.45 and only once this range has broken will there be some direction again. The hourly chart shows initial resistance in the band $68.50/$69.00.
Dow Jones Industrial Average
An impressive rally of over 200 ticks from the day low formed a bull hammer candlestick. However the market now has a decision to make. Is this a candle to back or is the run of lower highs and lower lows on the past week just the beginning of a correction? The market broke a four week uptrend on Wednesday and momentum indicators are still looking threatening for a corrective perspective. The rebound has simply unwound the market back into resistance once more and the reaction around the 61.8% Fibonacci retracement at 25,367 will now be key. It was interesting to see yesterday’s rebound halting around the Fib level. Resistance has grown at 25,490 and a decisive failure under here would be a negative signal. Yesterday’s low at 25,120 is now supportive and protects from a retreat to the key reaction low at 24,980.
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