The payrolls report on Friday was essentially fairly middle of the road which does little to shake the Fed from its current path of tightening. Treasury yields initially reacted lower with a mild miss of expectations to the headline jobs numbers (at least when you include last month’s revision higher) but have since recovered to push higher again today. This is helping the dollar to begin the week on the front foot however this could still just be part of a retracement within a larger bear move. It is still too early to say for sure but the bears are likely to test the strength of rebound before too long. The recovery in yields this morning has been in part down to the supportive/hawkish comments from FOMC members on Friday and over the weekend. John Williams and Loretta Mester both sit at the more hawkish end of the spectrum and are both voters in 2018, so their comments that three (Williams) or even four (Mester) rate hikes should be seen in 2018 are dollar supportive. This was balanced to a degree by the comments of Patrick Harker (Philly Fed President, non-voter) who again pointed out concerns over inflation and that just two rate hikes would be likely. The payrolls report also did little to quell the appetite of the bulls on Wall Street and the further all-time highs are helping to continue positive market sentiment on equities today.
Wall Street again closed well into all-time high territory with the S&P 500 +0.7% at 2743, whilst Asian markets were broadly positive (Nikkei +0.9%) and European markets are also ticking higher (with the exception of the FTSE 100). In forex, the dollar his looking to recover across the major pairs, but the gains are too early to suggest that it is the beginning of a significant recovery. In commodities, gold is being marginally hit as the dollar has rebounded, whilst oil is stead after the US rig count fell on Friday
It is a quiet day for economic data today with little of any market moving data.
Chart of the Day – AUD/USD
The Aussie has been in a strong trend higher for the past four weeks, consistently posting bullish candles and making good gains. However after Friday’s doji candle (denoting uncertainty with the prevailing trend), the market has started this morning with US dollar strength which has dragged the price lower. The move is breaking the uptrend and means that the bulls will need to work hard to prevent a correction from forming. At current levels a negative candle has formed with the market 30 pips down on the day. There has though been no decisive deterioration yet and it is still all far too early to say whether this is part of a consolidation within the bull run or a corrective move. For this to become a correction the old pivot support around $0.7800/$0.7810 needs to be breached. Furthermore, the RSI has ticked below 70 but there would need to be a confirmation on the Stochastics and MACD lines to suggest momentum is seriously deteriorating. Resistance is now in place at $0.7875 below the key October high at $0.7897. This seems to be one to watch now but the hourly chart shows that the bulls have just lost their impetus for now. A close below $0.7800 would open $0.7730.
The improvement in the dollar is pulling EUR/USD lower and the market has now broken the initial support at $1.1200 this morning. This was a basis of support throughout the first week of 2018 and means that a test of a three week uptrend is being seen. The trend support is at $1.1980 and a closing breach today would increase the pressure on a correction. The support of the November/December breakout highs comes in between $1.1940/$1.1960 and is increasingly back in play now. The momentum indicators are rolling over with the RSI confirming the breach of $1.2000 and the Stochastics ticking lower. However this all seems to be fairly orderly for now and just looks to be an unwinding move within the bull move. Any move that finds support above $1.1900 will still be considered a strong bullish outlook. Despite this though, resistance is building up around the key September high of $1.2092 and is the key medium to longer term barrier now.
Although the euro has lost its initial support against the dollar, sterling is faring much better as its equivalent 2018 support around $1.3500 remains intact this morning. This is largely due to the positive candle complete on Cable on Friday meaning that the early dollar gains today show as more of a consolidation on the chart than a near term correction. Subsequently the market remains in the tight range traded throughout the first week at $1.3500/$1.3612. Daily momentum is still fairly positive and does not appear to have been impacted yet, although on the hourly chart there is a mild negative bias that is coming with the hourly RSI now failing around 60. The initial support today is Friday’s low at $1.3520 which protects $1.3500. However a closing breach of $1.3490 would be the near term break that would follw the euro correction, and imply around 120 pips of additional near term correction. For now though the support around $1.3500 is holding.
A third bull candle in a row posted on Friday continued the recovery on Dollar/Yen, however the move is still just playing out as a rally within the confines of the five week range 112.00/113.75. Closing above 113.00 on Friday and continued gains today have opened the initial resistance at 113.37 but whilst the bulls remain in control for the near term the momentum indicators are fairly benign and are ranging. The daily RSI is still below 60 and although the MACD and Stochastics lines are ticking higher, there are also still fairly well contained. Stick with the recovery towards the range highs whilst the pivot support around 113.00 remains intact, however a closing break below 113.00 would again continue the near to medium term range outlook.
If the dollar is on the brink of a near term rebound (which is as yet unconfirmed) then we can expect a slight dip in gold. The uptrend of the past four weeks remains intact (currently around $1305 today) but the market is gradually beginning to post more negative candles. This suggests that the bulls are wavering in their control now. The momentum indicators are stuttering as well with the RSI just losing impetus now around 70. At this stage is looks as though this is simply a minor unwind back towards the recent trend or even the basis of support between $1300/$1310 however the bulls seem to be in consolidation mode for now. Ultimately this could play out as a chance to buy medium term, but resistance is building at $1325.90. Today’s high of $1322 is adding to the overhead barrier near term.
Posting a bear candle on Friday will now test the bull control early this week. There seems to have been a near term minor rolling over of the strong bull run which in the least could begin to form a consolidation in the early part of this week. It is also interesting to see that the market is leaving a high at $62.20 which is just below the May 2015 high at $62.60 so this could be the market beginning to take some of the cream off the top. The drop back of the RSI below 70 is arguably a near term corrective signal too, so this may begin to be a concern if another negative candle is posted today. The initial support comes from an uptrend of the past three weeks at $60.50 this week, with a minor breakout at $60.00 meaning a basis of support in the $60.00/$60.50 area now.
Dow Jones Industrial Average
Yet another all-time high and another upside gap on the Dow on Friday as the bulls remain in control. The payrolls report was mixed but suggests that there is little need for the Fed to accelerate with its tightening cycle quite yet (i.e. still equities supportive). No need yet therefore for the bulls to be concerned. There is a 7 week uptrend that now supports the market around 24,920 today which is above the latest breakout support at 24,876. Momentum indicators remain strong with the RSI in the high 70s (it seems that around 80 is where the consolidations tend to set in recently). The hourly chart is equally strongly configured with initial support around 25,040.
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