Focus has turned back to the US/China trade dispute after there was little sign of any agreement at the Asia-Pacific Economic Cooperation summit at the weekend, something that has muted risk appetite today. Whilst this was never going to be the forum for any real progress between the world’s two major economic powerhouses, the fact that the summit failed to agree on a joint communique for the first time ever, speaks volumes of the size of the task ahead for any trade negotiations. After a volatile few days on global markets with geopolitics on a number of key issues driving market sentiment, it is interesting to see that US bond yields have slipped back and are threatening to roll over again. Falls on both Treasury yields and the dollar came on Friday as the newly appointed vice chair of the FOMC, Richard Clarida discussed the fact that a neutral level for interest rates could be close (between 2.5% to 3.5%) and that the Fed should become data dependent. Being vice chair and said to be close to Fed chair Powell, this could be something to look out for. The dollar has regained a degree of support this morning after the APEC summit, but it will be interesting to see if this is a chance to buy on the dollar again or, whether sentiment is materially shifting.
Wall Street closed slightly higher on Friday with the S&P 500 +0.2% at 2736 and although futures are giving back these gains early today, Asian markets have still managed a positive close (Nikkei +0.7%, Shanghai Composite +0.8%). European futures markets are a little more cautious and are mildly higher as trading gets underway on Monday morning. In forex, there is a mildly risk negative move as the European markets take over, with a mixed outlook on the G4 currencies, but the higher risk commodity currencies (Aussie, Kiwi and Canadian dollar) are underperforming. In commodities there is a slight dip back on gold after Friday’s strong move higher, whilst oil continues to edge higher in a recovery.
There is a light economic calendar in store for traders today with little other than the NAHB Housing Market Index at 1500GMT which is expected to remain flat at 68 (68 in October).
Chart of the Day –USD/CAD
The near term outlook has been mildly corrective in the past couple of sessions across the majors, especially Friday after the dovish comments from the FOMC’s Richard Clarida. With oil bouncing too, this has manifested itself as a correction on USD/CAD. The question is whether the corrective move will continue to break the support of the six week uptrend, or whether the dollar bulls would be able to muster the strength to use it as a buying opportunity. The breakout above 1.3175/1.3225 has already been breached as a basis of support, but with the uptrend (currently 1.3130) holding to the pip on Friday and an early rebound today, could this be another chance to buy? Momentum indicators suggest an unwind which is threatening to become a renewed buying opportunity, as they have unwound to levels where the bulls have recently resumed control. This is clearly a key crossroads for the pair. The big support that needs to hold is at 1.3045 which was the support of the early November low, but if support builds today then the underlying demand from the old long term pivot around 1.3060 should begin to kick in for the dollar bulls. A decisive close back above 1.3170 would be bullish.
The euro has been trending lower within a downtrend channel for the past eight weeks, however this outlook is now being seriously tested. Friday’s solid positive candle added 90 pips and is now testing the top of the resistance band $1.1430 which also marks around the trend channel resistance. This comes as the RSI has unwound to 50, whilst the MACD and Stochastics have turned up. The early slip back from $1.1420 suggests that the market is looking at resistance around these levels and this is now an important near term crossroads. A closing breakout above the channel would be a significant improvement, whilst a decisive move above $1.1500 which is another old medium to longer term pivot, would confirm a bullish recovery. The hourly chart shows initial support now $1.1320/$1.1360.
As European traders come in today there is a degree of calm in Cable that has now been seen for a while. This is still likely to be a calm before another storm whips up but for now traders seem happy to wait and see for the next move in this tumultuous time in British politics. The technical are tracking lower which reflects a negative bias which tends to suggest Friday’s rally will fade and likely be sold into. There is a basis of resistance of overhead supply $1.2825/$1.2885 and a retest of Thursday’s low at $1.2722 is the risk still before potentially further test of $1.2660/$1.2695. A close above $1.3000 would improve the outlook, but there is further resistance at $1.3070 and $1.3175.
The correction seemed to decisively take hold on Friday as a sizeable negative candle really gathered momentum in the near term unwinding move. The support at 112.55 is now protecting the market from a correction. There is also a series of sell signals on momentum indicators now, with a confirmed near term sell signal on the Stochastics, a bear cross on the MACD lines and the RSI below 50. The support to watch near term is at 112.55 (already tested and held this morning) as a close below 112.55 opens a retreat to the support of the five and a half month uptrend which comes in around 112. The hourly chart reflects this corrective outlook now (hourly RSI stuck under 60, MACD under neutral), with resistance at 112.90/113.10 initially and a move that would need to push above 113.70 to sustainably avert a correction.
The dollar weakness certainly allowed gold to pull strongly higher on Friday. The resistance at $1217 which had been holding the bulls at bay, was pushed aside and the positive momentum in the uptrend channel is looking to re-assert. The Stochastics are now pulling decisively higher, whilst the RSI is rising back above 50 and the MACD lines are looking to at least stabilise (or even turn up around neutral). The way is now open for a push higher to test the long term pivot at $1236 once more. The initial slip back early today is now a good test of the more positive outlook. The $1208/$1217 pivot band should be seen as a basis of support if the bulls are looking to strengthen their control. Initial resistance at $1225 from Friday’s high would now stand in the way of a move to retest $1236.
The unwinding rebound on oil is more of a technical drift higher rather than a sharp “V” shaped recovery. Small real bodies on the candlesticks reflects a lack of conviction but also a degree of intraday volatility. Friday’s rebound which hit the overhead supply of the old key $58.00 low only to fall over is a concern. The resistance is also coming from the underside of the old primary uptrend which dates back to February 2016. There is a move to unwind the momentum which had become monumentally oversold, but is still some way off any buy signals that could be trusted at this stage. The resistance of a five week downtrend comes in at $59.80 today and this move is still simply counter to the sell-off and faces the prospect of renewed selling pressure. There is support initially at $55.60/$55.90.
Dow Jones Industrial Average
Have the bulls now laid the foundations for a renewed push higher? A second consecutive positive session on Wall Street has started to turn a corner again, leaving support at 24,788, which on a medium term basis could be a higher low above the key October low at 24,122. The key is now how the bulls respond to the resistance which starts around 25,510, and builds between 25,590/25,800. Momentum indicators are looking to stabilise also with MACD and Stochastics both flattening close to the neutral point and RSI close to 50. Friday’s low at 25,148 is initial support.
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