Inflation disappointment in the US CPI data on Friday cranked up the pressure on the dollar again, but a series of comments from key central bankers on Friday and over the weekend mean that the outlook for US Treasury yields and forex majors may be a little less certain now. There are different key forces that are driving the dollar currently, and the hawkish tones out from Janet Yellen in support of pushing ahead with rate hikes despite the subdued inflation numbers is helping to support the dollar today. Having seen a sharp bearish key one day reversal on the US 2 year Treasury yield on Friday, a jump back higher today is preventing the dollar bears from pushing on. Add in the fact that political risk is pulling on the euro today after elections in Austria returned a conservative leader in Sebastian Kurz but could also see the far right Freedom Party also play a role in government. Furthermore, Catalonia is still a factor with uncertainty continuing over the region’s dive for independence after a letter sent by Carles Puigdemont to Spanish Prime Minister Rajoy failed to denounce independence. Risk appetite has been mixed though following the China inflation numbers overnight which although showed the CPI in line at 1.6%, the PPI jumped surprisingly to 6.9%. This could help to paint a picture of increased pricing activity in China’s trade partners and is helping support base metals today.
Wall Street closed very slightly higher on Friday with the S&P 500 +0.1% at 2553, whilst Asian markets were supported by the China inflation data, Nikkei +0.5%. European markets are supported in early moves today too. In forex there has been a degree of support for the dollar in early moves but the dollar corrective outlook still seems on track for now. In commodities we see gold mixed to slightly lower on the mild dollar rebound, whilst oil has been pulled higher on suggestions that the US could push for renewed sanctions on Iran.
It is a quiet start to the week with very little European data to impact on the market. In the afternoon traders will focus on the New York Fed’s Manufacturing Index which is expected to remain strong for a third month above 20 with consensus looking for +20.7 (last month +24.4).
Chart of the Day – Silver
The resistance at $17.25 has been a pivotal level over the past couple of months on silver and had been acting as a basis of resistance for much of last week. However Friday’s breakout to close decisively above $17.25 (at $17.35) is a key bullish move and continues the recovery that has now racked up six successive strong bull candles. The momentum indicators are positively configured with the Stochastics above 80 and RSI rising strongly towards 60, whilst the MACD lines are also tracking higher following a bullish cross last week. The succession of higher daily lows means that Friday’s $17.14 is initial support, with the hourly chart showing $17.00/$17.06 is further supportive near term, and of course $17.25 is also a gauge. Hourly momentum indicators are also positively configured with the hourly RSI consistently bottoming around 50 whilst the hourly MACD is holding well above neutral. The next resistance at $17.60/$17.65 before $17.95 and then the key high at $18.21.
The failure of the euro to really find upside traction in the past few sessions, even amidst a weakening overall picture for the dollar shows that the bulls are not in control. This leaves the market with more of a neutral outlook on a near to medium term basis. Once more an initial intraday move higher on Friday could not be sustained and the market retreated to close back around the neckline at $1.1820. This is becoming an increasingly magnetic price level for the euro as the momentum indicators begin to level off once more with the configuration broadly neutralised. If the market now begins to drop below $1.1820 on a consistent level then the resistance of Thursday’s high at $1.1880 will strengthen and the selling pressure will begin to mount again. The early move this morning is mildly negative but the neckline of the old top at $1.1820 is becoming an increasingly important near term gauge. The hourly chart shows a negative drift beginning to take hold.
It had looked as though the bulls were getting away but they were pegged back into the close on Friday and the market closed back under the mid-point of the session to leave questions open of the strength of the run higher. These questions still remain unanswered early today as the bulls once more seem to be moving with the handbrake on. Friday’s high at $1.3335 was just shy of the next minor resistance at $1.3340. There is still a sense that there is an ongoing appetite for recovery though with the momentum indicators tracking higher. The RSI rising back above 50, the Stochastics rising and the MACD lines bottoming around neutral. The reaction around the 50% Fib at $1.3247 and the old breakout at $1.3265 will be an interesting gauge now. The Fib level provided a basis of support for Friday’s low at $1.3245 and will be watched especially on a closing basis. The hourly chart shows that this would also be a small top pattern too. The hourly chart shows that this is still a recovery play but the bulls are being questioned now.
Having spent several days in the process of rolling over the market completed a key near term breakdown on Friday with the close below 112.20. This implies a 120 pip downside move back to test the medium term pivot at 111.00. The number of negative candles are racking up now over the past week or so and with a succession of lower highs, along with corrective momentum indicators, intraday rallies are a chance for a near term sell. This comes with the MACD and Stochastics falling consistently now following their bear crosses. The old support at of the neckline at 112.20 now becomes a basis of resistance with today’s early rebound failing initially just below. The negative configuration on the hourly momentum shows rallies failing around 50/60 on the hourly RSI and around neutral on the MACD lines. Initial support is 111.65 with an old higher low at 111.45 the support that protects the pivot at 111.00. The importance of resistance at 112.60/112.80 is growing.
The rebound continues to develop, now having posted six consecutive positive candlestick patterns. The bulls are now in direct challenge of the long term pivot band $1300/$1310 as Friday’s strong bull candle added $11 and started to really find traction. This is reflected in the confirmed bullish crossover, which is only the fourth time this has happened in 2017 and all three of the previous occasions have been a signal for consistent gains. A decisive breakout closing above $1310 would be a signal that the bulls are increasingly confident to push the market higher. There is an early consolidation today and continuing the run of higher lows will be important. Friday’s low at $1290 becomes a key gauge now today, but the bulls will want to now start to build a position above $1300. The hourly chart shows this to be just helping to settle the market down. The intraday resistance to be breached is $1313.
If the timing can be perfected, the bulls have got some decent gains to be made on WTI. The strong medium term positive outlook suggests buying into the weakness and over the course of the past couple of weeks, there have been several occasions where a sharp spike lower has been bought into before the bulls have regained control. However there is still an uncertainty in a market that is so choppy. Despite this, holding above the old pivot at $50.50 maintains a positive outlook and weakness remains a chance to buy. The bulls have already looked to push the market higher again, and if they can hold on to the near term support band $51.20/$51.40 then the September high of $52.85 will be a realistic possibility in the coming days. Support of the reaction low at $50.15 is increasingly key.
Dow Jones Industrial Average
With such small daily trading ranges and a consistent uptrend, it is difficult to come up with something original to say. Subsequently momentum indicators remain strongly configured which means that intraday weakness continues to be considered a chance to buy. The market continues to pull into new all-time high ground on nearly a daily basis, hugging the top of the six month uptrend channel as it goes. Initial support is at 22,821 and then 22,739.