Has the dollar turned another corner again, with dollar strength ready to resume? In recent days the markets have been giving off some mixed signals but now the dollar is beginning to come back into line with the rise in Treasury yields. The increase in the 2s/10s spread on Treasury yields tends to be a signal for dollar strength and the spread is rising once more and the dollar is similarly moving. The US Trade Weighted Dollar Index completed a bullish key one day reversal yesterday and recent trends on forex majors are now being broken against the euro, sterling and yen. Furthermore, the stronger dollar is pulling the gold price lower too. Equity markets have been running of Donald Trump politics over the past few days and are looking a bit more cautious as a spat with Mexico over Trump’s wall seems to be brewing.
Wall Street was broadly flat yesterday with the S&P 500 -0.1% at 2297, whilst Asian markets were also mixed with the Nikkei slightly supported following a mild positive surprise in Japanese inflation which was -0.2%. The European markets are mildly lower in early moves. The forex markets shows the dollar following yesterday’s gains with further strength today across the majors. The yen is the big underperformer. Gold and silver are also being impacted by the stronger dollar and are again lower. The oil price is consolidating a near term breakout yesterday
Aside from some minor data from the Eurozone, the focus will be squarely on the US today. UK growth beat expectations yesterday and the first reading of US GDP for Q4 2016 (Advance) is announced at 1330GMT and is expected to be an annualised +2.2%. This is down from the final reading of +3.5% for Q3 (which had been revised higher from the Advance reading of +2.9%), but would still be considered to be around trend for the year. The core Durable Goods Orders are also at 1330GMT and are expected to again be +0.5% growth for the month. The final University of Michigan Sentiment for December is at 1500GMT and is expected to be unrevised from the prelim reading of 98.1.
Chart of the Day – Silver
The precious metals are beginning to come under selling pressure. Gold seems to have been a driver of this decline in recent days but silver has also not wanted to be left behind. Since the rally failed to break through the key medium to longer term resistance at $17.20, the price has formed three bear candles in a row following yesterday’s decline. Yesterday’s move also pulled silver below a support for the first time since the rally began at the end of December. An intraday breach of $16.71 now serves as a warning for the bulls. Although the intraday rally from a low at $16.64 prevented a closing breakdown, the bear momentum is growing and the downside continues today. The technical indicators are beginning to roll over with the RSI dropping back to a three week low, the Stochastics posting a crossover sell signal and the MACD lines on the brink of a bear cross. A move back below $16.71 again today has begun to open downside supports, with $16.50 and 16.25 next in line. The hourly chart shows negative configuration on near term momentum now with all hourly moving averages falling in bearish sequence. Initial resistance is now at $17.00 today.
Is the dollar turning a corner again? There is now far more of a question mark over who is in control of the market after a second strong negative candle in the past three days has completed. The move took the price back to the support of the three week uptrend and briefly breached the breakout support at $1.0670 only to close back above it. However, the selling pressure remains on today and the trend and is again being tested. This now is also now beginning to show on the momentum indicators which are beginning to turn lower, with the sensitive Stochastics the first to show signs of a bear signal, with a crossover close to confirmation. This would turn into a bear move if the market breaks back below the reaction low at $1.0577. The hourly chart shows negative configuration on momentum and a reaction high at $1.0703 as initial resistance now today. There is support at $1.0623 initially.
The dollar is regaining ground across the forex majors once more and against sterling the move is showing similar signs. Cable has been in a sharp uptrend since early last week as part of the move that has driven an upside break above $1.2430. However the small bull trend is being broken today on a second bear candle that is now forming. The momentum indicators are now beginning to deteriorate once more, with the Stochastics leading the move. A bear cross is now beginning to show through and suggests that the bulls are losing momentum for now. The key to the outlook will be the support around $1.2430 which will now be viewed as a line in the sand. The initial support is at $1.2488. The hourly chart shows the MACD lines are now more negatively configured with a lower high on the price at $1.2612 under the key high at $1.2673.
The bulls really started to take off yesterday in a recovery and the move has continued today. The three week downtrend was tested yesterday, but just failed to be broken on a closing basis has again been breached today, and this time it looks to be decisive. The broken downtrend is now looking potentially to test the key near term resistance at 115.60. This would be a key test as a breach would complete a small base pattern that would imply around 300 pips of further recovery. The momentum indicators are looking to lead for a breakout, with the RSI back above 50 and at a near three week high, whilst the Stochastics are also ticking higher and the MACD lines set to bottom. The hourly chart shows that the market is still paying regard to the pivot around 114.35 which is initial support. A close above 115.60 would re-open the upside with next resistance at 116.85.
The bulls have lost control of the rally as a third consecutive completed bear candle has been posted, with the market again falling today. The market traded for almost the entire session yesterday back below the psychological pivot at $1200 which also contained an intraday breach of the support at $1187.50. The concern comes with the momentum indicators which are all concurrently now giving bear signals. The Stochastics have confirmed a bear cross sell signal, the MACD lines have also got a bear cross, whilst the RSI is the lowest since early December and is below 50. A small top pattern has already been completed below $1195.50 which implies around $24 of additional downside, meaning $1171 is possible. There is support at $1177 before $1170, both of which were reaction lows in the January rally. The negative configuration on the hourly chart momentum indicators suggests that intraday rallies are now a chance to sell, whilst the hourly chart also shows the top pattern. The hourly chart shows a band of resistance now $1191/$1202 today, with the psychological $1200 level now a basis of resistance as rallies are being sold into.
The key near term resistance finally gave way yesterday as WTI oil broke out on a strong bull candle that was also a closing breakout. The move now opens the resistance levels initially at $54.30 and then the key $55.25. Momentum indicators are moving to confirm the break as the RSI pushes to a three week high, the Stochastics pull strongly higher and the MACD lines have bottomed. This suggests that the bulls are positioning for a challenge of the resistance. Although the Bollinger Bands are flat, with the upper band at $54.65, there are positive signals on volume indicators pointing to bull control. The breakout support is initially $53.50 there is now a “buy zone” of support $52.55/$53.50. The pivot at $52.00 is increasingly important as support too.