So it seems as though President Trump will once more be a key factor in driving near term market sentiment. At 2pm eastern time today (1900BST), he will announce his decision on the continuation of sanctions relief for Iran. This is certainly a decision that could threatens stability in the Middle East and if the US refused to waiver sanctions it could increase tensions with trade partners and potential adversaries (such as China and Russia). Primarily this is playing out through the oil price which has increased to three and a half year highs on the prospect of a hit to Iranian oil supplies. Such a move would be fulfilling a campaign promise of Trump and expectation has been that the US will pull out of the deal. However Trump has also got a potential deal to broker with North Korea, whilst trade disputes with China rumble on. Is this the right time to add further disruption into the mix? Near term risk appetite will certainly move off this announcement today, with the oil price being a big mover. However also look out for moves on gold and the yen, being two classic safe haven plays. Treasury yields have become a little more subdued in recent days, but the dollar remains an outperformer in the forex majors. With payrolls on Friday erring on the side of disappointment and the uncertainty of today’s announcement, there is a degree of consolidation, and several markets are at a near term crossroads (see analysis below). This is reflected also in the mixed moves on European equities and flat Wall Street futures.
Wall Street closed slightly higher yesterday with the S&P 500 +0.3% at 2672, whilst Asian markets reflected this today (Nikkei +0.2%). European markets are a touch more reticent with a slight underperformance on the DAX suggesting a mild reduction in risk appetite. In forex, there is limited direction this morning, although the dollar is slightly weaker. The Canadian dollar is an underperformer and is likely to be volatile today with the focus on oil market moves. In commodities, gold is $1 lower with little real direction, whilst oil is trading around 0.8% lower in front of Trump’s key decision.
There is little real major market moving economic data due today, aside from the US JOLTS jobs openings which are at 1500BST and are expected to slip a touch to 6.02m (from 6.05m last month).
Chart of the Day – GBP/AUD
Sterling has been under huge pressure recently and has been hit across major crosses, however it is interesting to see on Sterling/Aussie (as well as Sterling/Yen) there has been a retreat to key support area which is holding. On Sterling/Aussie this means that a confluence of support from the major long term breakout around 1.8000 (the key highs from December and January were both 1.7997) but this has also coincided with the support of the eight month uptrend. The market marginally breached 1.8000 on Friday only to end a run of negative candles on Monday (and a six day downtrend). Coming on a UK bank holiday, can this rebound move be trusted? The momentum indicators are back to key levels that previous corrective moves within the uptrend have found support, with the RSI bouncing from 35, whilst the MACD lines have now unwound to neutral. The reaction of the market today will be key and if the sterling buyers can begin to build support, this could prove to be another big medium term chance to buy. A second consecutive positive candle would continue the improvement, A move back above the 1.8175 pivot would certainly now confirm the bulls regaining control.
As the market now trades comfortably below $1.2000, the negative outlook continues. With the January low at $1.1915 also now having been breached the euro is now trading at its lowest level of 2018 against the dollar. It is interesting to see the downtrend of the past two and a half weeks being tested now, but this is more due to the speed of the decline just slowing a touch in the past few sessions. Momentum indicators remain negatively configured, with the RSI around or below 30 for the past week, whilst MACD and Stochastics are solidly bearish. Another negative close today and the next support is $1.1815 before the December low at $1.1715. Intraday rallies continue to be sold into. The hourly chart shows $1.2000 is an initial area of resistance before $1.2050, whilst $1.2090/$1.2155 is more considerable medium term resistance now.
The bears are having a little pause for breath. After such a huge correction, this is perhaps understandable, however it will be interesting to see if sterling starts to exhibit any positive signals or whether this is simply the market consolidating sideways. Technically, the momentum indicators all remain in negative configuration, and although the RSI has ticked higher, it is still below 30. Furthermore the MACD and Stochastics lines are all still deeply negative. However, after the selling pressure has just begun to abate in the past few sessions, the sideways move today is now looking to break the downtrend. At the moment there is little suggestion that this is about to be a recovery, but the hourly chart shows that this could be a near term crossroads. The hourly RSI and MACD lines have unwound to levels where the sellers have tended to resume control in previous sessions. Support is forming at $1.3485 and $1.3515 but the market needs to push above $1.3630/$1.3655 to begin to generate some recovery potential. For now this remains a consolidation.
Having been decisively positive for the past few weeks, where the brief corrections have consistently been bought into, the bulls have suddenly started to stutter. In recent sessions, the market has formed either negative or very small bodied candles, none of which suggest the dollar bulls are still in the ascendency. The market has subsequently retreated to the support of what is now a six week uptrend. This is a confluence of support currently around 109.00 in recent days as the momentum indicators have just unwound slightly. It looks as though this could be a chart that is contemplating the next move, and at a near term crossroads. The low in the wake of payrolls was 108.62 which is now below the uptrend (currently around 108.90) and is a key near term level. The momentum indicators show the RSI having unwound to 60 and Stochastics unwound to a level where the buyers have previously resumed control. Furthermore, the MACD lines have converged. This chart now has a feel of being at a tipping point which could easily slip back to the 107.90 breakout. However, a positive candle posted today after a run of indecision could see the bulls resume for 110.00 again. The next day or so could be key for the near to medium term outlook.
The gold bulls continue to hang on to the medium term range support, but are unable to generate any sustainable traction for a recovery. The past few sessions have been very cagey, with little real direction. A downtrend of the past two weeks has been broken and the momentum indicators have ticked slightly higher, however, nothing is convincing about this recovery. The RSI is marginally above 40 but unable to find traction, whilst the Stochastics are unconvincing in their recovery. With the market ticking back lower today there is a reaction high at $1318.50 from yesterday which shows on the hourly chart that resistance continues to grow under $1325. Hourly momentum indicators are beginning to drift back lower again. This is another market where the coming hours and perhaps days will drive some direction, but for now the chart sits at a crossroads. A decisive breach of $1300 opens $1260. The bulls need to pull above $13125 to be confident of a continuation of the range.
After over two weeks of consolidating in a sideways range, WTI has now broken higher through the resistance at $69.55, which completes a range breakout and implies $2.70 of upside projection. The move has taken oil into ever new multi-year highs as the market continues to reclaim ground lost during the huge sell off of 2014/2015. Yesterday’s move above $70 is also another psychological ceiling breached and now the next resistance band $73.25/$78.80, whilst the 61.8% Fibonacci retracement of the $107.75/$26.05 bear market comes in around $76.50 and could also be a consolidation point for a renewed bull run. A sip back has come with uncertainty surrounding Trump’s decision on Iran, and there is now breakout support around $69.50, whilst the key near to medium term support grows at $66.65. Momentum indicators are crossing higher with the Stochastics and MACD lines set up for gains now, whilst the RSI is not even at 70 yet.
Dow Jones Industrial Average
The reaction of the bulls in the past couple of sessions has been remarkable, with an intraday decline to 23,531 last Thursday, being followed by almost unencumbered buying. A bull hammer on Thursday, with a strong bull candle on Friday and now yesterday’s positive candle that has now broken the 14 day downtrend. A move to close above 24,500 would now break a run of lower highs and bring the bulls back in the near term driving seat. The Stochastics have crossed higher, but more confirmation of a stronger position is needed on the RSI (above 60) and MACD lines (rising above neutral) in order to really enable a confident outlook to take hold. The hourly chart shows a more positive configuration developing with a pivot support now growing in importance at 24,200. Moving further above resistance at 24,580 would re-open the key April high at 24,859.
At Hantec Markets Ltd we provide an execution only service. Any opinions expressed by analyst Richard Perry should not be construed as investment advice or an investment recommendation. This report does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. Forex and CFDs are leveraged products which can result in losses greater than your initial deposit. Therefore you should only speculate with money that you can afford to lose. Please ensure you fully understand the risks involved, seeking independent advice if necessary prior to entering into such transactions.