The dollar has begun a crucial week under a little corrective pressure again. The past week has been very strong for the greenback but this has been tempered slightly by an underwhelming payrolls report on Friday and some caution coming ahead of the FOMC decision on Wednesday. The Fed is widely expected to raise interest rates for a third time this year, however it will be the implications of inflation expectations and further hikes in 2018 which will be the main drivers of market moves. Friday’s subdued earnings growth is not doing much for the hawks. Treasury yields have dropped back a touch in early moves today and the Dollar Index has fallen under the pressure of support for the euro. Furthermore, sterling has also found support today as an upbeat Theresa May looks forward to the next stage of Brexit negotiations. New Zealand has a new governor of the RBNZ, with experienced economist and central banker, Adrian Orr set to take the reins in March. This decision has been clearly viewed as a positive for the Kiwi with him seen as unlikely to veer too far away from inflation targeting even though the new Labour government is looking to add an employment mandate for the RBNZ.
Wall Street closed with a degree of support starting to come back into the market on Friday after a mini-corrective phase seems to have been stabilised. The S&P 500 closed +0.5% at 2651 whilst Asian markets were broadly higher (Nikkei +0.5%) and European markets are also gaining in early moves today. In forex majors, the dollar has slipped back slightly after recent gains, underperforming across the major currencies. The Kiwi is the standout performer on news of the announcement of a new governor of the RBNZ. In commodities, the slip on the dollar is helping to build support for gold, whilst oil is feeling a touch of weakness after the US rig count grew by 2 rigs last week.
There is little to get traders going on a quiet start to a heavy week. However the US JOLTS jobs openings could raise an eyebrow or two at 1500GMT. Expectation is that there will be a slight slip to 6.03m (from 6.09m).
Chart of the Day – EUR/GBP
Was Friday’s move below key support at £0.8740 the sterling bulls testing the water for a further sell-off, or was it a false downside break? Having hit a low at £0.8667 the market rebounded sharply to form a strong bull candle. Although there has been no key resistance broken yet in the rally this is the first strong bull candle in over two weeks. This comes as the RSI has picked up again from above 35 (where the late October rally kicked in). The sterling bulls will have been disappointed in the failure to kick on having broken down, but the reaction in the coming days will be key. There is key near term resistance around £0.8850 which has been a pivot in the past few weeks. If the rebound loses momentum below £0.8850 then the sterling bulls could quickly regain control. Therefore £0.8740 remains a key level to watch too as support.
The run of bull candles continued on Friday but in an unconvincing manner which has followed into the early move higher today to break the recent mini downtrend. The slip back in the pair over the past week has found support at Friday’s low at $1.1730 and with Friday’s small candlestick body there is a lack of conviction in the market. The somewhat mixed Non-farm Payrolls report of Friday and coming ahead of the key Fed meeting on Wednesday, the market is looking reticent. Momentum indicators on the daily chart have just settled slightly whilst the hourly chart shows that the sellers have just relinquished their grasp on the market now. The market is in need of a catalyst and some direction now. Resistance at Thursday’s high of $1.1815.
Another retreat to what is now a four week uptrend seems to be finding support again around the old medium term breakout at $1.3335. Can the sterling bulls gather themselves and use this as a chance to buy? The early indications today are that there has been some grounding to the support coming in. The threat of correction has not gone by any means but it is interesting to see support between $1.3320 and $1.3390 becoming a consistent theme now. The hourly chart shows this to be more of a ranging period for Cable but the indicators have ticked higher again as the Europeans have taken over trading this morning. A near term pivot around $1.3450 needs to be overcome whilst the resistance grows at $1.3520 and the key November high at $1.3550.
A positive move higher continued on Friday as the market held a break above the pivot around 113.00 to re-open the 8 month range highs between 114.25/114.70. The improvement continues to be seen in the momentum indicators with the MACD lines tracking higher, Stochastics rising into bullish territory and the RSI also advancing well. Intraday corrections are now a chance to buy, with the pivot around 113.00 now becoming a basis of support. This is reflected in the hourly chart which shows Friday’s low at 113.10 before a rebound again. Any near term unwinding move is likely to be bought into now for a move towards the range highs.
After the selling pressure for much of last week, it is interesting to see gold starting to find support on Friday as it posted a consolidation candlestick. Having posted a low at $1243.70 on Thursday, the momentum in the sell-off seems to be dissipating for now. This support has continued today with the market again trading mildly higher. However, this is all still coming within what is now a downtrend of the past eight sessions. The overhead supply between $1251/$1260 is significant and the bulls could struggle to make much of an impact due to the importance of the breakdown. Rallies ultimately now look to be a chance to sell with the break below $1260 implying $1220 at least. The hourly chart MACD lines suggest this is just an unwinding move and the sellers will be waiting.
Having broken below the six week uptrend support the fear is that rallies will become a chance to sell. The rebound from $55.80 seemed to fail at Friday’s high at $57.80 as although a bull candle formed, there is a risk that this is moving to become another lower high. This failure under the old uptrend, in conjunction with continued deterioration in the momentum indicators will be a concern for the bulls. The MACD lines are finding traction lower, as are the Stochastics. This rally high of $57.80 will be a key near term resistance now and one to watch early this week. The hourly chart shows a resistance at $57.90 also remains intact.
Dow Jones Industrial Average
With signs of support forming at 24,101 the Dow traded higher on Friday. The corrective move for much of last week seems to have settle down for now and this is helping to settle corrective moves on momentum indicators too. The Stochastics have stopped falling, whilst the RSI remains above 70 on the daily chart, whilst looking on the hourly chart the outlook would suggest that the correction has been a chance to buy. This will remain the case whilst the hourly RSI remains above 40 and the MACD lines rise once more above neutral. The bulls would regain near term control on a move above 23,328 and then re-open the high at 23,534.
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