The lack of convention behind Donald Trump’s presidency is one of the key factors behind getting him elected to the post, but is also a volatility factor in financial markets. The independence of the Federal Reserve should mean that the President stays out of issues of monetary policy, but not this President. Trump has been complaining about the strength of the dollar and the Fed’s policy of monetary tightening. The fact that Trump feels it is OK to wade in to a debate that indirectly questions the independence of the central bank has increased market fears and lead to a slip on the dollar and a stronger performance on safe haven assets. The Fed is tightening because the US economy has been a standout performer, however the dollar has performed well amidst the increased fear of his trade tariffs that have driven traders out of Emerging Markets and into the relative safety of the dollar. Perhaps Trump does understand this feedback loop but as ever he is playing to his base. His trade tariffs policy needs a weaker dollar to counterbalance the negatives of the tariffs, and until recently, the market has not been playing ball. However, talk of currency manipulation and railing against his own (independent) central bank gives an excuse to take profits on the dollar, for now. Add in to this, today we are seeing the biggest one day spike higher on JGB yields (+4 to +5 basis points) in several months, which is helping an outperformance of the Japanese yen today.
Wall Street closed lower as investors took a step back, with the S&P 500 -0.1% at 2802 and futures ticking slightly lower (c. -0.1%) this morning. Asian markets have slipped with the Nikkei -1.4% (a stronger yen does not help either), whilst European markets are on the back foot too in early moves. In forex, there is still a slight dollar negative move across forex majors, whilst the outperformance of the Japanese yen is the most stark mover in the Asian session. In commodities, Friday’s rebound on gold is taking a little pause initially, but any further weakening of the dollar is likely to see this near term rebound regain momentum. Oil is slightly weaker after a weekend where the G20 finance ministers met and were warning of risks to global growth.
It is a fairly quiet Monday on the economic calendar, with nothing during the European morning, until the US Existing Home Sales at 1500BST which are expected to improve marginally to +5.47m (from +5.43m last month). The Eurozone Consumer Confidence is at 1500BST and is expected to fall for a third consecutive month and confirming the most back into negative territory at -0.75 (from -0.50 last month).
Chart of the Day – Brent Crude Oil
It is always interesting to see how different the technical outlook for Brent and WTI actually are (at least at the moment anyway). Whilst the positive trends and run of higher lows remains intact on WTI, there is a concerning test of support for Brent crude that could be the trigger for a decisive downside break on oil, should it be broken. Last week saw a 13 month uptrend broken on Brent, but also a move below $72.40 which effectively completed a 10 week double top pattern (which would imply $7.50 of further correction). The support of the key old breakout (old resistance becomes new support) at $71.30 came to the rescue, however momentum indicators really are teetering on the brink. The RSI is again hovering around the 40 level where previous rallies have taken hold, but the Stochastics are far less positive and the MACE lines are also a concern. A rebound high last week has left minor resistance at $73.80 but if this resistance cannot be broken then the outlook will struggle. It is still too early to be calling this as a top, and a dollar correction would likely allow an oil price rebound, but the oil outlook is increasingly coming under pressure now and a bull failure in the coming days would put the $71.30 support back in the spotlight.
A strong bull candle has had the euro rebounding once more and puts the bulls in a decent position to challenge for a sustainable recovery. The mini downtrend channel of the past couple of weeks has been broken and the market has pushed above the old $1.1720 pivot. Resistance at $1.1790 is the key near term test for the bulls now. The recovery move means that momentum indicators remain broadly neutral and still reflect the noise of oscillation within the medium term range $1.1505/$1.1850. However on a nearer term basis the tick higher is encouraging. The hourly chart shows support $1.1680/$1.1700 and the reaction to a rolling over on hourly momentum indicators today will give a good indication as to how prepared the bulls are for recovery.
As with much of recent times, the recovery on Cable seems to be harder to come by than it does on the euro. A strong bull candle from Friday’s session has improved the outlook, but technically it is far more of a struggle for the Cable bulls. Momentum has ticked higher but within a still corrective medium term configuration and the downtrend channel of the past seven weeks is still a negative drag. A slightly positive open today has continued the rebound, but how the market responds around the old $1.3200 pivot will be interesting now. The hourly chart already shows the market just beginning to lose some of the upside impetus and within this downtrend channel near term technical rallies will still be seen as a chance to sell. There is support early today at $1.3080/$1.3100.
There has been a strong yen recovery in recent sessions and Friday’s decisive bear candle has really built on this momentum. The market has subsequently taken this momentum and run further with it today and quickly there is a test of a key technical level. The market has been trending higher in an uptrend for four months but this is being challenged today. The uptrend comes in at 110.70 today whilst the rising 55 day moving average has also flanked the bull run higher to provide a basis of support for the key lows, and comes in around 110.40 today. Momentum indicators have quickly retreated and already the RSI is already back into the key 45/50 zone where the key lows of May and June were posted. Support at 110.25 will be keenly watched and anything with a 109 handle will be a significant disappointment for the bulls now. A move to close back above the 111.00/111.40 old breakout would help to reassert some sort of bull control.
With gold being a negative correlation play to the strength of the dollar, a dollar correction has coincided with a gold rally, but for how long? The downtrend channel on gold is still intact and interestingly provides resistance today almost bang on the confluence of the old key $1236 breakdown level and the underside of the old primary uptrend. This is a key moment for gold. Momentum indicators have ticked higher but the RSI is still in the mid-30s whilst Stochastics and MACD lines are just rebounding within medium term negative configuration. This looks to be another chance to sell. Resistance comes in between $1236/$1248. The key low at $1211 will come quickly back in focus if these key resistance levels put paid to the recovery.
The tentative recovery on WTI loked to be building at the back end of last week, but a downside open on the contract roll-over has done the bulls few favours, leaving resistance at $71.10 which would now be a lower high. Quite how the market now reacts to the old pivot at $69.55 could now become key to the outlook again. Closing above here would improve the outlook again whilst a move above the psychological $70 is really needed to re-open the prospect of a renewed recovery. The momentum indicators are also somewhat mixed and give little conviction. This is also shown on the hourly chart where the hourly RSI is restricted under 70 and MACD lines have rolled over again. Back under $69.00/$69.20 support would question the recovery again.
Dow Jones Industrial Average
Wall Street still seems to be far more insulated to the market concerns over trade tariffs than markets in Europe. The Dow has slipped in the past couple of sessions but what is interesting is that the 50% Fibonacci retracement 24,980) is acting as a basis of support. However, that also means that the importance of a close below this support is growing. A close below 24,980 would complete a small top pattern and imply another 235 ticks of correction towards 24,750. The momentum indicators certainly need to be watched as the Stochastics have plateaued and the RSI has again lost momentum around 60 (as it did for the May and June tops). Can the bulls hold on this time? The hourly chart suggests that for now this is a bull correction, but if so, the bulls need to step up again in the next session or two.
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