The market really did not know whether it was coming or going in the response to Friday’s payrolls report, however the net affect has been for the dollar to come under a little near term corrective pressure. However, the question is whether it will last. With the massive variable of the hurricanes last month, the US lost 33,000 jobs (versus an expectation of adding 90,000). However coming with average hourly earnings picking up surprisingly to +2.9% from an expected +2.5%, the market was somewhat caught in two minds. With bond yields sharply higher (clear focus on the inflationary impact of increased earnings growth) the dollar initially strengthened, only to unwind the gains as yields dipped back. Perhaps the indecisive nature of the move has led to some dollar profit taking near term ahead of Columbus Day public holiday which is today. You can also add in a degree of safe haven bid on the back of suggestions that North Korea are moving towards another missile test that would ramp up geopolitical tensions further. For now this combination of factors seems to be fairly short term in nature and with Treasury yields seeming to hold their upside breaks it is not likely to be long before the dollar strength that has been a feature of recent weeks resumes. With regards to today though, in light of it being Columbus Day in the US and also public holiday’s across several Asian markets, we could be set for thin volumes today.
Wall Street closed also entirely flat on Friday with the Dow -2 points and the S&P 500 -0.1% at 2549. There has been little steer from Asian trading, but the surprise miss in the Caixin China services PMI (down to 50.6 from last month’s 52.7) could help to drive a mild risk off theme. European markets are mildly higher in early moves, with a slight underperformance from FTSE 100. In forex there is very little direction, although sterling is looking to be an outperformer today as it would appear that the UK’s ruling Conservatives are yet to tear themselves apart. In commodities, gold is $5 higher on the mildly risk off sentiment, whilst oil has also found support today after Friday’s Baker Hughes rig count fell by 2 rigs to 748.
Traders are in for a quiet day of economic data with no key releases due in addition to the fact that it is Columbus Day in the US.
Chart of the Day – EUR/AUD
The euro may still be corrective against the US dollar (as most majors have been) however, the strong trend remains on track for the euro against the Aussie. The bull market dates back to the February low and although the market has in effect been in a sideways range for the past two months, an upside break on Friday now looks to be positioning the market for a push on the key May high at 1.5225. Friday’s closing breakout above 1.5090 was the highest close since early June and the market is tracking at around 6 week intraday highs. If the bulls can confirm Friday’s closing breakout then the push towards 1.5225 will be on. The momentum indicators are positioning for the move, with the Stochastics tracking higher into strong configuration and the MACD lines also edging higher. If the daily RSI can sustain a move into the low 60s then the bulls will be on a run. The hourly chart shows a string of higher lows, with 1.5065 above 1.5025 and positive hourly momentum position. A move above Friday’s high of 1.5130 will also help to open the upside today.
The significant lack of clarity on the payrolls report on Friday did little to derive decisive direction on the pair, however the one main technical factor to come out of the situation has been that for now, the key August support at $1.1660 remains intact. The concern is that near term bounces have been seen as a chance to sell now for a few weeks and generally there has been perhaps a couple of days of respite before the sellers regain control. The series of lower highs continues to build, and last week’s reaction high at $1.1790 is the first real resistance to now watch. Momentum indicators may have may stopped their decline for now but they remain negatively configured and this latest rebound is likely to be another chance to sell. The hourly chart shows how momentum has unwound to levels where the sellers tend to resume control with the hourly RSI around 60, hourly MACD lines tolling over and hourly Stochastics now falling. Initial support is at $1.1710 with $1.1660 still key.
Sterling has had a bit of a torrid time recently with sharp declines across forex majors, and the correction on Cable has quickly retreated back towards the primary uptrend which comes in today at $1.2950. Fridays low of $1.3025 has found some sort of initial support and is looking to build on that low moving into today’s session. The question is whether the near term outlook can begin to sustainably hold to support. The hourly chart shows a market that retains negative configuration but is just unwinding. The hourly RSI is back around 60, where previous rebounds have failed, with the MACD lines up to around neutral. So if the market begins to stall around here there will be an opportunity. However, there is little real resistance until $1.3220 which could also give the market room to unwind further. The overnight low at $1.3070 will be watched as an initial gauge of support above $1.3025, as will the overnight high of $1.3120.
Friday’s failed breakout above 113.25 and subsequent negative daily candle (like a shooting star candlestick pattern) has put a more negative spin on the near term consolidation range once more. This comes as the market has dropped a touch further this morning and the support at 112.20 is coming back under threat. This is still a range play but the small bodies of the candles in the past week have now started to also roll over. This is arguably reflected in the MACD lines that are on the brink of crossing lower and the Stochastics which have now started to fall below 80. Until there is a closing breach of the 112.20/113.25 range then it is difficult to get too decisive about the chart. The hourly chart continues to reflect a neutral ranging outlook. A closing breach of the range implies around 100 pips of initial target in the direction of the range. The failure of the bulls on Friday are now doing little for the upside prospects.
The ultimately dollar negative reaction to payrolls on Friday in addition to potential escalation in geopolitical tensions once more has boosted gold. These factors appear to be short-termist but still there seems to be traction in a rebound on gold. A positive candle on Friday has been followed by early gains today. The move is now looking to confirm a break higher from the downtrend channel, whilst also pushing above the initial lower high at $1282. However, there is little yet to suggest this move has any longevity in recovery. The momentum indicators are acknowledging an improvement without any decisive medium term pick up. The late September rally of $27 failed around a few sessions and merely helped to renew downside potential and this is still the most likely scenario. The long term pivot band $1300/$1310 is still a considerable barrier too. For now the market is looking to rebound but for how long?
The volatility in the day to day trading on WTI has really stepped up in recent days. In reaction to Thursday’s rebound candle, the bears hit back with gusto on Friday. A hugely strong negative candle has re-established the corrective outlook for WTI, leaving $51.20 as a key lower high and put the support at $49.20 back under pressure. An initial dip to $49.10 on Friday could not be sustained but the sellers are still in the market despite a minor bounce early today. The concern will be extended if $49.20 is broken on a closing basis whilst the support of the top-side of the old downtrend (at 48.95 today) will also be a key factor. Momentum indicators are dropping away again with the RSI below 50 whilst the MACD lines and Stochastics are also corrective. Given the volatility of the past few sessions, there is a greater potential for another retracement move in the next session or so, with resistance between $49.75/$50.50 now watched.
Dow Jones Industrial Average
The Dow pulling into further all-time highs has been a feature of trading over the past week. However this run looked to stall slightly in the wake of Non-farm Payrolls, as a very small contained candle formed. With the RSI in the high 70s there is the prospect of the bulls running out of steam on a near term basis, but for now if this is the case it is manifesting as a consolidation, or pause for breath. It is though interesting that this is coming with the market hitting the top of the uptrend channel (today at 22,805), however any profit-taking is still likely to be supported fairly quickly. Resistance is now at Thursday’s high at 20,777, with support at 20,645/20,685 initially.