The recovery seen on the US dollar in recent sessions seems to once more be ebbing away as traders have come back to their desks to sell the Greenback on Monday morning. Treasury yields may not have not been such a primary factor in driving the dollar moves in recent weeks, but with rates falling early today the traction is beginning to build for renewed dollar selling pressure again today. This dollar weakness comes ahead of key US inflation numbers and new Fed chair Jerome Powell testifies before Congress for the first time this week. It has always looked that near term dollar rallies would be seen as a chance to sell and with key markets such as Dollar/Yen again finding downside traction, the dollar bears seem ready to make their move again. Equity markets seem to be finding confidence once more from gains on Wall Street and a weaker dollar again, even if the currency issue means that the DAX and FTSE 100 are likely to continue to underperform their US counterparts.
Wall Street closed strongly on Friday with the S&P 500 jumping +1.6% to 2747, with Asian markets positive overnight (Nikkei +1.2%). European markets are positive in early moves but whether they can see the same sorts of moves of Asian and US markets before then, remains to be seen. In forex, the dollar is broadly weaker across the majors, with no real standout performer, although the Canadian dollar seems to be building up a phase of relative underperformance. In commodities, the weaker dollar is helping gold strongly higher by $10, whilst oil is again positive in early moves.
From the economic calendar, the main focus will be the US New Home Sales at 1500GMT which are expected to improve strongly to 655,000 (from 625,000). However it will be the comments from ECB President Mario Draghi who is due to testify before the European Parliament at 1400GMT and will certainly drive volatility in Bund yields, the euro and also the DAX.
Chart of the Day – EUR/JPY
The outlook for the yen has been improving decisively over recent weeks and although a downtrend was broken a couple of weeks ago, it proved to be a scant respite as the negative candles continued to flow and the market formed lower highs and lower lows. However, the bears are increasingly looking to secure a decisive downside move. The support at 131.15 held the market up throughout a consolidation phase of September into November, but as the momentum has become increasingly negative in recent weeks this support has now been broken. Initially broken on an intraday basis, if the market can now close below 131.15 then this would be a significant medium to longer term move, which would confirm a breakdown of the bull run that really began back in April 2017. Trading below all the moving averages reflects this negative configuration on the pair now and rallies should be seen as a chance to sell. The hourly chart shows a resistance band 131.60/132.00 is now a near term “sell zone” with the hourly momentum negatively configured as the RSI fails around 50/60 and MACD under neutral. Below the initial minor support at 130.60 the next basis of support is not until 129.35/45.
The near term corrective move on EUR/USD driven by a recovery in the dollar has just started to sit down as a consolidation has set in. A couple of contradictory candles closed out last week with the market settling above support around $1.2260. This is allowing the momentum indicators to become a little more benign as the Stochastics bottom out and the RSI settles around 50. This seems to be a market waiting for the next catalyst but given the medium term positive trends, the bulls will be looking more confident. The hourly chart shows resistance at $1.2360 was the spike high following the FOMC minutes and will be seen as a level to breach for the bulls. A breakout from this 100 pip range means a 100 pip projection initially.
The Cable bulls have started to find their feet again after a week long corrective move back from $1.4145. Finding support at $1.3855 on Thursday, the bulls have posted two positive sessions and have pulled back above $1.4000 this morning which has become a near term pivot. A close above $1.4000 would increase the bull confidence again, with the momentum indicators once more looking to tick higher. The hourly chart shows more positive configuration on momentum indicators such as the RSI and MACD lines, and a decisive move above resistance around $1.4025 would really improve the outlook now. There is initial support at $1.3460 as minor intraday corrections are now being bought into. Above $1.4025 re-opens $1.4145.
Thursday’s strong bear candle has really changed the complexion of this chart again as the sellers seem to once more be in control. The overhead supply of 107.30/108.30 is kicking in as the market has again rolled over this morning and is now forming a series of lower highs again. Furthermore, the now seven week downtrend comes in as a basis of resistance with the falling 21 day moving average at 108.00 this morning. Momentum indicators have lost their impetus in a recovery with the RSI back below 40, Stochastics crossing back lower and the MACD lines also struggling. The hourly chart shows a minor support around 106.40 and 105.90 but with the market starting to push lower lows a retreat back towards 105.50 is increasingly likely now.
As the dollar rally begins to wane once more, we see gold supported and this comes with the market looking to bolster last week’s low at $1320.60. There has been a strong start to the week from the gold bulls and with the market retaining its positive medium term outlook, there seems to be a wave of buyers looking to use this recent correction as a chance to re-enter the market again. Momentum indicators are ticking higher again, with the Stochastics crossing up, the RSI rising back above 50 and the MACD lines plateauing above neutral. The hourly chart shows a small head and shoulders base pattern above $1332 which implies around $12 of further recovery towards $1344, whilst this near term breakout at $1332 becomes a basis of support now. Above a minor pivot resistance at $1344 opens $1351 as weakness is now being bought into.
The oil bulls are storming back into control following a decisive end to last week. Two strong bull candles have blown the market through the resistance of the pivot at $62.85 to re-open the January highs. Momentum indicators are turning decisively bullish once more with the RSI and Stochastics accelerating above 50 and even the MACD lines posting a bull cross. The initial resistance is at $64.30 and is the final real barrier preventing a move back to test the highs at $66.25/$66.65. Following the decisive upside break there has been a higher low left at $60.75 which is now a key gauge of support, with anything around the $62.85 breakout now a chance to buy.
Dow Jones Industrial Average
Dow traders ended the week on a high with a second consecutive positive session (and Friday’s strong bull candle) looked to reassert their control of the recovery. Importantly, the move has broken a downtrend that dates back to the all-time high back in late January. The bulls can begin to think about a sustainable move to the upside once more. Friday’s move above the spike high of 25,268 (following the FOMC minutes) is a key move that has opened the ky mid-February high of 25,432. Momentum indicators are beginning to find positive traction with the Stochastics ticking higher and the RSI looking to push back above 50. The hourly chart shows an increasingly positive configuration developing again. Support at 24,793 is key.
At Hantec Markets Ltd we provide an execution only service. Any opinions expressed by analyst Richard Perry should not be construed as investment advice or an investment recommendation. This report does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. Forex and CFDs are leveraged products which can result in losses greater than your initial deposit. Therefore you should only speculate with money that you can afford to lose. Please ensure you fully understand the risks involved, seeking independent advice if necessary prior to entering into such transactions.