Last updated: May 3rd, 2017 at 09:58 pm
So can the dollar bulls pick themselves up, dust themselves off and go again? Yesterday’s underwhelming easing actions by the Fed, in conjunction with the weaker than expected ISM Non-manufacturing data hit the dollar hard from all angles, with forex majors and commodity prices all benefiting. However today is Non-farm Payrolls day and the markets are going to be volatile once more. This is one of the final key pieces of US economic data in front of the meeting of the Federal Reserve on 15th/16th December and all it needs is for a nice solid (does not have to be spectacular) Employment Situation report and the market will return to dollar strength once more. Many of the charts that I look at, simply look as though yesterday’s move against the dollar was simply a wobble within the bull run (although for the euro this seems to be a different story). I am expecting that when the dust settles in the wake of today’s payrolls data, the dollar bulls will once more be broadly in control.
Equity markets around the world have been hit by the decision of the ECB yesterday. After European markets closed strongly lower, Wall Street also reacted with the S&P 500 closing 1.4% lower. Asian markets responded in similar fashion overnight, with the Nikkei down 2.2%. European markets have remained under pressure in early trading today. In forex markets the dollar looks to already be clawing back some of yesterday’s losses and is gaining against most of the major currencies today. Once more the notable exception is the Kiwi dollar which is holding up well. The gold price is slightly lower. Oil could be a big story of the day as it is the OPEC meeting today, though whilst there could be volatility on rumours through the day there is still unlikely to be much progress on production cuts.
The Non-farm Payrolls data is released at 1330GMTand the headline number is expected to dip back to 200,000 (from 271,000 last month). Unemployment is expected to remain flat at 5.0% whilst average hourly earnings are expected to be +0.2% for the month which would be a year on year rate of around +2.2%. If these expectations are met, this would be enough to cement expectations of a rate hike from the Fed.
Despite a rough day for the dollar in the wake of the ECB and weaker ISM Non-Manufacturing data, it is noticeable that the precious metals made little impact on their bearish outlooks. Gold may have managed to squeeze some gains out of the bears, but silver continues to struggle. This is surprising considering the relative outperformance of silver versus gold in recent sessions as gold has been hit hard. However, as with gold, the momentum indicators for silver which have picked up in recent days, do not look to be signalling a imminent recovery, more that there is a move that is unwinding oversold momentum to renew downside potential. The fact that silver dipped to an intraday low of $13.79 which was the lowest price since August 2009, was also significant as it seems that the bears are testing the water for a renewed breakdown. The overhead resistance at $14.40 has weighed on silver for the past few weeks and yesterday’s high at $14.17 failing under the resistance around $14.20 fits into the sequence of being another lower high. A positive payrolls report today could be the catalyst to the breakdown.
Well I don’t think that was in Mario’s plan! On the back of underwhelming monetary easing policy from the ECB the euro has shot higher. With a daily traded range of 440 pips the euro has jumped to close higher by around 330 pips. A stronger euro is certainly not what the ECB was looking for. Technically it is a huge bullish engulfing/bullish key one day reversal and a move that has smashed through 4 weeks of resistance in one session. Although I was expecting a short squeeze as I forecast that the market had priced in too much expectation, the move yesterday has taken even me by surprise. The overhead supply of $1.0810 which is the old floor of the 7 month range was smashed through. I do though now see this as an element of support once more. Clearly when markets make such a huge move, they need to settle down again, however we are straight into another huge fundamental event today with Non-farm Payrolls. It may take a little time for traders to catch their breath still. Yesterday’s high at $1.0980 is immediate resistance with $1.1000 also a barrier. There is an initial reaction low at $1.0900 overnight which is also an old historic pivot level to watch.
On a bad day for the US dollar, Cable was dragged higher with the euro and this has made a significant impact on the chart. Whether it makes any real overall difference to the outlook though remains to be seen. It is probably a testament to how bearish the chart had become that there can be a 200 pip rally on the day and still the outlook remains negative. For now, this rally simply looks to be another chance to sell. The strong bullish candle is undeniable but the rally has just unwound the pair into a resistance band $1.5100/$1.5150. The RSI has unwound back towards 50, the Stochastics have picked up near term but again this is likely to be a near term move. Today’s trading session becomes very important now as if the move starts to retrace then the sellers could easily resume control. The bulls need to continue to push higher through the $1.5150 resistance and to post another positive candlestick. A close back below the support band $1.5050 would be a negative move.
The weakness on the dollar yesterday dragged the pair lower within the 122.20/123.67 range once more, but crucially the range remained intact. This has certainly dented the hopes of a bullish breakout but I feel that the chart still retains a positive bias and the fact that the support at 122.20 held the initial test yesterday is encouraging. The reaction on Non-farm Payrolls day needs to be positive to build confidence once more. The technical indicators on the hourly chart reflect a range play now and the overnight rebound has left near term resistance around 122.80. The truth is though that today will be another volatile day with the payrolls data and the only two levels we really need to be concerned with are the support at 122.20 (a breach opens 121.70) and the resistance at 123.67 (a breach completes the breakout and implies a move towards the 125.28 high.
By all accounts, the dollar had a bad day yesterday and this is also reflected in the rally on gold. However, once again, there has been little discernible improvement in the outlook for gold despite the rally, and therefore the rally has to be treated as another chance to sell. Gold tends to react strongly to Non-farm Payrolls, so we could be in for another volatile day, however there is a sequence of lower highs that remains in place on the chart and selling into the strength remains the strategy. There is an improvement in the momentum indicators, however they simply look to be unwinding oversold momentum rather than signalling an imminent recovery. The intraday hourly chart reflects well the lower highs, whilst the downtrend channel that I have been talking about in recent days continues. It is also interesting that yesterday’s resistance came in at $1065 which is an old key low from mid-November. I expect the bears to resume control and to retest the $1045 low in due course. The resistance at $1074.50 needs to be breached for the bulls to start to improve the outlook.
The oil price rebounded in the latter part of yesterday’s session as rumours spread that Saudi Arabia would be prepared to cut oil production levels. This quickly saw WTI rally around 4% from just above $40 to around $41.75. With the OPEC meeting today this volatility is likely to continue. This means that the oil price is not going to be running off technicals today as newsflow from the OPEC meeting will dominate positioning. The chart remains breaish with rallies being seen as a chance to sell and despite the sharp rebound yesterday there is little real improvement to the outlook that has been seen. The sequence of lower highs continues and momentum indicators remain bearishly configured which suggests that the rallies will continue to be sold into. The intraday hourly chart shows the downtrend over the past 6 days, with the downtrend coming around $41.80. The key levels to watch are the support at $39.84, below which opens $39.00 and possibly a full retracement back to support at $37.75. The bulls at least need a move above $42.00 resistance to improve the outlook now.
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