The Non-farm Payrolls report almost certainly guarantees that the FOMC will engage a further 25 basis points rate hike this week. However, with the Fed meeting on Wednesday, the bull run that has taken the dollar so strongly higher since early February is beginning to look a little tired. Instead of strengthening on the data on Friday, the market has just lost some of its upside impetus now as the Dollar Index has dropped back below the near term support at 101.20 to form a mini top and imply a move back towards 100.20. The yields on the US 2 year and 10 year Treasuries have just started to look a little tired on the upside perhaps and this could start to weigh on the recent dollar bull trend. With expectations of a March rate hike into the 90% probabilities (according to CME Group FedWatch) perhaps immediate upside potential is looking a bit limited, especially with average hourly earnings growth decent but not shooting the lights out. With political risk also in mind this week (potential Article 50 triggering from the UK and the Dutch General Election), there could also be a minor safe haven uplift which moves investors back into gold, the yen and US Treasuries, whilst equities are also looking cautious.
Wall Street closed positively on Friday with the S&P 500 +0.3% at 2373 as the Payrolls report did not suggest the Fed needed to dramatically accelerate its tightening program. Asian markets have been positive overnight with the Nikkei +0.2%, whilst European markets are a touch more cautious in early moves. Forex markets show the US dollar is lower across the board, underperforming against every single major currency. Gold and silver have also continued their bounce from late on Friday with further recovery, however the oil price continues to drop.
There are no major economic data releases due today, however, ECB President Mario Draghi is due to speak at 1330GMT and this will be of interest to traders of euros and Eurozone government bonds especially.
Chart of the Day – EUR/JPY
There has been a decisive shift in the outlook over the past couple of completed sessions. Two strong bull candles have driven the pair through the key resistance at 121.35 and confirms the bulls are now building control. A higher low has been left at 119.97, whilst the momentum indicators have also shifted medium term outlook once more. The RSI is rising above 60 whilst the MACD lines are on the brink of rising above neutral, and the Stochastics are rising in strong bullish territory. Corrections are now a chance to buy as the market pushes higher towards a test of the key late January high at 123.30. This is the resistance that stands in the way of a complete bull recovery to the December peak at 124.10. The breakout at 121.35 means there is a strong support band now between 121.20/121.35, whilst the hourly chart shows support initially at 122.00. The bulls would lose control if the reaction low at 119.97 were to be breached.
The euro has really turned a corner sine the ECB meeting last week and this move is making a significant impact on the near term technical outlook. The initial move on Thursday just managed to form a bullish outside day, whilst Friday’s candle accelerated higher through the near term resistance at $1.0640 and $1.0680, a move which looks to be continuing today. The momentum indicators have decisively ticked higher now with the RSI rising above 50, the MACD lines crossing higher and the Stochastics also driving a strong improvement in the near to medium term outlook. The next barrier for the bulls to negotiate is the old pivot level at $1.0710 which is in effect the last real resistance before the price tests the key January high at $1.0828. A closing price today above $1.0680 would add to the bull confidence. The hourly chart shows initial support today at $1.0670 before $1.0620/$1.0640. It would need a move back below $1.0570 to deteriorate the outlook again with the medium term support growing at $1.0490/$1.0525.
Sterling has been corrective for the past couple of weeks, but the selling pressure has been slowing for the past couple of sessions and is now threatening a near term rolling bottom. The “doji” from Thursday was followed by marginal gains on Friday which was remarkable considering the solid to strong Non-farm Payrolls data. The bulls are now taking that basis of support around $1.2135 and trying to build for a recovery this morning. Another mild bull candle is currently in formation which would be the third straight candle where the bears have failed to drive the price lower, and would be a real change to the recent trend. The hourly chart shows a downtrend has been broken now and a decisive move above $1.2195 would imply around 60 pips of recovery to $1.2255. There is also a near term pivot at $1.2210 to get over. However the hourly momentum is also confirming a more improved near term outlook. Holding the support at $1.2150 would also reflect an improvement. There is further resistance at $1.2250 and then $1.2300.
The bulls looked to be on the brink of putting real pressure on the top of the medium term trading range 111.60/115.60, however the move seems to be floundering after a brief glimpse at the resistance on Friday. There was almost a bearish “Shooting Star” candlestick pattern formation from Fridays intraday failure at 115.50 and the corrective pressure is growing again today. The hourly chart seems to have rolled over near term and is threatening to leave a lower high at 114.92 and it will be interesting to see how the bulls react today. With the old pivot at 114.00 back in play, the higher low support at 113.55 is key near term. Watch for the daily RSI moving back below 50 for the bull failure to have added conviction. An early indication could also come with the hourly RSI pulling consistently below 30. After Friday’s initial bear candle, today’s session could be crucial as to whether the correction within the range is back on.
The corrective move on gold has been in place for a couple of weeks now, but after Friday’s rebound candle, could there be another swing in the outlook forming? Having hit a low at $1194.50, the market is already $15 higher. Interestingly, the move has also gone from the 50% Fibonacci retracement of $1122/$1264 (at $1193) back to the 38.2% Fib retracement at $1210. A decisive close above $1210 today would suggest a continued pull higher towards the 23.6% Fib level at $1230.50. The momentum indicators have ticked higher with the RSI turning up and interestingly the Stochastics crossing higher for a possible buy signal (not yet confirmed). A move above $1213 today would also breach the two week downtrend. The hourly chart shows strengthening near term momentum and if the market can build support further above $1203 then there will also be a series of higher lows beginning to form. The old pivot around $1220 is also a key resistance to break through for the bulls.
The oil price has driven a decisive breakdown in the past few sessions. After a string of uncertain candlesticks, the past three completed sessions have seen a series of strong bear moves which have changed the outlook. Closing below $50 on the past two sessions is a clean break having now been seen that completes a top pattern. The trading range of around $5 in the past three months has now topped out and suggests a new phase of trading below $50. The implied target could now mean around $45 to $50 is the new range. With Friday’s bear candle closing towards the low of the day, there has also been a shift in the momentum indicators which are now deteriorating, whilst suggesting rallies will be sold into. The hourly chart shows negative configured momentum and that the old support around $50 is now being seen as a basis of resistance and overhead supply. There is a reaction low at $44.82 from December but other than that there is little significant resistance to protect the downside.
Dow Jones Industrial Average
The bears have been controlling the market for the past few sessions, however the prospect of this being simply a near term corrective move remains high. The gap that had been open from the original breakout above 21,000 has now been filled. Furthermore, Friday’s session has broken the sequence of lower daily highs and was also a positive close on the day. The momentum indicators have been corrective but have started to slow their corrective outlook. There is now support in place at 20,777 and if the bulls can start to break back above previous daily resistance levels, such as 20,951 then the momentum will begin to build again to the upside. Maintaining the “filling” of the gap at 20,812 will also be a psychological win for the bulls. The hourly chart shows initial support today at 20,828 which has the potential now to begin as a minor higher low. Watch for the hourly RSI consistently above 60 to also suggest the bulls are gaining the upper hand again.