Markets continue to trade with a risk averse outlook as fears over trade tariffs remain a dominant theme. The US dollar may have found a degree of support this morning, but there seems to have been a corner turned on the dollar rally in recent days, at least against some of the major currencies. It will be interesting to see if this is just a blip in the recent dollar bull run or is actually a sustainable turning point. With markets concerned over the continued escalation in antagonistic rhetoric from Donald Trump over trade tariffs, the US 10 year Treasury yield has continued to fall further this morning. On Friday, Donald Trump suggested that all auto makers from the European Union would be facing a 20% tariff, and subsequently markets are taking a move into safety today. This means that Treasuries are being bought and the yen is outperforming. However, although the dollar has bounced a touch this morning, an ever flatter US yield curve and yield differentials now moving against the dollar, the conditions are setting up for a correction on the greenback now. So it will be interesting to see how far this early dollar rebound today can go. On currency that the dollar is not performing well against is the Turkish Lira, which is rebounding in the wake of the election result in Turkey, with President Erdogan is set to continue. China has moved to alleviate the impact of US tariffs with the injection of around $108bn of extra liquidity as the Peoples Bank of China has cut the reserve requirement ratio by 50 basis points. The move has done little to settle Asian markets today as equities, considered as a higher risk asset class, also remain under pressure in early moves today. In Europe, the big auto makers on the export heavy DAX sure to be in focus.
On Wall Street there were some gains into the close on Friday with the S&P 500 +0.2% at 2755, but Wall Street futures suggest this is being more than wiped out today, something that has hit the Asian equities (Nikkei -0.9%). European indices are all looking to be around half a percent lower in early moves. In forex, there is a mildly stronger dollar in early moves, but the yen is the big gainer today. Interestingly though despite the risk off feel, in commodities, gold is in decline by $3, whilst oil is corrective early today as markets continue to respond to the OPEC decision.
There is a very light economic calendar for traders to keep an eye on today, with only a couple of announcements to be aware of. The German Ifo Business Climate will certainly be of interest at 0900BST after the ZEW fell to levels not seen since 2012 last week. Consensus expects to show a slip to 101.7 (from 102.2 last month) which would be the lowest since November 2012. The US New Home Sales at 1500BST and consensus forecasts expect a mild increase of around 3% to 666,000 (from 662,000 last month).
Chart of the Day – NZD/USD
With the US dollar showing corrective signs across the major pairs, the Kiwi is one such currency that is seeing something of a resurgence against the greenback. Thursday’s intraday breach of the support at $0.6850 bounced into the close to form a bull hammer candle. This candle was subsequently followed by a confirmation positive session to suggest the bulls are now beginning to gather confidence once more. Friday’s reaction low testing the old support at $0.6850 and again rebounding will have been seen as a positive too. The momentum indicators are looking to improve again, with the RSI ticking higher and a bull cross on the Stochastics (although this still needs confirming). However, there is more that needs to be seen for this recovery to really get going, as the pivot at $0.6920 is still a resistance on the hourly chart and the bulls need to show a reaction to the hourly momentum indicators which have just swung back lower. A move to find support above $0.6880 before turning back higher would be another bullish signal for the construction of the recovery. A move above $0.6920 would now complete a small base pattern that would imply around 100 pips of additional gains. Key support is at $0.6850.
The potential recovery on the euro continued to build on Friday as a second bull candle took the pair to a one week high and, more importantly, pulled away from the support around $1.1500 again. This move is beginning to have an impact on the momentum indicators with the Stochastics picking up from a bull cross. However, the market needs to find the MACD lines diverging higher once more and the RSI above 50 in order for this to really look towards testing decisively higher again. The hourly chart shows the move above a near term pivot at $1.1640 and a near term support now $1.1600/$1.1640 to work from. The next resistance starts to ramp up around $1.1725 with the key resistance at $1.1850.
The legacy of the big bullish engulfing candlestick from Thursday last week is still fresh as the market continued to tick higher on Friday. There is a recovery building, but it is not yet secured, with the momentum indicators still needing to move back to more positive configuration. Although the Stochastics are ticking higher, this means that the RSI needs to find traction above 50 and the MACD lines need to move more positively. There is an early slip lower that the bulls will also need to react to, and renewed support and buying pressure above the old low at $1.3200, which shows as a pivot now on the hourly chart, would certainly be welcomed. Initial resistance is at $1.3315 with $1.3345 where old overhead supply starts to creep in. The main resistance for a sustained recovery is at $1.3450.
The strength of the recovery uptrend has been waning for over a week now and this morning, the bulls have seemingly now lost their control of the market. It does indeed look as though the market is paying out a consolidation range between 108.10/111.40 of the past two months. Over the past couple of weeks the number of bearish candles has been mounting and the market has slipped backwards. Now, with a strong early move lower today the market has broken an uptrend that dates back three months. Furthermore, in leaving resistance at 110.75 below 110.90 but also breaking below initial support at 109.53 the market is now forming lower highs and lower lows. If there is now a breach of the support at 109.20 then this would open the key medium term support at 108.10. With negative configuration taking over the hourly momentum indicators, there is a near term band of resistance now between 109.50/109.80 to use as a mini sell zone today.
Given the strengthening of the yen, it is remarkable to see the lack of recovery on gold. Friday’s positive session dragged the price less than $2 higher into the close and the move has immediately been unwound in the Asian session today. Although the support at $1260 held on Thursday, there is little reason to believe on the technicals that this support will not be retested in due course. Momentum indicators all retain a negative configuration, with only the slightest tick higher on Stochastics to give any real glimmer of hope for the bulls. Perhaps the fact that the RSI is still stretched below 30 will help encourage a rebound, but this is not a recovery that looks ready to explode higher. A close below $1260 would once more re-open $1236 as the December low and medium term top pattern implied target. There is resistance in the band $1270/$1275 with $1282 where the overhead supply once more kicks in.
Volatility was elevated with the OPEC meeting on Friday, but the bulls have certainly come out of a consolidation phase with their tails up. A sharp bull candle on Friday moved the market above the resistance at $67.15 which effectively now completes a small base pattern which implies around $3 of gains and a move back towards $70 again. If the bulls can now pull above $68.65 it would really confirm the bull turnaround. Momentum indicators are now pulling positively higher with the RSI above 50, Stochastics accelerating higher and the MACD lines with a bull cross. It will now be important to confirm the bulls breakout with a move to find a higher low around the initial support at the $67.15 breakout, whilst $66.50/$67.00 is now a buy zone to capture any unwinding volatility. Friday’s high at $69.40 is initial resistance.
Dow Jones Industrial Average
The Dow has ended a run of 8 consecutive negative closes, however now comes a key phase of trading. The 38.2% Fib retracement of 26,616/23,345 in at 24,545 is a near term basis of consolidation that needs to be decisively broken, as down the resistance of the mini-downtrend of the past week and a half. Momentum indicators are slowing their corrective move but still need to have a build-up of positive sessions in order to suggest a corner has been turned now. Support is in place at 24,406 but resistance at 24,805 is in place as a lower high initially that needs to be broken in order to open for renewed recovery.
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