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Market sentiment looking subdued in front of key events


Market Overview

Market sentiment has moved into something of a subdued phase, with little significant direction across forex majors, equities or commodities. This is a position that could continue for the early part of this week, with key events such as the ECB, payrolls and the FOMC looming on the horizon. After an especially quiet day trading yesterday, the dollar is gradually finding strength again as the expectations of a March Fed rate hike become ever more baked in. Yellen spoke on Friday about a hike coming if the data remains on trend. She was referring primarily to jobs and inflation but the US Factory Orders and Durable Goods were both ahead of expectation yesterday and certainly did no harm for the dollar bulls. CME Group FedWatch has the probability of a hike at next week’s FOMC meeting at around 84% now, whilst the US 2 year yield is settling above 1.310% around its multi-year breakout levels. The dollar could now enter a bit of a wait and see mode in the coming days in front of the next piece of key news, with the Non-farm Payrolls on Friday. Overnight we had the Reserve Bank of Australia held rates steady with no change at 1.50% but this was also accompanied by a fairly upbeat appraisal of the economy. RBA Governor Philip Lower said that the improvement in the global economy and higher commodity prices had been a “significant boost” to the Australian economy.

Pensive traders

Wall Street was very quiet once more with the S&P 500 only marginally lower by -0.3% at 2375. Asian markets were similarly mixed, with the Nikkei -0.2%, whilst European indices have been supported and are marginally positive in the early moves. Forex majors are showing little real direction, however the Aussie is performing well in the wake of the upbeat RBA monetary policy statement. Gold and silver are again drifting lower, whilst oil is also marginally weaker.

On the data front there is a fairly quiet day ahead, however the US Trade Balance for January will take the focus at 1330GMT for traders. The expectation is that the trade deficit will deteriorate to -$48.0bn from December’s -$44.3bn. This is a number which is likely to draw some attention from a Tweet-happy Donald Trump as he continues to bang on about currency manipulators.

 

Chart of the Day – DAX Xetra

The DAX has been finding support at successively higher levels over the past few weeks and in fact there is an uptrend that can be drawn back to early December. However the bullish feature of this trend high has been the role that previous supports and breakout levels have played in buffering the corrective moves to provide the basis of the next leg higher. The 11,696 old January high became pivotal before being used as a spring board for the next upside break, whilst 11,893 could now become a similar support. There is a confluence of support from the uptrend and the 11,893 breakout today which could give the bulls an excuse to move long again. The hourly chart shows a band of support around 11,850 as the corrective move continues. Furthermore, support is not confirmed until a higher low is in place and on the medium term outlook the support band of around 200 ticks between 11,696/11,893 is likely to be the real “buy zone”. However, yesterday’s “doji” candle stick reflects a lack of conviction in the selling pressure and that the bears are not having it all their own way. The market is mildly higher at the open today and the bulls will look to push above yesterday’s high to begin to suggest support is forming. Resistance is initially at 11,995 before 12,058 and the multi-year high at 12,083.

EUR/USD

The euro may have broken its recent downtrend but the technical outlook still suggests that it looks unlikely to embark upon a sustained rally. There is an improvement in momentum with the Stochastics rising and the MACD lines seeming to bottom, however the RSI continues to struggle under 50 and the falling 21 day moving average (currently c. $1.0600) is a barrier to the recovery. The price has failed again around the $1.0630/$1.0640 resistance and the unwinding move was again old into yesterday. Friday’s bull candle needed to be accompanied yesterday by another positive reaction but the market sold off into the close and formed a negative retracement move. The old support around $1.0575 is again being tested again today and a breach would re-open the $1.0490 low. The hourly chart shows initial support at $1.0540 with resistance of yesterday’s high growing at $1.0640. I remain a seller into strength on the euro.

GBP/USD

The vague possibility that Fridays candle would be perceived as a “bull hammer” candlestick, which would be the beginning of a potential near term recovery, has been brushed aside with another bearish one day candle which lost over 50 pips on the day and brings Friday’s low at $1.2212 back into range. The momentum indicators have barely registered the blip higher on Friday and suggest that the rallies continue to be seen as a chance to sell. The outlook remains bearish within the range and if Friday’s low is decisively breached, there is reason to believe that the lows of the range towards $1.2000 will be seen. There is downside potential on the RSI which is currently around 37 which is not historically stretched, whilst the MACD lines also have plenty of room to continue to slide. The breakdown within the range was $1.2345 but the hourly chart shows that the buyers have been failing around $1.2300 in recent days. Further negative indicators on the hourly chart such as trading below all falling moving averages and bearish configuration of momentum reflects the negative outlook remains on Cable.

USD/JPY

There is a lack of conviction in the range now. The recent rebound lost impetus on Friday at 114.75 however yesterday’s retracement move lost impetus and formed a very tentative bear candle that was only 13 pips lower on the day. The market has continued this rather uncertain outlook today with another indecisive open. This should not be surprising with the momentum indicators so placidly configured. The MACD and RSI are plateauing around neutral configuration with only the slightest positive lean on the Stochastics. The hourly chart reflects this neutral position with the support forming above 113.45 yesterday and again the market gravitating back to the pivot around 114.00. A decisive break either way from the pivot will give the market near term direction but the overhead resistance at 114.75/114.95 is restrictive, whilst support at 112.50/112.80 is a buffer.

Gold

The near three month uptrend was broken intraday on Friday but the real confirmation came with a decisive close below yesterday in a move that is now adding to pressure on the old support around $1220. The bull run may be at an end but with the support at $1220 still intact then the bears will not have grasped control. The traction is being seen in the momentum indicators now though, with the RSI below 50 and Stochastics also at two month lows. A close below $1220 would now be a negative move that would open old support in the band $1180/$1200. Intraday rallies continue to be sold into with the market in a succession of lower highs of the past week. The hourly chart shows a downtrend formation with the RSI consistently failing at 60 and the MACD lines failing around neutral, all of which is classic corrective signs. Initial resistance is a very near term pivot around $1230 with $1236.80 being yesterday’s high. The old support is based around a breakout above $1220 with the intraday low at $1216.40 also another confirmation level.

WTI Oil

Oil managed to regain its poise as early losses during the morning of yesterday were bought into. There is still a minor downtrend of the past week and a half with a series of lower highs, however the bulls will point to the basis of support growing in a band around $52.55 (which is just below an old near term support at $52.70). However there is still a very near term outlook that accompanies the moves on oil and this is reflected in the flat/tight daily Bollinger Bands (which are just around $2.40 apart between $5.20/$54.60), and the unresponsive daily RSI and MACD lines. The hourly chart shows initial resistance around $53.80, with support $52.55/$52.75.

Dow Jones Industrial Average

The market continues to drift back towards a prospective filling of the gap at 20,812 with the initial support of an old high at 20,850. However the unwinding drift is beginning to drag on momentum indicators which are theoretically on the brink of corrective (profit –taking) signals. A close on the RSI below 70 is basic but similar to the signal given in late December which came during a consolidation phase, whilst the Stochastics are also close to a similar signal, as are the MACD lines. The last time all these indicators gave similar signals was in late December as the market then started to consolidate for another number of weeks, before the next buy signals opened the next bull leg. This could therefore be the beginning of a consolidation move. Given the tightness of the trading (yesterday’s daily range was just 74 ticks and well below the average true range of 117 ticks) which also formed a second “doji” candle (implying uncertainty). Resistance is 21,018 and 21,075 before the high at 21,169.


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