Last updated: May 3rd, 2017 at 09:55 pm
The corrective move on the dollar remains in play this week with Treasury yields again pulling lower in a move that has pulled the Dollar Index to a near six week low today. The communique from the G20 meeting over the weekend reflected the shift in sentiment away from globalisation with a failure to work against protectionism, which reflects how Donald Trump is changing global economics. This G20 move away from the free trade mantra is supportive for safe haven plays and this is reflected in the support for US Treasuries, gold and the yen today. The dollar has been under pressure though since the FOMC meeting last week and it will be interesting to see the market reaction this week to a raft of FOMC members (including chair Yellen) who are speaking in the coming days.
Wall Street closed once more marginally lower with the S&P 500 -0.1% at 2378 with Asian markets mixed (Japan is on national holiday today) and European markets are also lacking real direction today. Forex trading shows that the dollar has begun the week under further corrective pressure, with the Kiwi and Aussie being standout performers. Gold and silver are also benefiting from the weaker dollar, whilst the oil price continues to suffer after Friday’s Baker Hughes rig count showed an 18 month high in the US.
There is an extremely light economic calendar to begin the week, so markets will be looking towards what FOMC member Charles Evans has to say at 1710GMT. Evans is habitually on the dovish end of the scale so any discussion of tighter monetary policy tends to be market moving. President Trump is due to speak late in the European evening at 1130GMT, and as ever, we have absolutely no idea what will come out of his mouth (does he even?) but any discussion of his fiscal expansion could be potentially market moving.
Chart of the Day – EUR/GBP
The February rally that posted so many bullish candles in a run from £0.8400 to £0.8788 seems to now be rolling over again. The positive candles have been replaced now by increasingly volatile (at least by daily range) candles that are registering a run of lower highs now. The resistance of the March high at £0.8788 is being strengthened by the potential lower high at £0.8760 and the support of Wednesday’s low of £0.8665 is increasingly important now. Friday’s close below seems to now confirm that a new trend of lower highs and lower lows is forming. The big test though is the old pivot of support at £0.8650 that the market has been paying regard to since the end of December and a break below that would also add to the corrective outlook. The momentum indicators are now turning into reverse, with a confirmed bear signal on the Stochastics suggesting that a topping pattern is highly likely now, whilst the RSI has dropped below 60 having peaked at 70. The hourly chart reflects a similar outlook with a string of lower highs on price and momentum now and that rallies are now being seen as a chance to sell. There is now resistance between £0.8700/£0.8720. The next support below £0.8650 is £0.8590.
Having broken out above the resistance at $1.0710 the market is now consolidating the move. The bulls are holding on to the breakout and this morning the early gains suggest there is a view towards a move higher to test Friday’s high at $1.0782 before moving on the key medium term resistance band $1.0800/$1.0850. The momentum indicators are well set to maintain the strong momentum with the RSI above 60, the MACD lines rising above neutral and the Stochastics into strong bull territory. Even if the support at $1.0710 were to be breached, the bulls would still be looking to post another higher low above $1.0597. The hourly chart shows the market having formed a tight consolidation in the past few days of just 78 pips. However the positive bias to the hourly momentum suggests that the bulls will back an upside break above $1.0782.
Can the bulls sustain the upside momentum? The recovery in the past few sessions has been gradually losing its magnitude with the candlestick bodies getting progressively smaller. This has come as the market has rallied through the area of overhead supply of the old February lows between $1.2345/$1.2385. The near term momentum has picked up strongly with the MACD and Stochastics rising and the RSI above 50. However this still has the look of a bear rally within the medium term trading range $1.1980/$1.2770, and with rallies still seen as a chance to sell, the bears will be looking for the next sell signal. The posting of another lower high below $1.2570 would put the pressure on again. For now though, the hourly chart shows the run of higher lows continues in the rebound, with support at $1.2320 as a support to watch. However, the hourly momentum is not as strong as it has been, and if the hourly RSI drops below 50 along with the hourly MACD lines dropping below neutral, the momentum will have come out of the rally and the potential for another key high would grow.
The market continues to fall within the 400 pip medium term trading range 111.60/115.60. The daily chart shows the downside pressure continues as the momentum indicators roll over. The RSI is back towards 40 and the MACD lines have just crossed bearishly, whilst the Stochastics continue to fall. The old support at 112.50 is now being tested and this is a near term level that could prevent a full retracement back to 111.60. However the hourly chart reflects the bearish momentum and that intraday rallies are a chance to sell. The resistance around 113.55 is now a key pivot within the range. The hourly RSI is consistently failing now around 50/55 and selling into strength for a test of 111.60 is a strategy now.
The candle on Friday may have been more of a consolidation session, however seems to be have been more of a pause for breath as the early gains today have continued to run the recovery. The momentum indicators are all in positive configuration with the RSI well above 50, the Stochastics rising strongly and the MACD lines close to crossing higher too. The 23.6% Fibonacci retracement of $1122/$1264 at $1230 is being breached today and so the market is pushing towards a key resistance area with $1240/$1244 a big area of overhead supply. This will be the pivotal test for the recovery as a breakout would re-open the resistance of the long term downtrend which is currently around $1276. The hourly chart shows the positive near term momentum set-up with support forming between $1222/$1225 and little intraday corrections still being bought into.
The market consolidated throughout Friday with little real direction being derived from a tight range of just 60 cents (that is less than half the daily average true range) and very much an “inside day”. However, the market seems to now be rolling over as the price is in decline again this morning, whilst losing the near term support of $48.45 which was Thursday’s low bolsters the resistance at $49.60. Momentum indicators have failed to find traction in the recovery and is a concern for the bulls and adds conviction to the assertion that oil is now forming a new range under $50. With a lower high at $49.20 in place, a move below $48.15 re-opens the low at $47.10.
Dow Jones Industrial Average
It would appear that the hope of direction being garnered from the FOMC meeting last week has so far proven to be a false dawn as Wall Street again struggled into the close on Friday. There is still a mixed near term outlook that comes with the broken two week downtrend, but the lack of traction in the recovery could become a worry if the bulls cannot re-start the engine of the uptrend soon. Medium term momentum indicators remain positively configured and the Stochastics crossing higher around recent “buy zone” levels of the last few months adds a more positive bias that also helps to support the four month uptrend. Support continues around 20,777/20,786 whilst very short term traders will be eying the support at 20,893 as a potential higher low. The near term importance of resistance at 21,000 is growing, whilst losing 20,893 support would also be a further blow to the recovery.
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