With the condemnation of Donald Trump’s immigration banning order on Muslims from several countries, trading sentiment has become more cautious and safe haven trades are performing well once more. Treasury yields have started to fall, gold is strengthening and the yen is the outperforming major currency. The US dollar has been impacted, although now yet significantly to the downside. However the big impact is being seen on the riskier equities market with stocks being sold off amid the fears that Trump is ramping up his protectionist measures. The concern is over the direction of where Trump seems to be taking his presidency, even in the early days, with some of his more radical campaign pledges seeming to be seen as priorities. Markets will be concerned over how this increasing protectionism will impact in the months and years to come and the impact on global growth will be increasingly questioned. We are also now approaching some of the more interesting fundamental factors for the week as the Fed begins its two day monetary policy meeting today.
Wall Street closed lower with the S&P 500 -0.6% at 2281 whilst Asian markets have been in decline with the yen strength hitting the Nikkei which was down by -1.7%. European markets are also looking cautiously negative after yesterday’s strong losses. Forex markets show that whilst the dollar is off against most of the majors, there is little significant selling pressure. The yen is a mild outperformer after the Bank of Japan held monetary policy as expected with the interest rate at -0.10% and a monetary base target of 80 trillion yen. However in a move that drove a positive reaction from the yen, the BoJ increased its growth expectations for this year to 1.4% (from 1.0% in October) and noted that it remained on course to hit its 2% inflation target by 2018. Gold and silver are mildy higher and oil mildly lower.
Traders have plenty to keep them interested today (as they will throughout this week) aside from the initial focus on ECB President, Mario Draghi. Eurozone flash inflation is at 1000GMT which is expected to improve to +1.6% year on year for the headline, however the core is expected to stay flat at 0.9% (after a surprise tick higher last month). The flash estimate for Eurozone GDP of Q4 2016 is also expected at 1000GMT and is forecast to improve to +1.7% YoY. Eurozone unemployment is at the same time but is expected to stay at 9.8%. The US Employment Cost for Q4 2016 is at 1330GMT and is expected again to be +0.6%. The Case Shiller House Price Index is at 1400GMT and is expected to fall back to +5.0% (from +5.1%). The Conference Board’s US Consumer Confidence is at 1500GMT and is expected to tick mildly lower to 113.0 down from the 15 year high of 113.7.
Chart of the Day – USD/CHF
Throughout January the market has been trending lower, posting a series of lower highs and lower lows. The concern is that despite the dollar showing signs of a recovery again against several forex majors, the safe haven plays (such as the Swissy) are taking a leg up too. Subsequently, Dollar/Swiss remains in decline. After consolidating last week, the volatility increased yesterday to complete a bearish outside day. The bear candle suggests a trend continuation and a downside break. Although the market closed bang on the key support at 0.9950, intraday moves have breached this level and the fact that the bears were again willing to test the downside move, increases the expectation of further losses. The momentum indicators suggest that the trend will continue, with the RSI remaining under 40 (but also with further downside potential), whilst the MACD lines still falling and a bearish configuration on the Stochastics. A close below 0.9950 would be the confirmation of a bearish break and open a test of initially 0.9840/0.9900. The reaction high yesterday at 1.0044 is initial resistance, however there is a consistent theme of selling on intraday moves above parity too.
With the three week uptrend having been broken, the market seems to be moving into a consolidation phase. There is still the threat that this could turn corrective to drag the pair lower again, however for now the market seems to be somewhat uncertain. Yesterday’s (almost) long legged doji candle reflects this uncertainty with both upside and downside moves rebuffed during the session to close almost flat on the day (with a very small candle body. The momentum indicator have rolled over and reflect the loss of bull momentum, however it is interesting that the old $1.0670 breakout remains supportive into the close. Loss of $1.670 wold increase the bear pressure but whilst $1.0575 support is intact there is little significant cause for alarm. Yesterday’s low at $1.0617 adds to the support now. The hourly chart reflects a slight bear bias across indicators and shows a drift of lower highs with mildly corrective hourly momentum. Resistance is $1.0740 under the key high now at $1.0775.
Sterling is now beginning to underperform as a third consecutive bear candle has formed against the dollar. The market is continuing its corrective move back to $1.2430 and this will be a key test for the near to medium term outlook. The previous breakout above $1.2430 seemed to be a decisive move that put the bulls in charge of the four month trading range again. However this break is now at risk of being undone by this correction. The daily momentum indicators are rolling over with the Stochastics crossing lower and are close to a near term sell signal. If the RSI breaks back below 50 this would also be a negative development. The hourly chart now shows that a formation of lower highs and lower lows is building, with $1.2600 resistance under the $1.2673 recent key high. The hourly RSI is also more correctively configured with the failure under 60 and going back towards 30. The $1.2430 will be the key test of support now and a breach would open the old pivot at $1.2300 and the support at $1.2250. Overnight there are signs of the formation of another near term pivot at $1.2520 which is adding to resistance today.
The outlook has deteriorated for the pair once more amid yen strength that has dragged the market back below some key near term supports again. The posting of a strong bear candle that closed around 130 pips lower has entirely unwound a previously bullish breakout and changes the outlook once more. The market may have broken the downtrend but the bulls certainly have not managed to put together anything that would suggest a decisive bullish break. Instead this now may turn into a phase of uncertainty with no overall control of the market. The hourly chart shows support at 113.00 and 112.50 which will be watched. There is also an old support band 114.00/114.35 which may now turn into a basis of resistance but with hourly indicators turning up this could now turn into a near term range play so the extremes on the hourly indicators need to be watched.
A second consecutive positive candle was unable to breach the resistance of the old key level at $1200, but another positive start to the session today has pushed the market up towards $1200 again. The small candlestick bodies of both the last two completed daily candles suggests that the bulls are still unsure whether to back this as a rally, needing a decisive close above to improve the outlook again. The market may have recovered off $1180.60 but this seems to be a phase of uncertainty in the gold market after the selling pressure that met the resistance around $1219 and broke the uptrend. There is no overall control of the market yet and the momentum indicators are turning increasingly uncertain on the daily chart, whilst the hourly chart the recovery is now back to levels where the sellers have tended to resume control. Intraday support is initially $1192.70 with $1187.50 more prominent again. Resistance is $1203 and then $1207.80 before the more considerable near term resistance comes into play between $1210 and $1220.
The oil bulls remain unable to get a sustainable hold on the market. Although the market has a mild uptrend over the past seven weeks, whilst also posting a series of higher lows in the past three months, the latest of which at is $50.90, the bulls still cannot get away. The seemingly false breakout above $53.50 has reversed and is pulling back towards a near term pivot at $52.00 again. The daily momentum indicators are increasingly neutral with the RSI spending the last three weeks between 45/58 and has again pulled back towards 50, whilst the MACD lines are plateauing. The resistance at $54.10 is growing and a near term breach of $52.20 would arguably complete a small top pattern on the hourly chart. The previous resistance at $53.50 has also come back into play forming yesterday’s high. The market remains in need of a catalyst.