Focus still on Trump as China trade data helps sentiment

Market Overview

Forex markets continue to run off Trump’s press conference rhetoric from Wednesday, whilst the China trade data overnight has helped to stabilise sentiment. With a speech from Janet Yellen passing without reference to the US economy or monetary policy, the focus remains on Trump. Despite picking up off the lows of yesterday’s session, the US dollar remains under corrective pressure today as the market is still taking a steer from his press conference in which he struck a protectionist tone and included little detail on his fiscal spending plans. US Treasury yields have curbed a decline for now as the US 2s/10s spread has stabilised around 118 basis points, however equally yields have also not shown too much appetite to push higher once more (which would help to support the dollar). The near term level to watch today on the US 10 year Treasury yield is at 2.40% which is a minor lower high and a break above it would suggest there may be a turn in sentiment. Markets are taking the glass half full with the mixed China trade data overnight, in which dollar denominated exports fell more than expected at -6.1% (-3.5% YoY exp) however, the imports were better than expected at +3.1% (+2.7% YoY exp), the latter helping to support commodities today. Sterling is back under pressure following the announcement that Prime Minister Theresa May is to make a major speech on Brexit and promoting a “Global Britain”. Markets tend to recoil against sterling any time the prospect of a hard Brexit increases.

China trade data

There is very much a US focus for today’s economic calendar. Traders will be certainly interested to see how US Retail Sales have performed at 1330GMT with adjusted (ex-autos) expected to improve by +0.5% for the month. US Producer Prices Index is also at 1330GMT which is expected to dip back to +1.5% for the YoY (from +1.6% last month). Finally the University of Michigan Consumer Sentiment at 1500GMT is expected to improve slightly to 98.5 (from a slightly upwardly revised 98.2 last month).

 

Chart of the Day – German DAX Xetra

Is the DAX moving into a near term corrective phase? Two days ago it looked as though the bulls were gaining the upper hand with a volatile session closing with a break above 11,637, however this looks to have been a false upside break with an instant response yesterday to the downside where the market was sold for almost the whole session to leave a bear candle that closed below the support at 11,522. The move has had an impact on the momentum indicators with a basic RSI sell signal and a Stochastics confirmed bear cross sell signal, all suggesting that downside pressure is beginning to mount. The breakdown of 11,522 would suggest that the support around 11,400 may come under pressure in the coming days. However, the intraday hourly chart also shows that ranging conditions are still in play, whilst the futures also reflect this with the cash index opening higher once more today back into the middle of the recent range. Volatility has clearly increased in the past two sessions and this could simply be a part of the market in a building a choppy consolidation in which false signals could become prevalent. The early hours of this morning will be important for direction. A failed rally under 11,600 maintains a neutral outlook.

DAX 13012017

EUR/USD

The euro is straining for a breakout as the bulls continue to put pressure on the upside resistance. An intraday break above the $1.0650/$1.0670 resistance yesterday could not be sustained and a correction back has left only a mildly positive candle on the daily chart when the move could have been so much more decisive. The bulls are again today looking to push on and there are positive signs on the momentum indicators, however to be decisively bullish the RSI needs to push above 60 but this closing break above $1.0670 is still needed. The hourly chart shows positive momentum configuration and support around $1.0600. There is still a mildly positive near term bias, however $1.0710 is further resistance with the medium term bears in control at least until $1.0872 is broken.

EURUSD 13012017

GBP/USD

The prospect of a sustained Sterling recovery is fairly limited whilst the threat of a “hard Brexit” hangs over the currency. Once more any Brexit chat has driven sterling underperformance. The technicals also reflect this with Cable camped firmly in negative configuration towards the bottom of its medium term range $1.2080/$1.2775. The range floor was briefly breached this week and the lack of appetite from the buyers suggests that this will simply come under further pressure in the coming days. Yesterday’s bear candle (which looks like a shooting star formation to it, although not at the end of an uptrend) has maintained bearish momentum configuration with the RSI back below 30. Despite a lack of early direction today, rallies are a chance to sell. The hourly chart shows a key band of resistance still between $1.2300/$1.2330 near term, whilst falling back below the pivot at $1.2200 also adds to the resistance. A close below $1.2080 would be medium term bearish with only minor support at $1.2035 before psychological $1.2000 and then below.

GBPUSD 13012017

USD/JPY

The increasing strength of the yen has now driven 6 of the past 7 sessions lower (the only bull session was on Non-farm Payrolls Friday). The move has taken the pair below supports around 116, 115 and now with yesterday’s candle there was a 113 handle. The close below the old support at 114.82 was also a negative for the outlook. However, the last two sessions has seen the sellers not having it all their own way as intraday sell-offs have bounced into the close well off the lows of the day, leaving some long tailed lower shadows on the candles. This suggests the sellers are feeling their way without huge conviction in the selling. The outlook is certainly corrective for the near term and rallies are a chance to sell, however this still does not have the look of a sustained move that will continue for several more days. We will know more with how the support at 112.82 is treated. A bear confirmation would come below 111.32. The hourly cahrt shows negative configuration with resistance between 115/116 and the overnight high at 115.15.

USDJPY 13012017

Gold

For the first session in several days, the bulls did not have it all their own way yesterday. The market traded for much of the session finding support above $1200 only for the support to give way and a close back for only minor gains on the day and a slightly tepid bull candle. The RSI is at 65 and is the strongest since July 2016, but the Stochastics (which are the most sensitive momentum indicator that I look at) are threatening to roll over. A close above $1200 would have been a key psychological break but could not quite be achieved and will still be an aim for the bulls today. However a second failure under $1200 today will lead to some questions of the bull run. I talked about the support around $1189/$1191 yesterday and this seems to be holding currently on the hourly chart, which is positive. The confirmation of the sellers back in control would be a move below support at $1177.

Gold 13012017

WTI Oil

Oil is another market that has been throwing up a number of mixed signals of late and supposed breaks end up being false signals. Tuesday’s bearish break was completely unwound the following day whilst a positive session yesterday further muddies the near term waters. Momentum signals are reflecting the recent run of lower highs, the latest of which is up at $54.32 when the daily RSI was at 60. This seems increasingly as though the market is moving into a ranging phase now as the support that formed this week at $50.70 was above the key near term range support $49.60/$49.95. The hourly chart shows two levels will be important today. The resistance at $53.50 will be eyed by the bulls who would be looking to continue the move higher, above which would re-open $54.32. Whereas, to continue higher, also the support of yesterday’s low at $52.10 needs to hold to prevent yet another retracement move.

WTI 13012017


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