Dollar looks corrective as Treasury yields continue to slip

Market Overview

The dollar has come under some corrective pressure in the past couple of days as Treasury yields continue to slip back in the wake of a perceived lack of hawkish intent in the FOMC minutes and a potentially slower than expected implementation of Trump’s tax plan. This has come as the corrective move on Treasury yields has dragged the dollar lower. This has impacted through forex and commodities with a key upside moves on Cable, gold and silver. Furthermore, Dollar/Yen is now testing the key support at 112.50 once more. Traders have also got a bit more doubt in their minds after an interview with new Treasury Secretary Steven Mnuchin on CNBC suggested that President Trump’s taxation plan would be in force by August, perhaps a little slower than some would like, whilst also adding that Trump’s measures are unlikely to impact much this year. Coupled with a set of FOMC minutes that do not suggest a March hike, this adds up to a bit of profit taking on the long dollar positions.

Steven Mnuchin

In what seems to be a theme of recent days, Wall Street again squeezed out minimal gains with the S&P 500 up +0.1% to 2364, whilst Asian markets were a touch more corrective overnight with the Nikkei -0.5%. European markets are mixed at the open. There is little direction on forex majors today although the yen has just pared some of yesterday’s strength. Gold and silver are maintaining their breakouts from yesterday with further gains of around half a percent, whilst oil has just dipped back slightly.

Once again there is little of any significance on the economic calendar during the European session, so traders will be looking towards the US session for any trading triggers. The Canadian CPI at 1330GMT with the trend of inflation around the world ticking higher continuing with an expected +1.6% for the year (up from +1.5% last month). The US data is at 1500GMT with New Home Sales expected to improve by over 7% to 575,000 (from last month’s 536,000), whilst the second reading of University of Michigan Sentiment expected to be revised slightly higher to 96.1 (from 95.7 at the first reading), which would still be a strong number despite this being down from last month’s 98.5.

 

Chart of the Day – Silver

With gold breakout out yesterday to the highest level since November, there was also an upside break on silver which continues to run the uptrend channel higher. The market has been consolidating for much of the past week, but the bulls seem to be positioning for their next move higher now. An intraday move above $18.14 resistance suggests the bulls are ready and with a closing breakout now also seen to confirm the breakout, the bulls are in control, with corrections seen as a chance to buy. The previous breakout above the historic pivot band at $17.90 opened the upside towards the key November high at $19.00 and the lack of significant resistance until that high suggests that upside potential is present for the move. The momentum indicators are positively configured with the RSI consistently around 65/70. A run of higher lows continues with the bulls looking leave behind this week’s low at $17.80 to push higher. This comes above the reaction low at $17.48 and strengthens the support above $17.71. This is shown on the hourly chart which shows the market pushing higher after a period of consolidation, whilst hourly momentum is positively configured. There is near term breakout support at $18.00/$18.05.

EUR/USD

With a couple of days of rebound, the euro has looked to unwind, however it still looks that this will be another chance to sell within the recent downtrend. The old support through January between $1.0575/$1.0620 means that there is a band of overhead supply that will restrict the recovery, whilst the resistance of a three week downtrend also comes in around $1.0615 today. The configuration of the daily momentum indicators suggests that the market remains corrective and unwinding moves will be sold into. This is likely to be the case whilst the euro trades below last week’s reaction high at $1.0675. The hourly chart shows that the rally over the past two days is already beginning to falter with the MACD lines rolling over. A move below initial support at $1.0560 would be a concern for the bulls, whilst $1.0535 would confirm a near term move lower back for a test of the low at $1.0490.

GBP/USD

After trading in such a tight range for so long, the weakness of the dollar has driven Cable gains and moved the market up through several near term resistance levels. The improvement in the momentum indicators is interesting with the sensitive Stochastics ticking higher and the RSI at a three week high. The outlook has certainly improved within the medium term consolidation and the bulls will now be eyeing the resistance at $1.2580 to open a move towards the key February high at $1.2707. The hourly chart shows a near term support band now around $1.2510/$1.2525, and it seems that the Cable bulls are on the move for the near term. Whether this move last very long is another question though. I do not see that the range will be broken quite yet.

USD/JPY

The recent bout of weakness on the dollar has dragged Dollar/Yen lower for a second day to complete another bearish candle. This is now putting increased pressure on the support at 112.50 again. This is a key level as it is the old floor that had held throughout January and has recently come back into play. A failure of the support would turn the outlook bearish again for a test of 111.60 and potentially below. The momentum indicators are threatening to turn bearish, but without the confirmation yet. The hourly chart reflects this too, with a consistent threat for the RSI to turn from a ranging configuration to a negative one, with a move below 30 on the hourly RSI being a signal to suggest the bulls are starting to yield. There is resistance now initially between 112.90/113.20 with lower highs  over the past few sessions. It would need a move above 113.65 to suggest the bears have been subdued again.

Gold

The mini-consolidation has come to an end with a strong bull candle that has opened the upside once more. Breaking higher from the recent range between $1220/$1244 implies a $24 upside target to $1268, whilst the move above minor resistance at $1251 early this morning means that the upside into the high $1200s should not be ruled out. The downtrend from the series of lower highs of the second half of 2016 comes in currently around $1285, whilst the old key breakdown which now provides overhead supply is at $1300. The hourly chart shows positive configuration on momentum and that intraday corrections are a chance to buy. There is a ban of support initially $1244/$1247.

WTI Oil

After a period of consolidation there has been a shift in sentiment back towards the bulls this week as the market is now looking to break through the resistance $54.00/$55.25. This has been a consistent barrier for intraday moves in the past few weeks but there is now an uptrend forming over the past couple of weeks and instead of a ranging market, corrections are being bought into at higher levels now. Yesterday’s upside break above $54.70 opens the intraday high at $55.25. The bulls will be looking at the momentum indicators to confirm the move. With the Stochastics pulling higher into bullish configuration and a consistent daily RSI above 60 reflect the strengthening momentum. The market has now close at its highest level since July 2015 which is a strong statement by the bulls. A breakout above $55.25 opens the next resistance area of the trading range from mid-2015 at $56.80/$61.80. The hourly chart shows the importance of the support at $53.35 is now growing, with initial support around $54.00.

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