Last updated: May 3rd, 2017 at 09:59 pm
The US dollar has come under some corrective pressure in the wake of a dovish set of FOMC meeting minutes. The suggestion in the minutes was that there needed to be more sign of inflation picking up in the US to justify a rate hike, and these conditions were not yet being met. The minutes said that most observers saw that the conditions for policy firming had not yet been achieved but that conditions were approaching that point. US Treasury yields spiked lower after the minutes and the dollar weakened across the major pairs. Equity markets also briefly picked up, however in concern over the consistent selling pressure in commodities and concerns over China, the sellers resumed a modicum of control.
Wall Street closed lower with the S$P 500 off 0.8%, a mood that translated once more into Asian markets with the Japanese Nikkei 0.9% lower into the close. European markets are mixed to slightly weaker today again as markets react to the continued weakness on commodities. In forex markets there is little real direction, although the bounce in the euro has continued overnight. Despite this, there has been a slight rebound for the US dollar against the yen and the Aussie. Gold continues its strong move from yesterday afternoon whilst silver is also pushing higher. The oil price as ever remains under constant bear pressure and continues to fall.
Traders will be looking out for UK retail sales at 0930BST. The retail numbers in the UK have remained strong in recent months and a year on year reading of 4.3% is expected (ex-fuel). Weekly jobless numbers for the US are released at 1330BST and are again expected to be around the same as last week at 272k (last week 274k). The existing home sales are at 1500BST and are expected to show a slight decline to 5.44m (last 5.49m). The interesting number of the day though could be the Philly Fed Manufacturing data at 1500BST. Coming after the Empire State (New York) manufacturing was so disappointing, if this is then followed by a weak Philly Fed reading then this will be seen as a red warning light that manufacturing in the US is under pressure.
With the big downtrend channel now having been broken I now see the Kiwi as a sideways range play. The pair has in effect been moving sideways now for a month. The occasional intraday dip below support at $0.6500 has been seen ($0.6465 has been the absolute low) but there is no longer the selling pressure on the Kiwi that there once was. The big mistake though is often to think that this will turn into a sustainable rally, and this is not a call that can be made without any evidence to back it up. However, signs are gradually improving. The resistance at $0.6650 has been in place for almost 3 weeks now and this is the first test that the bulls need to pass. The momentum indicators continue to pick up and the Stochastics are looking to move to a 3 month high. This is the first real suggestion that there might be something in a bull move. I would look for a close above $0.6650 which would then open the key range resistance band $0.6740/$0.6770. It is also interesting that the 21 day moving average (at $0.6585) which had for so long been the basis of resistance in the downtrend channel has now started to bottom out. The intraday hourly chart is interesting as the key pivot level at $0.6550 was again supportive yesterday. This suggests that increasingly we are seeing intraday corrections being bought into. I do feel that there could be some scope for a rally back towards the range highs near term. Further out though a recovery would be a tough ask.
The euro has significantly picked up again to keep the bears at bay and maintain what is becoming an increasingly mixed outlook. The dovish set of Fed meeting minutes was the intraday driver behind the rally but on a technical basis the move back above the pivot band $1.1050/$1.1100 has ensured that there is no immediate suggestion of a return to the range lows again. Trading back above the moving averages sounds like it is a positive outlook but given that the 4 moving averages I study are only 70 pips apart and with little direction and this is a reflection of the mixed nature of the outlook now. To change this the euro would need to rally above the intraday hourly resistances initially at $1.1188 and then more importantly at $1.1215. The European session could be key today as they are yet to react to the Fed minutes. The initial support is at $1.1090/$1.1100 with the support at $1.1020 now increasingly strong.
Cable is still straining to breakout and maybe just needs that final push that some economic data could give today (perhaps UK retail sales?). The resistance at $1.5690 has now been broken for the past couple of sessions on an intraday basis, but that closing breakout that would confirm the bulls are in control is still illusive. The daily momentum indicators are in a similar fashion, just looking to pick up but without that conviction for now. Stochastics are just beginning to move into positive territory, but I would still like to see the RSI pushing above 60 to really suggest strong momentum. The intraday hourly chart has been a little indecisive in the past 24 hours. What had looked as though a downside break was coming was flipped on its head by the Fed meeting minutes late yesterday. Again, as with the euro, it will be interesting to see the reaction of the early European session which has yet to trade on the dovish minutes. Support is now at $1.5633, with momentum neutral on the hourly chart and the suggestion that $1.5700/$1.5717 is growing as resistance.
A bearish candle that was formed yesterday seems to suggest that the outlook is turning increasingly corrective. The daily momentum indicators certainly now have a corrective drift to them and having closed at a 3 week low the dollar bulls are not in control. The Stochastics are the main indicator reflecting the gradual deterioration and now it looks as though today’s minor rally could well be seen as a chance to sell. The intraday hourly chart shows that the 23.6% Fib level at 124.20 had been acting as support for several days and it should not be taken as a coincidence that a minor pullback rally in the wake of the Fed minutes last night failed around the old support before falling back again. That is because old support becomes new resistance. Any rallies today are likely to do the same. The pair now seems to be set on testing the support at 123.80 and with deteriorating near term momentum this is likely to continue. A decisive breach opens initially 123.50 but more likely a retreat back towards the lows at 123.00. The resistance at 123.60 is now key near term.
A huge rally on gold has completed what seems to have been a flag breakout. The upside target of this move is measured from the low at $1109 and gives an implied target of $1152. The strength of the momentum is reflected on indicators such as the RSI which is now at a 3 month high. However the interesting feature seems to be that the run is showing little sign of resistance. The old floor at $1131.85 has been paid scant regard and this suggests that the bulls are really pushing this one now. For now, I would run long positions with a tight stop though as the temptation for profit taking may harm the move. Also the sharp downside break of mid-July will still be fresh in the memory and any stalling of the move could test the resolve of the bulls. I still expect this rally to only be short-lived and the sellers will resume control in due course, but for now the move is strong. The hourly chart remains strong too.
It may have been induces by a fundamental factor (the release of an unexpected inventory build in the US), but technicians will point to the fact that once more the big 8 week downtrend has come in to provide resistance perfectly as the sell-off continues. The sharp downside move is now closing in on $40 which is a psychological level and minor support level from March 2009. However it should be noted that when technicals are as bearish as they are currently on WTI, you cannot fight it. There is very little reason why a retest of the critical support band from December 2008/February 2009 at $32.40/$33.50 will not be seen. The intraday hourly chart shows that once more the old support levels of past sessions have come in as resistance. As the hourly RSI unwinds look to use any rebound as a chance to sell for further downside. Resistance comes in around $41.50 with $42.75 the key near term resistance.
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